What’s the difference between on-exchange and off-exchange plans?

If you’re new to offering an individual coverage health reimbursement arrangement (ICHRA), one of the biggest questions you may ask is, “What kind of health plan should my employees choose?” Terms like “on-exchange” and “off-exchange” may appear during your research, but their meaning isn’t always clear. 

On-exchange and off-exchange refer to the different health insurance platforms where consumers can buy individual medical coverage. While qualified health plans sold on these exchanges meet the coverage requirements for ICHRA, the policies differ in various ways that can impact your employees’ experience and healthcare needs.

In this article, we’ll explain the differences between on-exchange and off-exchange health plans so you can guide your teams toward the right fit while maximizing their ICHRA benefit.

In this blog post, you’ll learn:

• The key differences between on-exchange and off-exchange health plans for individual consumers and business owners.
• How factors like subsidies, provider networks, and enrollment rules impact your employees’ experience with each type of plan.
• How the ICHRA works with on- and off-exchange plans, giving employees flexibility while helping employers control costs.

What is an on-exchange health plan?

An on-exchange health plan is medical coverage that individuals and families can buy on a federal or state-run public exchange, like HealthCare.gov. These exchanges allow consumers to shop for plans on a single platform, comparing coverage options by cost, provider networks, insurers, and location. The federal Health Insurance Marketplace and state marketplaces are examples of public exchanges.

All on-exchange health plans must meet Affordable Care Act (ACA) standards, such as the following:

1. Health insurance companies must categorize their plans using the “metallic tiers of coverage” so buyers can easily evaluate coverage levels and costs. The four metal tiers are bronze, silver, gold, and platinum. Additionally, catastrophic options may be available.
2. Insurers must offer at least one policy on the public exchange in each of the four metal-level categories.
3. ACA-compliant policies must cover at least 60% of expected medical expenses, the minimum standard for bronze plans.
   1. Higher-tier policies, like gold or platinum levels, offer enrollees greater medical coverage and lower out-of-pocket costs.
4. Policies must include coverage for ten essential health benefits, such as preventive care, prescription drugs, emergency services, and hospitalization. Marketplace plans must also offer birth control and breastfeeding benefits.
   1. Employees may also buy dental or vision coverage, depending on location and insurance company.

Consumers can change their current individual plans or enroll in new ones during the annual Open Enrollment Period. They can also do this if they experience a qualifying life event and trigger a special enrollment period (SEP). Offering an ICHRA creates a 60-day SEP.

Individuals buying an on-exchange health insurance plan may also qualify for premium tax credits and cost-sharing reduction subsidies to help reduce their out-of-pocket costs. According to CMS, in 2024, 20.8 million people enrolled in an ACA Marketplace plan, with 19.3 million enrollees qualifying for advance premium tax credits¹. However, employees offered an ICHRA can only collect tax credits if their benefit is unaffordable and they opt out of the ICHRA. 

What is an off-exchange health plan?

An off-exchange health plan is coverage consumers buy from private exchanges, such as directly from an insurance provider, a non-government-run marketplace, a licensed broker, or an agent. 

On-exchange plans must always be ACA-compliant. Off-exchange policies can include both ACA-compliant major medical coverage and non-ACA plan types, such as ancillary and supplemental health benefits. However, only ACA-compliant off-exchange individual plans qualify for use with an ICHRA.

Off-exchange health insurance plans include:

• Major medical insurance
  • ACA-compliant plans sold off-exchange must still meet the same federal standards as those available on public Marketplaces.
• Dental and vision coverage
• Critical illness and accident insurance
• Prescription drug coverage
• Short-term health insurance plans
• Medicare supplement options

Enrollment timing for off-exchange policies is the same as with on-exchange plans. Individuals can only start or change coverage during the Open Enrollment Period or if they qualify for a SEP. 

Premium tax credits and cost-sharing subsidies are only available for on-exchange plans. But, off-exchange coverage can offer more flexibility in networks, plan types, and benefits, which can help keep overall costs low. 

Can the ICHRA work with on-exchange and off-exchange health plans?

No matter if your employees buy an on- or off-exchange policy, they can still use an ICHRA to help pay their premiums. An ICHRA is an employer-funded benefit for organizations of any size and budget. One of the ICHRA’s major advantages is that it gives employees more health coverage choices while employers experience more predictable control over costs.

Here’s how it works:

• You decide how much tax-free money to give employees each month to spend on healthcare coverage. Because the ICHRA has no annual contribution limits, you can set amounts that fit your current budget and adjust them as needed from year to year.
• You can customize ICHRA contributions and eligibility rules by employee class, age, or family status, helping tailor benefits to your staff’s needs.
• Your employees shop for their preferred qualifying individual health insurance plan, whether on- or off-exchange. Remodel Health provides tools for those choosing off-exchange coverage to compare plan options so employees can make informed decisions. When available, off-exchange plans provide additional features with an ICHRA, making them the preferred choice. 
• Once enrolled in their chosen plan, your employees can use their ICHRA to pay for their policy’s monthly premiums on a tax-free basis.
  • If you have a Section 125 plan, employees with off-exchange plans can pay the portion of their premiums not covered by their ICHRA on a pre-tax basis as a payroll deduction. According to the IRS, employees can’t use pre-tax salary reductions to pay for on-exchange plan premiums². Remodel Health helps facilitate this feature by allowing for automatic payments for off-exchange employee premiums each month.
• Employees who qualify for premium tax credits can choose between their subsidy and their ICHRA benefit, depending on affordability. If their ICHRA’s allowance is affordable, they should waive their credits and opt into the benefit. They can opt out and collect their tax credits if their allowance is unaffordable. Remodel Health will work with you to design an affordable benefit.
• ICHRA payments are payroll tax-free for business owners and free of income taxes for participating employees.

Lastly, instead of choosing a traditional group plan, applicable large employers (ALEs) can use an ICHRA to comply with the ACA’s employer mandate. This makes the ICHRA a compliant solution for business owners and a flexible, cost-saving vehicle for employees in the long term.

Conclusion

Choosing between an on-exchange and off-exchange plan depends on your employees’ needs and location. But by offering an ICHRA with Remodel Health, you can make their decision much easier by giving them tax-free dollars to cover their individual health insurance premiums. 

Remodel Health’s ICHRA+® solution makes it simple to design and manage a personalized benefit that works for your business and your people. Chat with us today, and we’ll get you started!

References

1. Effectuated Enrollment: Early 2024 Snapshot and Full Year 2023 Average
2. IRS Notice 2013-54