Can Your Cafeteria Plan Pass the Test?

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill (“OBBB”) Act. The OBBB made some significant changes to employee benefits, effective in 2026, including the expansion of health savings accounts (“HSA”) eligibility to more plans. 

In addition, the Department of Health and Human Services (“HHS”) released new guidance expanding access to catastrophic coverage for consumers. HHS views the expansion as critical to giving consumers access to affordable health insurance as significant subsidies in the Marketplace expire. 

Plan sponsors will want to consider their employee demographics in making any changes to their cafeteria plans to accommodate the changes in the law. 

Expanded High-Deductible Health Plan Definition 

The OBBB took a significant step forward by adding both Marketplace Bronze and catastrophic plans to the definition of a high-deductible health plan (“HDHP”) that now qualifies for HSA contributions. This inclusion is made regardless of the deductible for the Bronze or catastrophic Plans, which opens up new possibilities for health coverage. Currently, the Bronze plans' deductibles average around $7,200, while the catastrophic plans' deductibles can be as high as $10,600 for an individual and $21,200 for a family. 

Employers must review their cafeteria plan documents and, if necessary, alter their plan document definition of an HDHP to incorporate Bronze and catastrophic plans in its definition. Most documents do include the new definition by reference to IRC Sec. 223(c). This proactive step will keep your plan in compliance with the latest regulations. 

Secondly, unless the cafeteria plan limits HSA contributions to the employer's HDHP, it must accommodate employee HSA elections for those with Bronze and catastrophic coverage. Most plans do not distinguish between the employer’s HDHP or other coverage. Employers may wish to communicate the expanded HSA opportunity to their employees. As a reminder, the cafeteria plan cannot allow pretax coverage for any Marketplace coverage. 

Employers sponsoring Individual Coverage Health Reimbursement Arrangements (“ICHRA”) should consider adding an HSA benefit to their cafeteria plan for employees with Bronze or catastrophic coverage. 

Expanded Access to Catastrophic Coverage 

The newly released guidance from HHS expands access to catastrophic coverage for consumers who are ineligible for advance payments of the premium tax credit ("APTC") or cost-sharing reductions ("CSRs"). Under this guidance, more individuals will be able to qualify for catastrophic health coverage based on their need, beginning November 1, with the start of open enrollment for 2026. 

In the 2025 Marketplace, only 54,109 people purchased catastrophic health plans nationwide, representing a tiny fraction of the more than 24 million people enrolled in the Affordable Care Act (“ACA”) Marketplace. However, as the enhanced premium tax credits are set to expire at the end of 2025, consumers can expect increases in both the net premium payments and gross premiums. Net premiums are the amount paid by individuals after accounting for the premium tax credit. The expiration of the enhanced tax credit will mean the federal government pays less of the total premium, and the enrollee pays more than they would have previously paid. On average, the expiration of the enhanced tax credits will result in an over 75% increase in enrollee premium payments. The impact will vary depending on income and family composition. 

There will also be gross premium increases, as healthier people are expected to drop their coverage in larger numbers due to increases in their net premium payments. This decrease in healthy individuals will lead to a sicker risk pool, on average, and the Congressional Budget Office (“CBO”) projects that the average gross benchmark silver premiums will ultimately be 7.9% higher than they would otherwise be without the subsidies. This increase means that many enrollees will become uninsured. Therefore, younger and healthier consumers will more likely enroll in Bronze and catastrophic coverage. 

For Marketplace 2025 coverage, about 30% of place enrollees selected Bronze Plans. Given the revised definition of an HDHP and the eligibility of Bronze Plans to make HSA contributions, a consumer facing the loss of subsidies in 2026 may find that contributing to an HSA can bring their Modified Adjusted Gross Income ("MAGI”) into the subsidy-eligible range. 

Catastrophic plans generally have lower monthly premiums, are designed to protect consumers from very high medical costs in the event of serious illness or injury, and are required to cover three primary care visits pre-deductible. Consumers under the age of 30 have always been eligible for catastrophic plans through HealthCare.gov; however, the expanded exemption will allow individuals of any age to apply for an exemption to enroll in catastrophic health coverage if they are ineligible for APTC or CSRs. Under the new guidance, individuals may qualify for a hardship exemption to purchase a catastrophic plan on or off the  Marketplace  if they are determined or expect to be ineligible for APTC or CSRs based on their projected annual household income. HHS plans to begin streamlining this process for consumers ineligible for APTC due to income and expand to consumers who are over 250% of the federal poverty level and are only ineligible for CSRs. 

Beginning November 1, 2025, individuals can apply for the hardship exemption in two ways. The first is to apply online for Marketplace coverage on HealthCare.gov or through a certified enhanced direct enrollment partner. Household income will be reviewed as part of the application process. The second option is to submit a hardship exemption form by mail. 

HHS may approve an individual for a different hardship reason other than the one originally requested when reviewing a completed and signed paper hardship exemption application, if: (i) the consumer has completed and signed their hardship exemption application; and (ii) the accompanying documentation or written explanation provided by the individual meets the established criteria for another applicable hardship reason not attested to on their application. 

Conclusion 

The number of consumers who will apply for catastrophic health insurance in 2026 is unknown, but expected to be significantly higher due to a recent expansion of eligibility for these plans, which will allow millions more consumers to qualify. Employers should be ready to respond with expanded cafeteria plan benefits to accommodate their employees and the changes in the law.