What are off-exchange health plans and who should consider them?
- Off-exchange plans are ACA-compliant but sold outside the ACA’s exchanges.
- On-exchange versus off-exchange: What you need to know
- Should you pick an exchange plan, or an off-exchange plan?
- What to know if you’re using the off-exchange “silver switch”
- New special enrollment period makes it easier to switch from off-exchange to on-exchange mid-year.
- “Enhanced direct enrollment” via a web broker is on-exchange enrollment.
- On-exchange vs. off-exchange: Plan design and pricing may differ.
- Pediatric dental: You have to buy it if you go off-exchange.
- Plans that aren’t major medical coverage aren’t regulated by the ACA.
One of the primary provisions of the ACA was to overhaul the individual health insurance market. The law did away with medical underwriting, gender-based premiums, and skimpy policies with exorbitant out-of-pocket exposure, and it narrowed the premium gap between younger and older insureds. Annual and lifetime benefit maximums were eliminated for all essential health benefits.
Buying a policy in the individual market is now a realistic option for a lot more people. And the ACA’s health insurance exchanges (marketplaces) in each state make it easy to compare policies, enroll in a plan, and receive a subsidy if you’re eligible.
But they’re not the only option. Although much of the media attention on individual health insurance is often focused on the exchanges, individual health insurance policies are also available off-exchange in every state (but not in the District of Columbia), and can be a good choice for some consumers.
An off-exchange plan is just a health insurance policy that is purchased directly from the carrier or through an agent or broker, outside of the official ACA-created health insurance exchange.
When we refer to “off-exchange” plans, we’re only talking about major medical coverage — that, the plans to which ACA regulations apply. A plethora of “excepted benefit” plans are also sold outside the exchanges in most states, and are exempt from ACA regulations. But as described below, our discussion of off-exchange plans only refers to ACA-compliant plans sold outside the exchanges.
Enrollment data for off-exchange plans is not tracked as closely as exchange enrollment data, but it was estimated at more than 5 million people in 2015 and 2016. It declined fairly quickly in 2017 and 2018, which was unsurprising given the magnitude of the premium increases in the individual market in those years. By 2019, off-exchange enrollment in ACA-compliant plans stood at only about 2.1 million people.
For the majority of exchange enrollees, rate increases are mostly offset by increasing premium subsidies. But off-exchange enrollees bear the full brunt of the rate hikes each year, as subsidies are not available off-exchange (many off-exchange enrollees wouldn’t be eligible for subsidies even if they enrolled in the exchange — but some would).
Off-exchange plans are not available in the District of Columbia. Regulators there determined that coverage would only be available through the exchange. In Vermont, off-exchange plans were not available in 2014 or 2015, but “full-cost individual direct enrollment” (ie, off-exchange) became available in Vermont starting in 2016.
On-exchange vs. off-exchange
Obamacare‘s consumer protections apply to all individual major medical policies, regardless of whether the coverage is sold in the exchange. In addition to the basic requirements to which all policies must now adhere, plans that are sold in the exchanges must also be certified as qualified health plans (QHPs).
QHP certification is granted by the exchanges, and can vary from one state to another. The exchanges can set QHP requirements that exceed the basic guidelines of the ACA. (Pages 33-38 of this HHS brief are helpful in understanding this.)
Although all of the plans sold in the individual market – on or off the exchange – must meet the ACA’s requirements, QHPs can be required to comply with additional standards that vary from one state to another. QHPs in all states must offer at least one gold plan, one silver plan and one child-only plan (as of 2018, this rule has been tightened up, requiring QHP issuers to offer at least one gold plan and one silver plan in each area where they offer exchange coverage; they are not allowed, for instance, to offer a silver plan and a gold plan in limited areas within a state, and then offer only bronze plans in other areas of the state)
QHPs can also be sold off-exchange. Some carriers are choosing to sell their certified QHPs both on and off-exchange (with all enrollees in the same pool for risk-sharing purposes) – but policies sold off-exchange do not have to be certified as QHPs.
They are still good quality plans though. The days of Swiss-cheese coverage are over, regardless of how policies are purchased. And off-exchange plans are guaranteed issue regardless of medical history, just like policies in the exchanges. The same open enrollment dates apply outside the exchange, and most of the special enrollment period rules also apply to plans purchased outside the exchange.
To enroll … or not … in an ACA exchange
The exchange is the best option for people who qualify for premium subsidies and cost-sharing subsidies, as subsidies are only available for plans purchased in the exchanges. In October 2016, HHS estimated that there were 2.5 million people with off-exchange coverage who would be eligible for subsidies if they switched to the exchange instead. Some of those people might be aware of the subsidies in the exchange but may have opted for off-exchange plans for reasons other than cost. But it’s also likely that a good number of those folks weren’t aware of how much less they could be paying in premiums if they switched to the exchange.
Premium subsidies were larger than ever in 2018, after rising sharply in both 2017 and 2018. But the subsidies were almost unchanged from 2018 to 2019: In states that use HealthCare.gov, the average subsidy amount was $468/month in 2018, and $469/month in 2019. Unlike 2017 and 2018, when benchmark plan premiums rose sharply (resulting in larger subsidies), average benchmark premiums actually decreased slightly for 2019. And benchmark premiums are decreasing again for 2020, which will result in another decrease in average subsidy amounts (but those are just averages; the changes are all over the map when we look at specific areas, both in terms of the size of the subsidies people receive and the changes in their after-subsidy premiums).
In some areas since 2018, people have found that they can get bronze plans for free or nearly-free, or gold plans for less than the cost of a silver plan. This is due to the way states and insurers are handling the loss of federal funding for cost-sharing reductions, and the resulting impact that’s had on premiums (these ultra-low-cost bronze plans and low-cost gold plans are still available in some areas in 2020, although it’s not as widespread as it was in 2019).
To make a long story short, don’t assume you aren’t eligible for subsidies without actually going to the exchange website and checking (a family of four qualifies for subsidies in 2020 with a modified adjusted gross income as high as $103,000), and know that the subsidies might be far larger than you were expecting. But you can’t get them if you shop off-exchange.
“Silver switch” approach to CSR funding pushes some enrollees towards off-exchange plans
In the fall of 2017, the Trump Administration announced that the federal government would no longer fund the ACA’s cost-sharing reductions (CSR). States and insurers took varying approaches to address this, but the most common strategy was to add the cost of CSR to silver plan premiums, since CSR benefits are only available on silver plans. The resulting increase in silver plan rates meant that premium subsidies grew significantly for 2018 in many states (since the premium subsidy amounts are based on the cost of silver plans), and have remained disproportionately large ever since, making many subsidized enrollees better off than they would otherwise have been.
But what about people who don’t get premium subsidies? Regulators realized that if those enrollees wanted to buy silver plans, they’d be stuck with the higher premiums. So some states and insurers opted to add the cost of CSR only to on-exchange silver plan rates, and create slightly different off-exchange versions of those plans, without the cost of CSR added to the premiums (in some states, the off-exchange plans are identical to the on-exchange versions, but the cost of CSR has only been added to the on-exchange version; CMS eliminated the “meaningful difference” rule altogether as of 2019). And the majority of the states took this “silver switch” approach for 2019. The result is lower-cost off-exchange silver plan rates, compared with the on-exchange silver plan rates, for people who don’t qualify for premium subsidies. This is considered the strategy that’s most protective for the greatest number of consumers.
But there was also a downside to this approach in 2018 and 2019, because consumers couldn’t switch from an off-exchange plan to an on-exchange plan in the middle of the year unless they had a qualifying event — and a change in income has not thus far been considered a qualifying event unless the person was already enrolled in a plan through the exchange (as described below, HHS has created a solution that should be available in most states by 2020). So if you were in a state that allows the “silver switch” option and your income was too high for premium subsidies, you could sign up for a lower-cost off-exchange silver plan during open enrollment. But if your income dropped during the year to a subsidy-eligible level, you wouldn’t have been able to switch to an on-exchange plan at that point. You’d essentially have been stuck with your full-price off-exchange plan until the end of the year.
So people who weren’t 100 percent sure of their income for the coming year were taking a bit of a gamble by utilizing the silver switch option and buying a lower-cost silver plan outside the exchange during open enrollment. [It’s worth noting that a potential solution was to buy an on-exchange bronze or gold plan in this situation, instead of a silver plan. The cost of CSR wouldn’t be added to the premiums, but premium subsidies would be readily available if an income change mid-year resulted in subsidy eligibility.]
Switching from off-exchange to on-exchange mid-year: New HHS rules make it easier as of 2020
From 2014 through 2019, there was no way to switch mid-year from an off-exchange plan to an on-exchange plan if you experienced a change in income that made you subsidy-eligible (assuming you didn’t simultaneously have a qualifying event, such as a permanent move to a new area). That was because a change in income to a subsidy-eligible level was not considered a qualifying event unless the person was already enrolled in an exchange plan.
But in the Benefit and Payment Parameters for 2020, HHS finalized a new special enrollment period [which has been added to CFR 155.420 in paragraph (d)(6)(v)] that allows people with off-exchange coverage to switch to an on-exchange plan if they experience a change in income that makes them newly eligible for subsidies in the exchange. HHS anticipates having this special enrollment period available via HealthCare.gov “after January 1, 2020” and they note that the special enrollment period will be optional for state-run exchanges; they can offer it or not, at their discretion (this is clarified in the language that has been added to CFR 155.420(d)(6)(v), which says that the special enrollment period is available “at the option of the exchange”).
To utilize this special enrollment period, consumers will have to provide proof of their off-exchange coverage (they must have been enrolled in it for at least one of the 60 days prior to the change in income) as well as proof of the income change that makes them newly-eligible for premium subsidies. HHS estimates that about 4,700 people will use this special enrollment period on an annual basis once it’s implemented.
This special enrollment period will be a significant change. People with employer-sponsored health coverage that becomes unaffordable have always had access to a special enrollment period in the exchange, but people with off-exchange health coverage were locked out of switching to more affordable, subsidized coverage if and when they experienced a change in income during the year. This issue became even more important when the federal government stopped reimbursing insurers for cost-sharing reductions and insurers began adding the cost to premiums. In many cases, they’ve added the cost only to on-exchange silver plan rates, meaning that for people who don’t get premium subsidies, off-exchange silver plans are less expensive than on-exchange silver plans in some areas. But in 2018 and 2019, in order to take advantage of this cost savings, enrollees had to fully commit to the off-exchange plan for the whole year — even if their income dropped mid-year into a range that would have made them subsidy-eligible.
With the new special enrollment period, people who opt for an off-exchange plan during open enrollment (because they don’t qualify for premium subsidies and either prefer an option that’s only offered off-exchange, or want to take advantage of lower-cost off-exchange silver plans) will have the option to switch to an on-exchange plan mid-year if their income makes them newly subsidy-eligible. It should be noted, however, that switching to a new plan mid-year means that you start over with your out-of-pocket costs for the year under the new plan. Depending on your circumstances, this may or may not be offset by the newly-available premium subsidies, but it’s something to keep in mind.
We don’t yet know whether all of the state-run exchanges will offer this special enrollment period. But with the exception of Idaho, Medicaid has been expanded in all of the states with fully state-run exchanges (and Idaho has begun the process of obtaining federal approval for a modified version of Medicaid expansion). If you’re in a state that has expanded Medicaid and you lose your job mid-year or have a very significant decrease in income, you may qualify for Medicaid based on your new monthly income. If your income later increases, it may make you eligible for premium subsidies instead of Medicaid. You would report your new income to the exchange, and the resulting loss of Medicaid would trigger a special enrollment period that would allow you to sign up for a plan in the exchange. This is potentially a way to go from off-exchange to on-exchange coverage mid-year even if your state’s exchange doesn’t offer the new special enrollment period described above, but it would require Medicaid in the middle, and then a loss-of-coverage SEP when Medicaid ends.
“Enhanced Direct Enrollment” is on-exchange enrollment
As of 2019, the “enhanced direct enrollment” (EDE) process allows consumers (in states that use HealthCare.gov) to enroll in an on-exchange plan via approved web brokers’ and insurers’ sites, without having to visit HealthCare.gov (additional information available here and here). This is an updated version of the “proxy direct enrollment pathway” that was available in 2018. CMS has published a list of the entities that have been approved to use the EDE process for 2020.
Enhanced direct enrollment is still considered “on-exchange” — even though the consumer doesn’t visit HealthCare.gov — as the information you provide on the insurer’s or web broker’s site will be transmitted to HealthCare.gov and you’ll be enrolled in an on-exchange plan (the enhanced direct enrollment system that HHS has created is only applicable to the states that use HealthCare.gov; state-run exchanges that use their own enrollment platforms can establish their own direct enrollment pathways if they wish to do so).
HHS prohibits web brokers from basing their plan display on compensation that the web broker receives from insurers. And if a web broker is offering non-QHPs in addition to QHPs, they have to be marketed in a way that minimizes consumer confusion and prevents people from inadvertently enrolling in a non-QHP when they’re trying to shop for a QHP.
If you’re working with a web broker and you’re not sure how your enrollment is being processed, ask questions. Web brokers certified with HealthCare.gov can enroll people on-exchange using the enhanced direct enrollment path, but they are generally also willing and able to enroll people in off-exchange plans if that’s what best fits the consumer’s needs.
So using a broker does not mean that you’re going off-exchange. Brokers can assist you with the process of enrolling directly via the exchange, or they can help you complete your exchange enrollment (in a HealthCare.gov state) using the enhanced direct enrollment pathway. If you call one of healthinsurance.org’s partners at 1-855-367-0132, you’ll be connected with a licensed, exchange-certified broker who can enroll you in an ACA-compliant plan, on or off-exchange — the choice is yours.
Plan design, pricing may differ between on- and off-exchange plans
If an insurance carrier sells individual market plans both on- and off-exchange, all of those plans are combined into one risk pool for rate-setting purposes. So although the off-exchange population tends to be wealthier (generally not eligible for subsidies) and that correlates with healthier, the insurer still has to combine the total individual market experience into one pool to set rates.
The on- and off-exchange plan rates can be different, however, if the plan designs and/or provider networks are different. And as described above, insurers in some states are adding the cost of CSR only to on-exchange silver plans, making their off-exchange silver plans less expensive than their on-exchange silver plans. Some states require the insurers to make slight changes to the policies in order to sell the off-exchange version without the cost of CSR added to the premium. But it’s also possible that a plan with no discernable differences might be available on and off-exchange in your area with different prices, due to the CSR load being added to on-exchange plans and the elimination of a federal rule that required “meaningful difference” between plans. If you’re not eligible for premium subsidies and you want a silver plan, an off-exchange version might be a better option.
Some insurers only sell off-exchange plans, which allows them to better target wealthier — and thus generally healthier — enrollees. If you’re in a state where there are different carriers offering plans in the on- and off-exchange markets, you’ll need to compare both if you’re not eligible for a premium subsidy. If you are eligible for a premium subsidy, be aware that selecting an off-exchange plan means you’re forfeiting your subsidy, and you won’t have an option to claim it on your tax return after the year is over.
Brokers who are certified to sell exchange policies should be able to provide you with both on- and off-exchange options, all in one place. Be aware that the open enrollment window for individual health insurance applies both on- and off-exchange. For 2020 coverage, the open enrollment window runs from November 1, 2019 through December 15, 2019 in nearly every state.
If you qualify for a subsidy, stick with the exchange. But if you don’t, take your time, compare all of the options, and then apply for the policy that makes the most sense for your situation. The ACA has improved the quality of coverage in the individual market and has also expanded the options that are available for many people, thanks to guaranteed issue coverage and subsidies. Even though the exchanges are a heavily publicized part of the ACA, the improvements from the law extend to off-exchange plans as well. Consumers can feel confident regardless of which option they choose.
Pediatric dental: You have to buy it if you go off-exchange
Pediatric dental – one of the ACA’s essential health benefits – could also play a role in your decision. In most states, you can purchase coverage in the exchange that does not include pediatric dental, as long as the exchange offers stand-alone dental plans.
There are some exceptions: some states require pediatric dental to be embedded in all health plans; in some cases, carriers have simply opted to embed pediatric dental; and in some states, pediatric dental is sold as stand-alone coverage but cannot be waived – the specifics vary considerably from one state to another).
But off-exchange, you cannot avoid purchasing pediatric dental (although you should be able to get a zero-premium pediatric dental plan if you don’t have children). For some enrollees, this is a compelling reason to shop in the exchange, if they’d rather not purchase pediatric dental coverage.
Plans that aren’t major medical coverage are not regulated by the ACA
Since some types of coverage are not regulated under the ACA, a caveat is necessary here.
All non-short-term major medical health insurance plans with effective dates of January 1, 2014 or later are required to be ACA-compliant. This is true whether they’re sold in the exchange or off-exchange.
But there are a variety of coverage types that are not regulated by the ACA. They include limited-benefit plans, short-term coverage (sometimes called short-term major medical), discount plans, critical illness plans, accident supplements, health care sharing ministry plans, and Farm Bureau plans in states that have agreed to allow such plans to operate as “non-insurance” plans.
These plans are sold outside the exchanges, but they’re not what we’re talking about when we say “off-exchange plans.” In most cases, they are not what people think of as “real” health insurance, and they do not conform to the regulations laid out in the ACA. In general (with the exception of short-term health insurance to bridge a short gap in coverage, Farm Bureau plans, and possibly sharing ministry plans), they’re not designed to serve as stand-alone coverage. And in most cases, relying solely on them for your health coverage could leave you sorely underinsured.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.