With nearly half of all Americans relying on employers for their healthcare coverage, 1
employer-sponsored health insurance is one of the most important investments companies can make in the health of their business. But rising premiums and a lack of customization for traditional group insurance has led many employers to look at alternatives. One solution is to offer an ICHRA or Individual Coverage Health Reimbursement Arrangement. Employers send workers to the individual market and then contribute tax-free money to help cover the health plan of their choice.
The individual market, however, can feel a bit like the Wild West of the insurance world. One of the biggest points of confusion centers around on-exchange and off-exchange plans. Here, we break down how on-exchange vs. off-exchange plans differ and explore why it matters when considering an ICHRA for your company.
What are on-exchange plans?
On-exchange plans refer to the offerings found on the Affordable Care Act (ACA) Marketplace. These include plans found on both federal and state marketplaces. (Note: Not every state has its own marketplace.) If you’re shopping on the federal exchange, you’re referring to a government marketplace and will be on a .gov site. Note: state marketplaces do not always have .gov URLs.
In an effort to simplify the purchase process, the ACA established metal tiers (bronze, silver, gold, and platinum) to designate the cost and value of on-exchange plans. Generally speaking, on-exchange plans across all tiers cover a narrow network of doctors and require a referral from a primary care physician in order to see a specialist. While narrow-network plans help keep premiums low, they often give the individual market a bad rap. Compared to traditional group plans, though, on-exchange individual plans still allow for a more customized experience.
Keep reading to find out how off-exchange plans stack up.
What are off-exchange plans?
Off-exchange plans, on the other hand, are sometimes referred to as direct-to-carrier plans. Rather than going to a state or federal marketplace, individuals shop off-exchange plans by going directly to an insurance provider.
People will usually still see plans classified by the same metal tiers offered on the exchange, but off-exchange plans allow for more flexibility in terms of plan offerings and pricing.
“By going direct to a carrier for off-exchange plans, people may see more of a selection of plans to choose from, and oftentimes the carriers will offer off-exchange-only plans at better rates,” says Lori Infuhr, an enterprise operations manager at SureCo.
The biggest difference between on-exchange and off-exchange insurance plans
Subsidies are perhaps the biggest point of differentiation between on-exchange and off-exchange health plans.
Often called premium tax credits (PTCs), these cost-sharing reductions are provided by the federal government and are only available in the on-exchange Marketplace. In keeping with the spirit of the ACA, the government gives subsidies based on individual income thresholds to ensure that coverage is affordable for everyone.
Along with making plans more affordable for those who qualify, subsidies help keep prices on the exchange stable by adjusting for rising healthcare costs as well as other economic factors like inflation. The 2022 Inflation Reduction Act guaranteed that premium tax credits will continue on healthcare.gov and state-based marketplaces through 2025.3
ICHRAs and the Off-Exchange Advantage
For companies considering an ICHRA, understanding the differences between individual on- and off-exchange plans is crucial. Employees enrolled in an ICHRA are prohibited by law from receiving a premium tax credit. If they do receive one, it can trigger an audit of the company by the IRS. Under the ACA, businesses with more than 50 full-time or full-time equivalent employees must provide affordable, minimum essential health coverage. (If they are administering an ICHRA correctly, there should be no reason for an employee to request a government subsidy.)
When you take subsidies out of the equation, the choice between on- and off-exchange plans is clear. Why would you not take the off-exchange option that provides more options and flexibility? Plus, there is more room for cost savings when you go direct to the carriers.
How to choose a third-party administrator for your off-exchange ICHRA
According to a recent study commissioned by the U.S. Chamber of Commerce, companies that invest more in their benefits programs tend to have a higher ROI.2 To that end, turning to an off-exchange ICHRA can support both the future health of your workforce and the future health of your business. The flexibility it offers is unparalleled, and the cost savings can be significant.
A third-party administrator with relationships to individual carriers, however, is essential to ensure turnkey enrollment, reimbursement, and compliance. SureCo provides access to 5,000+ health plans and 140+ carriers across the country.
 Employer-Sponsored Health Insurance Statistics, eHealth and the Kaiser Family Foundation, October 20, 2022
 Return on Investment for Offering Employer-Sponsored Insurance, Avalere Health, June 28, 2022
 Fact Sheet: The Inflation Reduction Act, CMS.gov, October 5, 2022