I earn too much to qualify for a subsidy. Why should I buy through the exchange?

Q. I buy my own health insurance and earn a little too much to qualify for the subsidies – premium tax credits – that are available for coverage purchased through ACA’s Marketplace. If I'm not getting a tax credit, is there any reason I should shop in the exchange / Marketplace?

A. Whether or not you qualify for subsidies, you have the option to shop for ACA-compliant individual coverage outside the Marketplace everywhere except Washington, DC. (Insurers in the District of Columbia are only allowed to offer coverage through the exchange.)¹ Even if you are eligible for subsidies, there is no requirement to shop on the exchange. You can shop off-exchange if you like, but you won't be able to claim the subsidies – which are a tax credit – either upfront, or on your tax return.

On-exchange and off-exchange: Individual market is ACA-compliant either way

All individual-market health insurance plans with effective dates of January 2014 or later are fully compliant with the ACA, regardless of whether they're sold in the exchanges or outside the exchanges. They all cover the essential health benefits, cap out-of-pocket costs, include coverage for pre-existing conditions, and do not place dollar limits on lifetime or annual benefits.²

In addition, carriers have to put all of their individual-market plans in a state in a single risk pool for the purpose of setting rates, so it doesn't matter if enrollees in a carrier's on- and off-exchange plans collectively have different health care needs and will use health insurance differently. Everyone is counted together.³⁴ (Carriers that only sell off-exchange plans obviously don't have any on-exchange business to mix into their risk pool.)

Pros and cons of shopping in the exchange – or not – even if you're not subsidy eligible

If you start the year with an income that makes you ineligible for a subsidy (or another situation that makes you ineligible for subsidies, such as an offer of coverage from an employer that you've decided to decline in order to purchase your own coverage), you might decide to enroll in a plan outside the exchange.

Your subsidy eligibility might change later in the year, but only plans purchased through the exchanges are eligible for premium subsidies or cost-sharing subsidies. So when you become eligible, you'd have to be willing and able to switch to an on-exchange plan in order to take advantage of the subsidy eligibility.

In order to do that, you generally need to have a qualifying event that would trigger a special enrollment period. The list of qualifying events is relatively comprehensive, and since 2020 it does include a change in subsidy eligibility. But switching to a new plan mid-year could mean that your deductible and out-of-pocket maximum reset to $0. If you switch, be sure to check with the insurer to see if they'll allow you to carry over your accumulated out-of-pocket expenses to your on-exchange version of the plan, but understand that they are not required to do so.

If you are already enrolled in a plan through the exchange, paying the entire premium yourself (assuming it's not a catastrophic plan, for which subsidies cannot be applied), and are happy to keep your current plan, you could just notify the exchange of your change in income or circumstances and start receiving a subsidy at that point.⁵

Alternatively, you could opt to continue to pay full price for your plan and claim the full amount of your premium tax credit on your tax return. You would need to notify the exchange of your income change if you want to activate your special enrollment period triggered by your new subsidy-eligible status. But if you’re happy with your plan and want to wait until you file your taxes to claim your premium tax credit, you do not have to provide any financial information to the Marketplace (at any time, whether it’s during the enrollment process or after a mid-year income change).

On the other hand, if the plan you need (due to a certain provider network or covered drug list, for example) is only offered outside the exchange, you may have a compelling reason to shop outside the exchange before you become eligible for a subsidy.

And if you want to purchase a Silver plan and aren't eligible for a subsidy, you might find that the plan is less expensive if you shop off-exchange. This is due to the way insurers in most states have dealt with the fact that the federal government no longer reimburses them for the cost of cost-sharing reductions (CSR). The most commonly used solution, known as silver loading, involves adding the cost of CSR to on-exchange silver plans.⁶ But it's also possible to avoid the cost of CSR in most states by purchasing a non-silver plan in the exchange, which might prove to be the best solution for some enrollees.

It's also important to note that if your employer offers an ICHRA and also offers to allow you to payroll deduct your portion of the cost of the plan (meaning the share of the premium that's left over after the ICHRA benefit is applied), you can only take advantage of that payroll deduction option if you buy your health plan off-exchange.⁷

Payroll deduction allows you to use pre-tax dollars to pay your share of the premium, so this is an important consideration to keep in mind if you're offered an ICHRA plus payroll deduction of your share of the premium. And if you're utilizing an ICHRA, you aren't eligible for premium tax credits in the exchange, so you're not missing out on any financial benefits by shopping off-exchange.⁸

Non-regulated coverage considerations

It's also important to note that there are still health plans on the market that are not regulated by the ACA. To be clear, the ACA’s individual-market requirements apply regardless of whether a plan is sold on-exchange or off-exchange, but ACA rules do not apply to plans that aren’t considered individual-market coverage. Such plans include things like short-term health insurance, limited-benefit policies, accident supplements, critical illness insurance plans, and health care sharing ministry plans.

You can still buy these plans, but they are not designed to serve as stand-alone coverage. If you're shopping off-exchange, make sure that the plans you're considering are actually individual-market major medical coverage, rather than plans that are exempt from ACA regulations.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written hundreds of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.