Tax Facts: Should you shop in the exchange or outside the exchange?

Last week, we talked about the process of buying an HSA-qualified high deductible health plan (HDHP) in the individual insurance market. Today, let's take a look at some things you'll want to keep in mind when deciding whether you should buy your HDHP through the health insurance exchange in your state, or somewhere else.

There's no right answer to that question — it depends on your circumstances. But there are a few things to keep in mind that will help you decide:

Official = compliant

Every plan sold through the official exchange in your state is fully compliant with the Affordable Care Act (ACA). There are also lots of ACA-compliant plans that are sold outside the exchange. If you're shopping for an HDHP, it's going to have to be ACA-compliant, regardless of where you buy it.

But you need to be cautious when you're shopping outside the exchange, as there are also other types of coverage, like short-term plans and limited benefit plans, that people sometimes purchase without a full understanding of their shortcomings.

Open enrollment deadlines still apply

Both on-exchange and off-exchange, you can only buy ACA-compliant coverage (including HDHPs) during open enrollment, or during a special enrollment period if you experience a qualifying event.

For 2019 coverage, open enrollment in most states will run from November 1, 2018 to December 15, 2018. Some state-run exchanges have longer enrollment windows. But with the exception of Nevada, you cannot avoid enrollment window restrictions by shopping outside the exchange.

Cost savings are available

Premium subsidies to offset the cost of individual market plans are available in most cases if your income doesn't exceed 400% of the poverty level (here's what that looks like in terms of dollars).

If you're eligible for premium subsidies, you must shop in the exchange in order to get the subsidies.

Out of 10.6 million people who had coverage through the exchanges in early 2018, more than 9.2 million of them were receiving premium subsidies that covered an average of 87 percent of their total premiums. And there's also an option to pay full price throughout the year and then claim the subsidy (which is actually just a tax credit) on your tax return.

But in either case, you can only get your subsidy if you buy a plan through the exchange. If you shop off-exchange and then you end up with a subsidy-eligible income afterall, you're just out of luck.

Special circumstances can be accommodated

Premium subsidies are available to people in all sorts of circumstances. Maybe you have a large family, or maybe you're a young adult just starting your career. Maybe you're a single parent, or maybe you're an early retiree looking for health coverage for the years before you're eligible for Medicare… whatever your circumstances, you may find that you're eligible for premium subsidies.

For the record, eligibility extends well into the middle class: A family of four will qualify for premium subsidies in 2019 with an income of over $100,000.

It's worth it to shop around

If you're NOT eligible for premium subsidies -- perhaps because you have a qualifying offer of coverage from your employer, or because of the family glitch, or even because your income is above 400% of the poverty level -- you can shop in or out of the exchange, since you'll be paying full price for your coverage either way.

But if you have your heart set on a silver-level plan and you're not eligible for a subsidy, you might find that the silver-level plans outside the exchange are less expensive than the silver-level plans inside the exchange. My colleagues and I have written extensively about this phenomena, which first happened in 2018 and will be even more widespread in 2019.

It's a long story, but the short version is that if you're not subsidy-eligible and you want a silver plan, you'll want to look at the off-exchange options alongside the on-exchange options to make sure you're getting the best value.

But be aware that if you buy an off-exchange plan, you can't change your mind mid-year if your income changes and you become subsidy-eligible (unless you also experience a qualifying event).

Expect some big differences in plan options

The available options, both in the exchange and outside the exchange, vary considerably from one area to another, even within a single state. Don't assume anything, and don't base your decisions on what you've heard from a friend who lives elsewhere or who has different circumstances.

Many insurance companies offer their plans both on- and off-exchange, but some only offer on-exchange plans while others only offer off-exchange plans. To see your full range of options, you'll need to compare both.

Most people who are eligible for premium subsidies can ignore the off-exchange options, but there are circumstances in which it might make sense to forfeit your premium subsidy and buy an off-exchange plan instead. An example would be a person in the midst of cancer treatment who discovers that the only insurers providing in-network coverage of the person's oncology center are off-exchange.

In that case, the applicant might decide it's worth losing out on their premium subsidy in trade for having in-network coverage of their preferred cancer treatment center. Every aspect of health care is personal, and that includes the decisions you make about what health plan to buy and where to buy it.

Tax Facts is a weekly column offering straight up, no-nonsense HSA tax tips, written in everyday language. Look for it every Tuesday, exclusively on the HSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook and Twitter.

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