Should you look outside the ACA’s exchanges?

How your individual health coverage differs – and how it doesn't – when you shop for insurance outside Obamacare's marketplaces

What are off-exchange health plans and who should consider them?

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 an analysis by Mark Farrah Associates estimated in July 2017 that off-exchange enrollment stood at about 5.4 million people. It is undoubtedly lower in 2018, due to the rate increases that applied in the individual market for 2018. For the majority of exchange enrollees, the 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 (for 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 aren’t aware of how much less they could be paying in premiums if they switched to the exchange.

Premium subsidies are larger than ever in 2018, and will grow again in 2019. In some cases, people are finding that they can get bronze plans for 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. 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 will qualify for subsidies in 2019 with an income over $100,000), and know that the subsidies might be far larger than you were expecting. But you can’t get them if you shop off-exchange.

It’s also important to note that if you begin the year with an income that isn’t subsidy eligible and then your income drops during the year to a level that would make you eligible for a subsidy, you would only be able to start getting a subsidy at that point if you were already enrolled in an exchange plan. If you renew your off-exchange plan, or opt for an off-exchange plan during open enrollment, you won’t be able to switch to a subsidy-eligible exchange plan until the next open enrollment, regardless of any mid-year changes in your income (a qualifying event would allow you to switch plans, but a change in income is not a qualifying event if you’re not already enrolled in the exchange).

But what if you don’t qualify for a subsidy (and are fairly certain that will continue to be the case all year), or would just prefer to skip the exchange? Whatever the reason, if you want to get coverage outside of the exchange, you still have access to ACA-qualified health insurance policies.

“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) 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 has eliminated the “meaningful difference” rule altogether for 2019, so expect to see more of this in future years). 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. More states will be taking that approach for 2019, as it’s considered the strategy that’s most protective to the greatest number of consumers.

But there’s a downside that has to be considered. As described above, you can’t switch from an off-exchange plan to an on-exchange plan in the middle of the year unless you have a qualifying event — and a change in income is not a qualifying event. So if you’re in a state that allows the “silver switch” option and your income is too high for premium subsidies, you can sign up for a lower-cost off-exchange silver plan during open enrollment. But if your income drops during the year to a subsidy-eligible level, you won’t be able to switch to an on-exchange plan at that point. You’d essentially be stuck with your full-price off-exchange plan until the end of the year.

So it’s a gamble: Do you pay a higher rate for the on-exchange silver plan, just in case you do end up being eligible for subsidies? (you can go back and claim them on your tax return if your income for the year makes you eligible — but only if you bought the plan through the exchange). Or you do take the “silver switch” option and go for the lower-priced off-exchange silver plan, knowing that there’s no way to get subsidies later in the year, even if your income declines? There’s no right answer to this question, but it’s something to keep in mind when you’re deciding where to buy your coverage.

It’s worth noting that a potential solution would be to buy an on-exchange bronze or gold plan in this situation, instead of a silver plan. You wouldn’t have the cost of CSR added to your premiums, but you’d also be able to start getting premium subsidies mid-year if your income were to decline, or go back and claim the subsidy on your tax return after the year is over.

[Since health care reform is never simple, there’s a side note here: 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, but it would require Medicaid in the middle, and then a loss-of-coverage SEP when Medicaid ends.]

“Proxy Direct Enrollment” is on-exchange enrollment

Starting with enrollment for 2018, HHS has established a “proxy direct enrollment pathway” that allows third parties (ie, online insurance brokerages) to guide consumers through the HealthCare.gov enrollment process via the third party website, without having to go back and forth to HealthCare.gov during the enrollment. The new process is an enhancement of the current direct enrollment pathway, and Tim Jost describes it here in more detail.

If you’re working with a web broker who uses the proxy direct enrollment pathway, you’ll need to first create your own account on HealthCare.gov; your web broker cannot do that on your behalf. But then you’ll be able to complete the enrollment process on your web broker’s site, including the eligibility determination for premium subsidies and cost-sharing subsidies.

This type of enrollment is still considered “on-exchange” as the information you provide on the web broker’s site will be transmitted to HealthCare.gov (the system that HHS has created is only applicable to the states that use HealthCare.gov; state-run exchanges that use their own enrollment platforms would have to establish their own direct enrollment pathways if they wished to do so). 

If you’re working with a web broker and you’re not sure how your enrollment is being processed, ask questions. If you’re not creating an account with the exchange and being asked if you want to determine your eligibility for premium subsidies, you’re likely enrolling off-exchange. But if you’re creating a HealthCare.gov account and going through the premium subsidy eligibility determination process, your web broker is likely using the proxy direct enrollment pathway for 2018, and your enrollment will be on-exchange.

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 proxy 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. In general, that involved making slight changes to the off-exchange versions of the plans. 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. If you’re not eligible for premium subsidies and you want a silver plan, an off-exchange version might be a better option — but with the caveats noted above.

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 reclaim it on your tax return.

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 2019 coverage, the open enrollment window will run from November 1, 2018 through December 15, 2018 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.

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 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, discount plans, accident supplements, and critical illness plans.

These plans are sold outside the exchanges, but they’re not what we’re talking about when we say “off-exchange plans.” 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), they’re not designed to serve as stand-alone coverage. And in most cases, relying solely on them for your health coverage will leave you not only sorely underinsured, but also facing a penalty when you file your taxes.


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.