Who Needs Those ACA Exchanges?

9 million Americans buy health insurance outside the ACA exchanges. They make too much money to be eligible for subsidies and can often get coverage with a broader network of providers.

Susan Ladika

Despite higher premiums and a declining number of policy options, experts don’t believe individual insurance policies purchased outside state health insurance exchanges are going to vanish any time soon.

Although there are now fewer policies offered off the exchanges than there were in 2015, “it doesn’t tell me they are likely to disappear or wither away,” says Mark A. Hall, coauthor of a June 2016 report on on- and off-exchange policies for the Commonwealth Fund.

As of March, 11.1 million consumers had signed up for coverage and paid their premiums for policies purchased on the ACA exchanges. That was nearly a million more enrollees than in March 2015, according to HHS.

But 9 million Americans are expected to purchase policies outside the ACA exchanges this year, according to the Congressional Budget Office (CBO). Although the number of people buying off the exchanges is expected to eventually drop to 7 million, that won’t happen till 2026.

Katherine Hempstead

“The off-exchange market is shrinking, at least in terms of the number of plans, and probably in terms of enrollees,” says Katherine Hempstead of the Robert Wood Johnson Foundation.

People who purchase policies outside of the exchanges tend to earn too much money to qualify for a subsidy to offset premium costs. “Only a certain share of customers look at off-exchange policies,” says Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation, noting that about 85% of those who buy coverage on the exchanges receive subsidies. In all states, the upper limit for subsidy eligibility is 400% of the poverty level. For plans purchased during the 2016 open enrollment period, that comes out to $97,000 per year for a family of four. The subsidy comes in the form of a tax credit, but it can be used in advance to lower the price of the premium. Working through the exchanges, insurers apply the credit to the monthly premiums so the out-of-pocket cost is lower.

Broader networks available

Of the off-exchange policies themselves, Hempstead says, “from 100 yards, they don’t look all that different from marketplace plans.”

Premiums for policies purchased outside the ACA exchanges are usually $10 to $15 more a month than the premiums for policies bought through the exchanges — and that is before any subsidy is applied, according to Hempstead. But the deductibles for the on- and off-exchange policies are often similar, she says. There tend to be more platinum and gold plans available outside the exchanges, and consumers are more likely to find plans with a broader network of providers.

Nationwide, about 9,200 plans were offered outside the exchanges in 2015; this year, the number fell to about 3,600. The Blues have the most off-exchange plans, followed by Aetna and UnitedHealthcare. It will be interesting to see if Aetna, Humana, and UnitedHealthcare will add off-exchange plans once they exit many of the ACA exchanges next year.

Leading carriers in off-exchange individual market by number of plans, 2016

Source: Robert Wood Johnson Foundation

In some states, there are few differences between policies sold on and off the exchanges, while in other places the differences are vast, says Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute. “It very much depends on where you live.” For some health insurance companies, such as Health Care Service Corp. (HCSC), which operates Blues plans in five states, the policies sold on and off exchanges are identical.

Vermont and the District of Columbia don’t allow individual or family policies to be sold outside their ACA exchanges, Corlette says. In the District of Columbia, the market wasn’t big enough to sustain them, and Vermont was gearing up to create a single-payer system, which has since been abandoned.

Despite the exodus of UnitedHealthcare, Aetna, and Humana from the ACA exchanges, most experts believe that consumers who bought policies on the exchanges will continue to do so rather than switch to coverage outside the exchanges. Why? For the simple reason that they’re eligible for subsidies that lower their premiums if they stick to buying coverage through an exchange. According to HHS, the average ACA exchange tax credit has been worth almost $300 a month and has covered nearly three quarters of an individual’s monthly premium.

Credit cards not accepted

One thing that could complicate individual enrollment is that two large insurers announced recently that they would no longer allow customers to use a credit card to pay for off-exchange plan premiums. Both Humana and HCSC cited high credit card fees.

In Humana’s case, that means the 210,000 Americans who buy off-exchange policies from the company can’t use credit cards, whereas its 550,000 customers who bought policies through the exchange can continue to use credit and debit cards. Customers who bought a Humana policy outside the exchange can pay with a check, electronic bank transfer, money order, cashier’s check, or with cash at CVS or Dollar General.

“Credit card companies charge transaction fees of around 2.5% of the total amount charged. These fees raise administrative costs,” says Humana spokesman Mitch Lubitz. The decision to ban those forms of payment will help “preserve affordable individual major medical plans,” he adds. For those who purchase policies on the exchanges, federal subsidies typically reduce members’ premium payments, reducing the impact of credit card company transaction fees, Lubitz says.

HCSC no longer accepts credit cards for premiums for individual health or dental plans purchased either on the exchanges or outside of them, says spokesman Mark Spencer. “Credit card fees are a significant expense that impacts all members, not just those who use credit as a payment option,” Spencer says. About 30% to 35% of the company’s individual policyholders had been paying their premiums with credit cards.

Two tiers developing?

Those who purchase policies outside of the exchanges usually have higher incomes than those who buy in them. That makes perfect sense because they wouldn’t be eligible for a subsidy, so one of the main reasons for buying on the exchange doesn’t apply to them. They also tend to be older than those who purchase policies through the ACA exchanges and have established relationships with providers, notes Hempstead. A study issued in June by the Council for Affordable Health Coverage, a Washington-based group that includes larger insurers, business groups, and pharmaceutical companies, found that exchange participation declines dramatically as income increases and subsidies get smaller. Moreover, the council found that only 2% of Americans who earn too much to get an ACA exchange subsidy buy their health insurance through the exchanges whereas 80% of those with low incomes (less than 150% of the federal poverty level) who could buy on the exchange did so. “To ensure the sustainability and stability of the exchange market into the future, exchanges will need to attract individuals across income levels,” the council’s report said.

Joel White

Off-exchange policies will be around for the long haul, says Joel White of the Council for Affordable Health Coverage. “I don’t think limiting choice will fly in this environment.”

Despite the differences in policies that can typically be found off and on exchanges, Hempstead doesn’t expect it to lead to a two-tier insurance system with wealthier consumers shopping exclusively outside the exchanges for policies with better coverage while the less well-off are confined to the exchanges.

“The off-exchange market is shrinking, at least in terms of the number of plans, and probably in terms of enrollees. The market as a whole is about one-half unsubsidized, but an increasing share of the unsubsidized market is buying plans that are offered on the marketplace,” Hempstead says.

At the same time, Joel White, president of the council, believes off-exchange policies will be around for the long haul. “I don’t think limiting choice will fly in this environment.” His organization wants the law changed so people could use their ACA subsidies for policies bought outside the exchanges. “It shouldn’t matter where you use your subsidy,” says White.

Susan Ladika is a freelance writer in Tampa, Fla., with 30 years of experience covering health care.

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