A key benefit of ICHRA (now called CHOICE Arrangement) is giving employees freedom in their healthcare. But when a CHOICE Arrangement administrator limits plan choice, employees can suffer the consequences.
In this article, we discuss a little-known topic that has big implications for employee choice: on- and off-exchange individual health plans.
What are on- and off-exchange health plans?
First, a definition. In this context, the word “exchange” means the federal health insurance Marketplace or a state-run marketplace. It is often used interchangeably with Marketplace, ACA, and healthcare.gov.
There isn’t a right or wrong option when it comes to health insurance plan type. On-exchange and off-exchange both have their benefits.
On-exchange plans
On-exchange plans are individual health policies purchased on the ACA exchange or a state-run marketplace such as Connect for Health Colorado or Pennie (Pennsylvania).
Off-exchange plans
Off-exchange individual health insurance is purchased off the exchange, meaning they’re sold directly by insurance companies or brokers.
Similarities and differences of on- and off-exchange plans
Similarities: ACA compliance
Note: This article discusses comprehensive individual health insurance, not short-term plans or other products that are sold outside the Marketplace.
Off-exchange policies are ACA-compliant, just like on-exchange policies. Both plan types are required to (among other things) provide preventive care, cap out-of-pocket costs, and accept individuals with pre-existing conditions.
Differences: Enrollment and tax credits
There are three main differences between on- and off-exchange plans.
The first is where employees enroll. For on-exchange, they go through HealthCare.gov or a state marketplace, and for off-exchange they enroll directly through an insurance company or broker.
The second is premium tax credits, which are income-based subsidies that lower monthly health insurance premiums. On-exchange plans are eligible for premium tax credits. Off-exchange plans are not eligible for those tax credits.
The third involves premium payments with pre-tax wages. If an employee has an off-exchange plan, they are allowed to use pre-tax wages to pay for any part of their premium that isn’t covered by their employer. If they have an on-exchange plan, using pre-tax wages to pay a premium difference is not allowed.
| On-exchange plans | Off-exchange plans | |
| Are the plans ACA compliant? | Yes | Yes |
| Where do people enroll? | HealthCare.gov or a state-run marketplace | Directly via the insurance carrier or a broker |
| Do the plans qualify for premium tax credits? | Yes | No |
| Can an employee use pre-tax wages to pay for any premium their employer allowance doesn’t cover? | No | Yes |
On-exchange vs off-exchange health insurance through ICHRA
When an employer offers health insurance through ICHRA/CHOICE Arrangement, their ICHRA administrator decides what type of plans to offer. That could be on-exchange, off-exchange, or a combination. Employees can only choose a plan within the confines of what the ICHRA administrator allows.
On-exchange and off-exchange health plans each have their own benefits. The best choice depends on the employee.
Reasons to choose on-exchange
On-exchange benefits include premium tax credit, potential state subsidies, and Marketplace-exclusive plans.
Premium tax credits are only available through the Marketplace (although, importantly for this article, not through an ICHRA). Some states also provide additional subsidies that work only through their marketplace, like Washington’s Cascade Care Savings.
Some insurance carriers sell only through the state marketplace. That means an employee who wants to use a doctor/provider/hospital in that carrier’s network has to buy an on-exchange plan.
Reasons to choose off-exchange
Off-exchange benefits include pre-tax payroll contributions, potentially lower costs for silver plans, and plans exclusively sold off the exchange.
Employees can only make pre-tax payroll contributions toward their premium when the plan is off-exchange.
Because of changes in federal funding, silver plans cost more on the exchange. An employee without a tax credit can often find the same coverage at a lower cost in an off-exchange plan.
Some carriers, including Ambetter Health Solutions, are creating off-exchange plans with the ICHRA market in mind. These plans can only be purchased directly through the carrier or a broker, and they often have broader networks.
| On-exchange plans | Off-exchange plans | |
| Employees can qualify for premium tax credits | ✔ | |
| Some plans are offered exclusively through a state marketplace | ✔ | |
| There are additional state subsidies (in select states) | ✔ | |
| Employees can make pre-tax payroll contributions | ✔ | |
| People without a tax credit can often find the same coverage at a lower cost off-exchange | ✔ | |
| Some plans are available only off-exchange through carriers or licensed agents/brokers | ✔ |
Administering on- and off-exchange plans with CHOICE Arrangement (ICHRA)
Why would an ICHRA administrator only offer one plan type?
Some administrators restrict plan type because it simplifies their operations. Supporting on-exchange or off-exchange means building one enrollment process instead of two. Each plan type has its own enrollment process, payroll setup, and tax considerations. Broker commissions also differ between channels.
To avoid multiple operational requirements, some ICHRA administrators choose to offer only one plan type, which makes it easier on the administrator but restricts employee choice.
The Take Command difference: all plan types for maximum employee choice
The big-picture decision is not on- or off-exchange plans. It’s who to choose as a CHOICE Arrangement administrator.
A business could have employees who want pre-tax deductions and others who need a specific hospital network. If an administrator only offers one type of plan, one of those employee groups loses out.
Take Command is different. We provide 100% plan access, including on exchange and off exchange.
We take on the administrative responsibility because we care about employee choice and their ICHRA experience. Our onboarding process includes options for both on- and off-exchange plans, so employees are supported from day one.
And we don’t just offer access to all plans. We leverage our expertise to educate and guide employees through the shopping experience so they are empowered with information to select a plan that meets their needs. It’s choice + a great experience.
Take Command has been an ICHRA advocate from the start. We're here to help our customers maximize the health insurance model that was designed for flexibility in the first place.
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