21 States Sue to Block 2027 ACA Rule Expanding Catastrophic Health Plans

The 2027 ACA Rule Behind the 21-State Lawsuit

Michigan Attorney General Dana Nessel and a coalition of 21 states filed suit in the U.S. District Court for the Northern District of California challenging the 2027 Notice of Benefit and Payment Parameters, the annual rule the Department of Health and Human Services (HHS) and Centers for Medicare and Medicaid Services (CMS) use to set standards for health plans sold on the Affordable Care Act marketplaces.

The coalition wants the court to block provisions that expand eligibility for catastrophic health plans — policies that are not eligible for premium tax credits, offer limited coverage, and under the new rule could exceed the ACA's annual cap on maximum out-of-pocket costs. The states argue the changes would make coverage more expensive, reduce enrollment and shift costs to consumers, providers and state governments.

In a statement, Nessel said the administration was "stripping coverage from thousands of Michiganders and destabilizing our entire healthcare system." The lawsuit follows a coalition comment letter filed in March 2026 and a separate challenge to the administration's similar 2025 ACA Marketplace rule; a federal court recently vacated several provisions of that rule, and a hearing on remaining claims was held last week in Massachusetts.

HHS itself estimates that the 2027 rule would cause two million people to lose coverage in 2027 alone and five million by 2030, the coalition said. More than 23 million people currently receive coverage through ACA marketplaces.

What the Rule Changes, and What the Court Fight Turns On

The Legal Core: Reimposing Vacated Provisions

The coalition's strongest legal argument is procedural. A federal court has already vacated several provisions of the administration's 2025 rule under the Administrative Procedure Act after finding them unlawful, including income-verification requirements and penalties tied to tax-credit paperwork. The states say the 2027 rule grafts those same requirements back in without fixing the earlier court's objections. Under the APA, an agency that reissues a rule already struck down by a court carries a heavy burden to explain why the new version cures the defect; the states argue HHS did not.

Why Catastrophic Plans Are the Flashpoint

Congress designed catastrophic plans as a narrow exception: coverage for younger or hardship-exempt consumers, with no premium tax credits and high deductibles. The states argue the rule stretches eligibility beyond those statutory limits. Because the plans also become exempt from ACA out-of-pocket maximums under the challenged provisions, a consumer who takes one could face materially higher costs in a bad year than under a standardized ACA plan. The practical effect, the states contend, is a parallel, less protective market that draws enrollees away from subsidized plans and fragments the risk pool.

The HHS Numbers Cut Both Ways

The coalition cites HHS's own estimate that the rule will strip coverage from two million people in 2027 and five million by 2030. That figure is powerful in court because it comes from the agency's own analysis, but it also underscores how contested the policy is: the administration presumably projects that some of those people would move to non-ACA options rather than go uninsured. Either way, the estimate gives the states a concrete, quantified harm to put before the judge.

The Coalition's Broader Strategy

This filing is the second coordinated attack on the administration's ACA rulemaking. The coalition's parallel challenge to the 2025 rule is awaiting a summary-judgment ruling from the U.S. District Court for the District of Massachusetts after a hearing last week, and a related ruling already swept away several 2025 provisions. The California case will determine whether the 2027 expansion of catastrophic plans takes effect as written. For insurers, that creates an awkward planning window: carriers must build 2027 products and pricing before knowing whether the rule survives.

What is established on the record: the lawsuit was filed, the coalition submitted comments in March 2026, a court vacated provisions of the 2025 rule, and HHS's own projections put coverage losses at two million in 2027 and five million by 2030. What remains contested is whether those projections reflect people becoming uninsured or moving to other products, and whether HHS's response to the states' comments satisfies the APA.

What the Challenge Means for Consumers, Insurers and States

The rule is still in litigation, so nothing has changed for consumers shopping today. But the case moves on a defined legal track, and the stakes are concrete for everyone in the 2027 market.

• For consumers: During 2027 open enrollment, check whether a catastrophic plan is eligible for premium tax credits — under ACA rules they are not — and compare its out-of-pocket maximum against the ACA limit the states are challenging. Do not assume all marketplace plans carry the same cost protections.
• For insurers: The Northern District of California case and the pending Massachusetts summary-judgment ruling will determine whether the 2027 catastrophic-plan provisions survive; product and rate filings made before a decision may need to be revisited.
• For states and providers: The coalition's March 2026 comment letter is now part of the administrative record, and the states' arbitrary-and-capricious claim depends on showing HHS failed to respond to it adequately — a decision that will affect how much enrollment-administration burden and uncompensated care lands on state systems.