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Establishing Health Insurance Marketplaces: An Overview of State Efforts

Figure 1: State Decisions for Creating Health Insurance Marketplaces

Figure 1: State Decisions for Creating Health Insurance Marketplaces

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

Figure 2: Federal Grants Supporting Development of Marketplaces

Figure 2: Federal Grants Supporting Development of Marketplaces

Over the past two years, many states have made a number of decisions regarding state-based marketplaces, including how they will be structured, governed, and contract with health plans (Table 1). States have also begun to explore options related to consumer assistance and information technology (IT) systems. Marketplaces must allow consumers to apply for and enroll in coverage online, in person, by phone, fax, or mail and provide culturally and linguistically appropriate assistance. To do this, states must provide access to telephone call centers, build a website with information about insurance options and application assistance, and create a Navigator program to improve public awareness and facilitate enrollment. The IT system must seamlessly determine eligibility for public programs, such as Medicaid or the Children’s Health Insurance Program (CHIP), and determine premium tax credits and cost-sharing subsidies for those purchasing insurance through the marketplace.

Federal Funding

By May 1, approximately $3.6 billion was distributed to states through federal marketplace Planning grants, Establishment grants, and Early Innovator grants (Figure 2). All but four states received and accepted some amount of funding to study marketplace implementation. Thirty-seven states accepted at least one Level One Establishment grant. Twelve states plus the District of Columbia received Level Two Establishment grants, which fund marketplace planning and implementation activities through the first year of operation. Much of the funding is being used to build the IT infrastructure necessary to support marketplace functions. States can receive additional funds through the end of 2014.

For more information on states’ health insurance marketplace implementation visit, http://healthreform.kff.org/the-states.aspx

Table 1: Characteristics of State-Based Marketplaces
State Structure of Marketplace Governance Contracting Relationship with Plans
California Quasi-governmental 5-member Board Active purchaser
Colorado Quasi-governmental 12-member Board Clearinghouse
Connecticut Quasi-governmental 14-member Board Clearinghouse
District of Columbia Quasi-governmental 11-member Board Clearinghouse
Hawaii Non-profit 15-member Board Clearinghouse
Idaho Non-profit 19-member Board Clearinghouse
Kentucky Operated by State 11-member Board Not yet addressed
Maryland Quasi-governmental 9-member Board Clearinghouse
Massachusetts Quasi-governmental 11-member Board Active purchaser
Minnesota Quasi-governmental 7-member Board Clearinghouse
Nevada Quasi-governmental 10-member Board Clearinghouse
New Mexico Quasi-governmental 13-member Board Not yet addressed
New York Operated by State 5 Regional Advisory Committees Active purchaser
Oregon Quasi-governmental 9-member Board Active purchaser
Rhode Island Operated by State 13-member Board Active purchaser
Utah* Operated by State NA Clearinghouse
Vermont Operated by State 5-member Board Active purchaser
Washington Quasi-governmental 11-member Board Clearinghouse

*Utah has an Executive Steering Committee to advise operations and a Defined Contribution Risk Adjuster Board to manage risk sharing mechanisms.