Trump Administration Signals an Important Move Toward Longer-Term, More Flexible Health Insurance

I recently wrote that the 2027 Notice of Benefit and Payment Parameters (NBPP)—the annual Affordable Care Act (ACA) exchange rule—is the best that the Centers for Medicare and Medicaid Services (CMS) has ever proposed. The rule includes important program integrity measures to address improper and phantom enrollment in the exchanges, but its most consequential provisions expand coverage options and plan design flexibility.

A key innovation is allowing ACA catastrophic plans to be offered for multiple consecutive years—potentially up to 10 years—while permitting additional flexibility to cover certain high-value services before the deductible under a value-based insurance framework. The rule envisions allowing cost-sharing limits to vary over the life of a multi-year contract and allowing  out-of-pocket amounts to vary by disease and over time. For example, lower limits in later years would encourage enrollees to remain in the plan over time.

CMS’s proposal recognizes that people have vastly different health insurance preferences. Maximizing flexibility in coverage design will be essential if the rule is to help families and reorient the health sector toward value. It is crucial that the final rule permits maximum flexibility in plan design, including allowing lower deductibles in later years and the amortization of deductibles—where cost-sharing is spread more evenly over the course of a contract.

It is worth considering whether shopping for health insurance needs to be an annual occurrence or whether Americans should have access to longer-term coverage products. Longer-term plans could provide many American consumers with greater certainty and more attractive features because insurers will know that customers are sticking with them longer, enabling features such as smarter investments in preventive health care and disease management. Plans would also benefit from reduced marketing, retention, and administrative costs, allowing more resources to be directed toward improving value for enrollees. A longer coverage horizon also allows insurers to spread risk over more time, which—if paired with mechanisms that discourage early disenrollment—can reduce monthly premiums by improving the predictability of costs.

Misaligned Incentives with Traditional Health Insurance Plans

Earlier, lower-cost interventions—such as preventive care, chronic disease management, and lifestyle changes—can delay or reduce the severity of illness over time. Yet because of short-term contracts, insurers often lack incentives to invest in interventions that improve long-term health. Studies suggest that, on average, fewer than one in five individuals remain with the same insurer over a five-year period. Under the current framework, if an insurer invests today in improving an enrollee’s health by incentivizing healthy behaviors or cost-effective preventive care, the financial benefits of that investment often accrue to a different insurer tomorrow. As a result, insurers tend to focus on short-term cost management and not long-term health maintenance.

Better Incentives from Longer-Term Plans

A better system would encourage insurers to think long-term. When insurers expect to cover individuals over a longer time horizon, they have stronger incentives to invest in prevention, care management, and high-value services that are most likely to reduce costs and improve health over time.

Longer-term insurance products would allow health insurance to function more like other types of insurance. Americans routinely purchase life insurance, disability insurance, and long-term care insurance with longer time horizons. Car insurance and homeowners’ insurance are typically renewed with little effort, often with incentives for good behavior such as a history of no accidents. Health insurance is the outlier—despite being one of the most expensive and consequential forms of coverage.

More Flexibility Around Deductibles is Needed

Insurers’ existing short-term focus affects how they structure deductibles. Most enrollees have a high annual deductible that they never meet, so the plan pays few, if any, of their expenses each year.

The annual deductible structure also distorts enrollee behavior. Individuals who have already met or nearly met their deductible have an incentive to concentrate additional spending in the current year, while those who are far from meeting their deductible may avoid needed care altogether.

Greater flexibility in how deductibles are structured—such as allowing carryover across years, reducing amounts over time, or smoothing cost-sharing exposure—would better align incentives for both patients and insurers. Insurers should also have the flexibility to spread cost-sharing over time rather than concentrating it at the start of each year.

CMS has also proposed allowing more flexible cost-sharing structures, including designs that could smooth cost-sharing over time, a step that could support approaches such as deductible amortization. In practical terms, this could significantly reduce financial volatility for consumers. Instead of facing a $10,000 deductible or higher that resets each January, individuals could face more predictable, manageable out-of-pocket costs, such as $800 to $900 in monthly cost-sharing, which better aligns with how many households manage their finances. Longer-term contracts with this flexibility would help individuals manage high-cost events without facing large, immediate financial shocks. Moreover, this approach reduces liquidity barriers, improves the perceived affordability of coverage, and can increase take-up of lower-premium catastrophic plans.

The Costs of Annual Plan Shopping

For many Americans, the annual open enrollment period for health insurance can be frustrating and time-consuming. Consumers must navigate provider networks, formularies, and cost-sharing structures—along with escalating premiums as health care costs rise. Every year, insurers incur substantial administrative and marketing costs to attract and retain enrollees. Longer-term plans would allow them to redirect a portion of these resources to lowering costs or improving plan features.

Flexibility Is the Key to Making It Work

The success of multi-year plans will depend on giving insurers flexibility to design products that people find valuable. Insurers taking multi-year risk should be able to invest in services that improve long-term health and reduce downstream costs—such as enhanced primary care access, chronic disease management, and targeted preventive services.

CMS’s proposal recognizes this by allowing multi-year catastrophic plans to cover additional preventive services before the deductible under a value-based insurance design framework, in which plans can reduce or eliminate cost-sharing for high-value services to ensure that cost-sharing is more closely aligned with clinical value rather than applied uniformly. To maximize the benefit to families, the legal framework should permit plans with the following features:

• Premium stability constructs and benefit designs that reward long-term, continuous enrollment
• Deductible design flexibility, including amortization and carryover across years
• Flexibility for covering preventive services before the deductible
• Incentives for healthy behavior, including HSA contributions
• Freedom from arbitrary risk adjustment transfers

To disrupt our broken health care sector, we need improved ways to finance health care—with more patient control and better incentives for cost-effective preventive services and good health behavior. Moving toward longer-term, more flexible coverage is a long-overdue and important step in that direction.