Buying Off-Exchange Health Insurance

Many Americans get their health insurance from their employer. If you’re one of them, you probably have a choice of a few different plans you can sign up for during open enrollment each year, and your employer may subsidize some of your premium costs.   

But if you aren’t covered through an employer, you’ll need to buy health insurance on the individual market to avoid the penalty.

The individual health insurance market has changed a lot in recent years thanks to the passage of the Affordable Care Act (ACA), which is more popularly known as ObamaCare. In fact, many people who get insurance on the individual market now buy coverage through state exchanges or through federal exchanges.

On this page:

• What to Know About Federal Exchange Plans
• How Off-Exchange Plans Work
• Who Should Consider an Off-Exchange Plan
• What to Look for in an Off-Exchange Plan

What to Know About Federal Exchange Healthcare Plans 

State and federal exchanges were created as part of ObamaCare to essentially provide a one-stop shop where would-be policyholders could purchase ACA compliant plans and, if eligible, could sign up to receive tax credits to help cover the premiums of their chosen plan. 

Healthcare.gov is the federal exchange, which serves the majority of states. California, Colorado, Connecticut, Washington D.C., Idaho, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, and Washington each have their own health insurance exchanges.

Buying coverage on the exchanges can make sense for many reasons, but it’s not the only option for people who need an individual health insurance policy. You could also buy a policy from an off-exchange market.

Before you do, you should understand how off-exchange insurance works, why you might want to buy it, what the pros and cons are, and how it compares to the average cost of health insurance.

What Are Off-Exchange Health Insurance Plans?

Off-exchange health insurance plans are insurance policies sold from sources other than Healthcare.gov or your state’s exchange. Typically, these off-exchange policies are sold directly by health insurance companies or insurance agents to the individuals and families who wish to buy them.

They Must Meet ACA Guidelines

If off-exchange plans are major medical plans — and most are — these plans must comply with ACA guidelines. There’s a limited number of insurance products that aren’t major medical plans, such as short-term health insurance coverage or plans sold through associations, that don’t have to follow ObamaCare’s mandates. These aren’t classified as major medical off-exchange plans.

Because major medical plans sold on off-exchange markets are required to conform to ObamaCare’s mandates, the plans must not have lifetime limits on coverage. 

They Must Not Discriminate Against Policyholders with Pre-Existing Conditions

They must not discriminate against policyholders with pre-existing conditions, and they must provide 10 essential health benefits that all ACA plans are required to cover. This includes coverage for maternity care and mental health treatment.

Since off-exchange plans have to conform to these guidelines, you won’t have to worry that you’re buying skimpy coverage if you decide to shop off-exchange. You’ll still get a comprehensive policy. 

They Still Count as a Qualifying Health Plan

The policy can still count as a qualifying health plan for purposes of avoiding ObamaCare’s penalty for not having insurance coverage (the penalty remains in effect through 2019, although it was repealed after that).

They Are Different Than On-Exchange Plans

This isn’t to say that off-exchange plans are exactly the same as on-exchange plans. Insurance carriers can sell off-exchange plans that are different from the ones available on ACA exchanges. The plans may have broader or narrower provider networks, premiums may be priced differently, and coverage can be either more or less comprehensive.

But, one thing all off-exchange plans have in common is that you cannot get premium tax credits to purchase them — even if you would be eligible for premium subsidies had you purchased health insurance on the health insurance marketplace.

Who Should Consider Off-Exchange Health Insurance?

If you need health insurance coverage, you should compare your employer’s plan (if available) with plans available on and off exchanges to understand all of your plan options.

Before you decide on an off-exchange plan, you need to consider whether you’re better off than with one available on the federal government’s exchange. 

You Don’t Qualify for Premium Subsidies from the Government

Typically, you won’t be better off with an off-exchange plan if you qualify for premium subsidies now or if there is a chance you’ll qualify for them in the future.

These insurance subsidies cap your spending on premiums at a specific percentage of your income. So you may be giving up free money that makes health insurance more affordable if you bought an on-exchange plan.  

It’s important to think not only about whether you can qualify for premium subsidies now, but also whether you might be able to qualify later in the year.

There’s only a limited timeframe in which you can enroll in health insurance coverage — called the open enrollment period — unless you have a qualifying life event, such as a divorce or the loss of employer-sponsored health coverage. So, if your income falls and you would become eligible for subsidies, you can get those subsidies if you’d signed up for an on-exchange plan in the first place, but not if you’re enrolled in an off-exchange plan. 

In the latter case, you’d be stuck paying for your premiums on your own, and you wouldn’t be able to get the subsidies you’re eligible for until you enrolled in an on-exchange plan during the next open enrollment period, or if you qualify for a special enrollment period.

You Would Get Cheaper Insurance with an Off-Exchange Plan

If you know you will earn too much to qualify for premium subsidies, it’s definitely worth looking into off-exchange plans. If you find coverage is better or cheaper, then there’s no reason not to sign up for an off-exchange plan. In fact, in some cases, the off-exchange plan could be muchcheaper because of a weird quirk in ObamaCare pricing.

There are different categories of ACA plans, including bronze plans, silver plans, gold plans, and platinum plans. Bronze plans cover the least, but they cost less — and platinum plans cover the most.

The amount of subsidies you’re entitled to is calculated based on the amount of your income that would go to paying for the second cheapest silver-level plan sold in your area — regardless of which plan you actually pick.

Insurance carriers were going to lose money because the Trump administration suspended payments for cost-sharing reductions insurers are required to pay, so in some states, they priced on-exchange silver plans higher to make up for these lost funds.

Insurers did this knowing individual insurance buyers who shop for on-exchange coverage wouldn’t actually pay the premium increases personally because their government subsidies would just go up to cover added the costs. For people who don’t get subsidies, they’re stuck with these costlier silver-level plans if they buy on the exchange.

Insurers didn’t increase the prices for the off-exchange silver plans, so you may be able to sign up for one of those, and pay far lower premiums than for an on-exchange plan.

What to Look for in an Off-Exchange Plan

When deciding whether to buy an on or off-exchange health plan, you’ll want to look at total costs, including premiums, deductibles, and coinsurance costs.

If you need to see a specific doctor, you should also look into whether any on-exchange or off-exchange policies consider that doctor “in-network.” Once you have a broader understanding of your coverage needs, you can compare bronze, silver, and gold plans on-exchange, as well as off-exchange plans, to see which is right for you.

The good news is, if you do decide to go through an insurance broker for help, you don’t need an off-exchange plan to do it. A process called proxy direct enrollment allows brokers or other third parties to transmit your information to Healthcare.gov so you can get on-exchange coverage, but still get the help you need from your insurance agent.

If you want to compare some of your options, check out our Best Health Insurance Companies page.

Bottom Line: Be Smart About On-Exchange vs. Off-Exchange Plans

With both off-exchange and on-exchange plans, you should get pretty comprehensive coverage that provides the health insurance benefits you’d expect.

In sum, you generally should buy a plan from an exchange if you may need subsidies and off-exchange if you definitely won’t get subsidies and can find a cheaper or more comprehensive plan that best suits your needs.