Lawsuit: Inclusion of ‘catastrophic plans’ on marketplaces a ploy to undermine the ACA
A coalition of American cities, joined by healthcare affordability nonprofits, is suing the Trump administration, asking a federal court to halt a recent change to the Affordable Care Act (ACA) that opened the door for so-called “catastrophic plans” to be sold as low-cost options on government exchanges.
The cities of Columbus, Ohio, Chicago, Baltimore and Pima County, Arizona, are joined by Doctors for America, Democracy Forward, and Main Street Alliance in claiming the shift could cause 3 million Americans to lose their existing coverage, and call the policy shift a “continuation of the prior Trump Administration’s years-long effort to undermine the ACA.”
In a statement, plaintiffs said the Final Rule, which was approved by the Centers for Medicare & Medicaid Services (CMS) in May, skirted the “proper legal process” in an “underhanded attempt to end the quality healthcare coverage the ACA provides.”
The lawsuit argues that CMS, at the behest of President Donald Trump, has effectively put new barriers in place that will make it more difficult for those who seek coverage through the ACA to find worthwhile plans that do more than protect against emergencies.
By allowing low-cost limited healthcare coverage plans and out-of-network options to flood government marketplaces, plaintiffs argue Americans will be pushed into paying for “coverage” that’s effectively useless and doesn’t meet their needs.
Higher premiums for all
The CMS Final Rule “Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2027; and Basic Health Program” will cause 2 million people to lose their medical insurance in 2026 alone, the lawsuit contends. In addition, the group fears that lowering the bar for entry onto government marketplaces will “ultimately result in higher premiums in the long term and higher out-of-pocket costs for the remaining enrollees.”
Part of the fear of higher premiums is related to a portion of the rule that allows for cost-saving group-rate initiatives to be applied to catastrophic plans, effectively treating them as if they are full coverage for the purpose of earning tax credits.
In other words, the Final Rule will incentivize employer-sponsored health plans to offer catastrophic coverage, creating a situation where workers lack medical coverage for anything except an emergency—and then still face a potentially huge deductible.
“Small business owners need a healthy workforce and healthy customers to thrive, and the ACA has been a lifeline for both,” Richard Trent, Executive Director of the Main Street Alliance, said. “This rule is a backdoor attempt to strip coverage from millions of Americans, drive up costs, and make it harder for small businesses to attract and retain workers.”
“Main Street Alliance is proud to stand alongside our partners to stop this unlawful attack on the health security that working people and small business communities depend on,” he added.
Beyond executive authority?
The lawsuit maintains that this reduction in quality controls, combined with the loss of expanded subsidies that made plans more affordable, will effectively leave consumers with only these bare-bones options.
But ultimately, regardless of outcome, the lawsuit challenges the authority of CMS to make such a drastic change without an act of Congress. In this case, without even so much as a “reasonable explanation or meaningful response to public comments.”
The new rule is set to go into effect on July 20, unless a federal judge intervenes.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.