What Is Off-Exchange Health Insurance?

The Difference Between On- and Off-Exchange

person getting their blood pressure tested in an office
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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, 12 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. Although as described below, some web brokers are able to enroll clients in on-exchange plans using their own websites, via the government's direct enrollment process.

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.

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.

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 regulated by the ACA, so they do not have to comply with any of its rules (although they do have to comply with various state rules, and short-term plans are not available in all states).

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 2020, the out-of-pocket limit can't be more than $8,150 for one person, and $16,300 for a family —for 2021, the proposed cap is $8,550 for a single person and $17,100 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.

ACA subsidies Available On-Exchange Only

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.

If you have on-exchange coverage and pay full price (ie, premium subsidies are not being paid to your insurer on your behalf 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 had on-exchange coverage during the year.

Off-exchange plans are generally only 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).

Prior to 2020, there was no way to switch from an off-exchange plan to an on-exchange plan if your income dropped mid-year and made you newly-eligible for premium subsidies. That changed as of 2020, with a new rule that creates a special enrollment period for people with off-exchange coverage who experience a decrease in income that makes them subsidy-eligible. The special enrollment period allows them to switch to an on-exchange plan where they can take advantage of their subsidy eligibility. (State-run exchanges are not required to offer this option, so you'll want to check to make sure yours does if you're in a state that runs its own 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 in 2016, 2017, and 2018. Premiums have been much more stable in 2019 and 2020, but are still substantially higher than they were in 2014 and 2015 and earlier years.

On-exchange, most enrollees were largely protected from those rate increases, because premium subsidies grow to keep pace with rate hikes. 87% of exchange enrollees nationwide were receiving premium subsidies in 2019. But off-exchange, although the rate increases were just as substantial, there are no premium subsidies to offset them, so coverage became 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.

CMS published a report in 2019 showing how sharply individual market enrollment had dropped from 2016 to 2018 among people who don't get premium subsidies. Roughly 13% of on-exchange enrollees don't get subsidies, but everyone enrolled in off-exchange plans is paying full price, with no subsidies available. On-exchange enrollment has remained fairly stable, but total unsubsidized enrollment—including off-exchange enrollments—is much lower than it was in the early years of ACA implementation.

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.

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.

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 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 Mark Farrah Associates analysis of total off-exchange enrollment (referenced above) did include short-term health insurance enrollments.

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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