What Is Off-Exchange Health Insurance?

The Difference Between On- and Off-Exchange

Massachussetts To Enact Mandatory Health Insurance Law
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"Off-exchange" health insurance refers to health insurance that is not purchased through your state's health insurance exchange. Each state has an official exchange, established under the Affordable Care Act. Most of them are run by the federal government (jointly by the state and federal government) and use the HealthCare.gov enrollment platform.

However, 11 states plus the District of Columbia run their own health insurance exchanges and have enrollment websites that aren't Healthcare.gov. If you buy your health insurance through the health insurance exchange in your state (on your own, or with the help of a broker or enrollment counselor), it is considered an "on-exchange" plan. If you buy it directly from the insurance company (on your own, or with the help of a broker), it's off-exchange.

Background

The difference between on- and off-exchange health insurance can be confusing at times. First, it's important to understand that there is just one official exchange (also known as a marketplace) in each state. You can find your state's exchange by selecting your state on Healthcare.gov here.

You may come across private exchanges or other entities that refer to themselves as a health insurance exchange or marketplace, but if they're not the official exchange in your state, the plan will be considered an off-exchange plan.

However, it's also important to understand that online brokers can use HealthCare.gov's direct enrollment pathway to help their clients enroll in on-exchange health insurance via the broker's website. If in doubt, ask plenty of questions, but it is possible to enroll in an on-exchange health insurance plan via a third-party website.

The difference between buying a plan in the exchange versus outside the exchange is fairly straightforward.

If you're buying an individual/family major medical health insurance policy, it will be fully compliant with the ACA, regardless of whether it's an on-exchange or off-exchange plan. The same is true of small group health insurance plans.

Individual/Family Health Insurance

If you're buying your health insurance on your own, you're shopping in the individual market. This is sometimes referred to as the individual/family market, since the policies can cover one person or multiple members of a family.

As long as the plan you're buying is an individual major medical plan, it has to be fully compliant with the Affordable Care Act, regardless of whether you purchase it on-exchange or off-exchange. Grandfathered and grandmothered plans are technically considered off-exchange plans, since they are individual major medical coverage and are not available on-exchange. However, they can no longer be purchased since they are plans that were already in effect as of 2010 or 2013.

Note that short-term health insurance does not count as individual major medical coverage, even though it's regulated as major medical coverage in some states. But short-term health insurance is technically an "off-exchange" health insurance plan, as it's sold outside the exchange. Short-term plans are not at all compliant with the ACA.

If you're shopping for a new plan, or have a plan that was purchased since 2014, there are several major ACA parameters that apply to all individual market health insurance, both on- and off-exchange:

  • they have to cover the ACA's essential health benefits without any annual or lifetime dollar limits on the amount that the plan will pay
  • they can't have out-of-pocket maximums (for covered in-network care) in excess of the limits that are set each year by the federal government (for 2019, the out-of-pocket limit can't be more than $7,900 for one person, and $15,800 for a family—for 2020, the proposed cap is $8,200 for a single person and $16,400 for a family, although this has not yet been finalized)
  • they can't use medical underwriting, which means that pre-existing conditions have to be covered as soon as the plan takes effect, and a person's medical history can't be used to determine their eligibility for coverage or their premiums
  • older applicants can't be charged more than three times as much as a 21-year-old
  • all individual/family health plans that a given insurer sells must be pooled together in the same risk pool—if an insurer sells plans both on-exchange and off-exchange, all of the enrollees are pooled together when the insurer is determining how much the premiums need to be; if the same plan is sold both on-exchange and off-exchange, it has to be sold for the same premium

    There's one caveat, though, and it relates to how insurers and state regulators have handled the fact that the Trump Administration opted in late 2017 to stop reimbursing insurers for the cost of cost-sharing reductions.

    In summary, people who don't qualify for premium subsidies might find that if they want to purchase a silver-level plan, they can get a similar or identical plan off-exchange for less money than they'd have to pay on-exchange.

    However, there is one glaring difference between on-exchange and off-exchange plans: subsidies. Premium subsidies (premium tax credits) and cost-sharing reductions (cost-sharing subsidies) are only available if you shop in the exchange. If you buy a plan outside the exchange, there's no way to claim the subsidies, either up-front or on your tax return.

    Therefore, off-exchange plans may only really be a reasonable option for people who know that they aren't eligible for premium subsidies (or cost-sharing subsidies, although the income cut-off for cost-sharing subsidies is quite a bit lower).

    If you buy an off-exchange plan and then your income drops mid-year, making you subsidy-eligible, there's no way to switch to an on-exchange plan at that point. The federal government is considering changing that as of 2020, with a proposed special enrollment period for people with off-exchange coverage who experience a decrease in income that makes them subsidy-eligible.

    For the time being, though, a drop in income does not allow a person to switch from an off-exchange plan to an on-exchange plan. This makes it particularly important to shop on-exchange if you think there's even a small chance that your income might end up being subsidy-eligible by the time the year is over.

    Even if you didn't take premium subsidies throughout the year, you'll have a chance to claim the subsidy (which is actually just a tax credit) on your tax return—but again, this is only the case if you bought your plan on-exchange.

    How Many People Have Off-Exchange Coverage?

    On-exchange health insurance enrollments are meticulously tracked by the United States Department of Health and Human Services (HHS), both in terms of the number of people who sign up during open enrollment each year, as well as the number of people who have effectuated coverage early in the year and mid-year.

    Off-exchange enrollment tracking isn't anywhere near as precise. In the early days of ACA implementation, it was estimated that on-exchange and off-exchange enrollment were roughly equal. However, this has changed with time, mainly due to the sharp premium increases in the ACA-compliant individual market.

    On-exchange, most enrollees have been largely protected from those rate increases, because premium subsidies grow to keep pace with rate hikes. 87 percent of exchange enrollees nationwide were receiving premium subsidies in 2018. But off-exchange (although the rate increases have been just as substantial), there are no premium subsidies to offset them, and coverage has become increasingly unaffordable.

    According to an analysis by Mark Farrah Associates, there were a total of 15.8 million people with individual market coverage in 2018, and 11.8 million of them had on-exchange coverage. That left just 4 million people in the off-exchange market, and the analysis included grandfathered plans and short-term plans as "off-exchange" individual market coverage.

    A Word About Excepted Benefits

    The term "excepted benefits" refers to health plans that are not considered major medical coverage, and are thus exempt from the ACA's regulations. With the exception of short-term health insurance, most excepted benefits are not designed to serve as stand-alone health coverage. Although short-term plans do serve as stand-alone coverage—albeit coverage that's generally fairly limited—they're not intended for long-term use.

    Excepted benefits include products like short-term health insurance, fixed indemnity plans, critical illness plans (one example of this is cancer insurance), and dental and vision coverage. Most of these are intended to be supplemental to a major medical policy, and excepted benefits are not considered minimum essential coverage.

    Excepted benefits are generally only sold outside the exchange, with the exception of dental and vision coverage, which is often available as an option in the exchange. But when people refer to "off-exchange" coverage, they're generally not talking about excepted benefits. There are plenty of grey areas, though—the analysis of total off-exchange enrollment (referenced above) did include short-term health insurance enrollments, and short-term plans are an excepted benefit.

    For the most part, however, "off-exchange" refers to plans that are compliant with the ACA, but purchased outside the exchange.

    Small Group Health Insurance

    Although the majority of individual market health insurance plans are purchased on-exchange, the opposite is true for small group health plans. If you own a small business and are shopping for a small group plan, chances are you're shopping off-exchange (and if you work for a small business that offers health insurance, chances are high that your employer got the plan off-exchange).

    In most states, on-exchange small group enrollment (through the SHOP exchange, which stands for Small Business Health Options Program) has been very low, and most small businesses have opted to buy their coverage directly from insurance companies.

    As of 2018, the federally-run exchange (HealthCare.gov) stopped facilitating the process of enrolling small groups and managing their accounts. So, although there are still SHOP plans available in some areas, the enrollments are conducted directly through insurance companies in most states (some of the state-run exchanges still facilitate small group enrollment). But even when small businesses could complete their health insurance enrollment via the exchanges nationwide, very few did so.

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