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

Q. I buy my own insurance, and earn a little too much to qualify for the government subsidies that are available in Obamacare’s exchanges. If I’m not getting a tax credit, is there any reason I should shop in the exchange?

A. If you don’t qualify for subsidies, you have the option to shop outside the exchange, everywhere except DC and Vermont, where there is no off-exchange market (even if you are eligible for subsidies, nobody is forcing you to shop in the exchanges – you can shop off-exchange if you like, but you won’t be able to claim the subsidies, either up-front, or on your tax return).

ACA-compliant either way

All individual 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.

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 a carrier’s on and off-exchange plans have different levels of enrollee health; everyone is counted together (carriers that only sell off-exchange plans obviously don’t have any on-exchange business to mix into their risk pool).

Subsidy eligibility might change during the year

But only plans purchased through the exchanges can be eligible for premium subsidies or cost-sharing subsidies.

And it’s important to note that if you initially pick an off-exchange plan, you won’t be eligible to switch to an exchange plan until the next open enrollment period or until you experience a qualifying event and have a special enrollment period. The list of qualifying events is relatively comprehensive, but it does not include job loss or a decrease in income, unless you’re already enrolled in an exchange plan and the income change makes you newly-eligible or newly-ineligible for subsidies (premium subsidies or cost-sharing subsidies).

So for example, let’s say you enroll off-exchange during open enrollment because you’re self-employed and earning more than 400 percent of the poverty level. Now let’s say your business volume drops in June, and your income decreases. If you had been enrolled in a plan through the exchange, you could have started receiving premium subsidies as soon as your income dropped, OR you could have kept paying full price through the exchange, but claimed your premium subsidy on your tax return the following spring. But since you enrolled off-exchange, neither of those options are available to you, and you won’t have the ability to switch to a subsidy-eligible plan in the exchange until the following January (ie, enrolling during open enrollment) unless you have a qualifying event during the year.

So if there’s even the smallest possibility that your income might end up being subsidy-eligible, enroll through the exchange. You can even skip the initial subsidy-eligibility determination process if you want, and simply claim any applicable subsidy when you file your taxes.

Non-regulated plans

It’s also important to note that there are still health plans on the market that are not regulated by the ACA. These plans are sold outside the exchange, and they are NOT marketed as individual major medical health insurance. They include things like short-term health insurance, limited benefit policies, accident supplements, and critical illness plans.

You can still buy these plans, but they are generally not designed to serve as stand-alone coverage (with the exception of short-term plans, which HHS has recently proposed limiting to less than three months in duration). If you’re shopping off-exchange, make sure that the plans you’re considering are actually individual major medical coverage, rather than excepted benefits.

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