DC and Vermont banned off-exchange insurance sales to stop insurers cherry-picking

The ACA technically created two individual insurance markets. In 2016 about 12 million people bought subsidised coverage on the exchanges, while an estimated 7 million bought off-exchange, working directly with insurers or brokers with no financial assistance — a market that skewed to higher incomes. Health Affairs found that more than 25% of individual plans nationwide were sold exclusively off the exchange, catering to buyers who could afford higher premiums or more cost-sharing — and the more money people make, the healthier they tend to be.

DC and Vermont responded by requiring that every individual plan be sold through their exchanges, eliminating their off-exchange markets. Henry Aaron, a Brookings senior fellow who sat on the DC exchange's board, put the logic plainly: an insurer that is clever can identify who the high and low risks are, and 'if you can elect to sell in only one of the places, then you're going to fish in the lake with a lot of fish.' Removing the second lake means plans can no longer abandon the exchange market while serving its healthier rivals elsewhere.

For DC and Vermont — two of the smallest markets in the country — the move was also a matter of survival: without combining the two markets, the exchange market might have been too small to function. Joel Ario, who ran the exchanges for the Obama administration, agreed the bifurcation serves no policy objective: 'whenever you have two separate markets, it sets up the potential for gaming.'

As of April 2017, experts argued the model pointed the way for other states — the alternative route being to let tax credits work off-exchange too. The obstacles were political: insurers would argue the government was inserting itself between people and their plans, and insurers had to invest in computer systems that connect with the exchange.

Do not police the selection games — close the second market, so there is nowhere else to sell.

Plans sold only off-exchange skim the healthier, higher-income buyers, leaving the subsidised market with the worse risks and fewer options.

Forcing every plan onto the exchange removes the refuge, so dropping out of the exchange means dropping out of the state's market entirely.

Combining both markets gives small jurisdictions the scale their exchange needs to function at all.

It requires no new subsidy money — it reorganises a market that already exists, which is why experts called it a relatively simple step.

When one risk pool is split across two arenas, players opt into the profitable one and strand the other. Removing the arena, not policing behaviour inside each, ends the gaming by construction.

As of April 2017 DC and Vermont were the jurisdictions that had done it, with officials arguing it had helped shore up their markets against insurers' 'selection games'. Aaron had argued in a Washington Post op-ed that the concept could bolster other exchanges, and Ario noted larger states might instead let subsidies work off-exchange. Insurer resistance and the systems cost of connecting to the exchange remained the obstacles, and neither expert called it a silver bullet.