Establishing Health Insurance Marketplaces: An Overview of State Efforts

State-based health insurance marketplaces, or exchanges, are a key component of the Affordable Care Act (ACA), and the places where individuals and small businesses will be able to shop for coverage. States can build a fully state-based marketplace, enter into a state-federal partnership marketplace, or default to a federally-facilitated marketplace. States planning to operate a state-based marketplace were required to submit an Exchange Blueprint to the federal Department of Health and Human Services (HHS) in December 2012, while states planning for a state-federal partnership marketplace had until February 15, 2013. All marketplaces, regardless of how they are administered, must be ready to begin enrolling consumers into coverage on October 1, 2013, and must be fully operational on January 1, 2014. Given these fast approaching deadlines, states face serious challenges to making the necessary policy and implementation decisions.

Sixteen states plus the District of Columbia have declared that they intend to establish a state-based marketplace and have received conditional approval from HHS (Figure 1). Only Mississippi’s application for a state-based marketplace was rejected by HHS due to a dispute between the Governor and the Insurance Commissioner. Utah received conditional approval for a state-based marketplace; however, the Governor has since proposed the state run the marketplace for small employers while the federal government operate the individual marketplace. HHS is considering this proposal.

A majority of these states have passed legislation authorizing the establishment of a health insurance marketplace. The Governors of Kentucky, New York, and Rhode Island established marketplaces through executive order, while New Mexico intends to use an existing, legislatively-established entity as the basis for a marketplace.

To date, seven states are planning to pursue a state-federal partnership marketplace. Illinois has already signaled that it will move to a state-based marketplace in 2015. States not ready to run their own marketplaces in 2014 may transition from a partnership to a fully state-based marketplace at a later date.

For a state unable or unwilling to establish a state-based or a state-federal partnership marketplace, HHS will assume primary responsibility for operating a marketplace in that state. The federal government will seek to coordinate with state agencies on multiple fronts including plan certification and oversight functions, consumer assistance and outreach, and on streamlining eligibility determinations for the marketplace and Medicaid. States’ involvement with the federal marketplace, while not mandatory, will be important for ensuring effective and seamless operation. Over time, this involvement may allow states in a federal marketplace to transition into a partnership or state-based model. Currently, 26 states have indicated they will not create a state-based marketplace and will likely default to a federally-facilitated marketplace. Many of these states had decided early on to default to a federal marketplace; however, some had begun laying the foundation for a state-based or partnership marketplace before reversing course.

Key Design Decisions

What Next?

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