Q: Who is keeping track of whether I buy health insurance through the exchanges?
A. Although almost everyone has been required to have health insurance since 2014, you are not required to buy your insurance through the exchange. The exchanges are set up to be convenient, one-stop shopping portals for people who don’t have access to affordable employer-sponsored coverage. The exchange is also the only place where you can access an income-based tax subsidy to help cover a portion of the premiums, as well as cost sharing assistance to help eligible individuals reduce their out of pocket limits.
If your employer offers affordable health insurance, you don’t need to shop in the exchange. If you’re purchasing individual coverage but you’re not eligible for an income-based subsidy and you’d rather buy outside of the exchange, you can do so.
But it’s important to understand that if you buy your plan outside the exchange and later in the year your income falls to a level that would be subsidy-eligible, you won’t have an opportunity to claim the subsidy at that point, or when you file your tax return. You’ll only be able to switch to an exchange plan (and therefore access the subsidies) during open enrollment for the coming year, or if you experience a qualifying event. But loss of a job and/or a drop in income does not count as a qualifying event for people not already enrolled in the exchange.
Regardless of where you get your health insurance, you (and the IRS) will get a tax form from your employer, insurance company, or exchange each year showing that you had coverage during the previous year. The information on these forms is used to complete your tax return and – if applicable – reconcile your premium subsidy on your return.
So in summary, the exchange keeps track of who gets exchange-based coverage, and reports that information to the IRS. But health insurers and employers also report information to the IRS, for people who get their coverage elsewhere. And tax returns now ask everyone whether or not they had health insurance throughout the year. The information that’s reported from employers, insurers, and exchanges is used to verify the information that tax filers provide to the IRS when they file their returns.