By Sarah Dash, Christine Monahan, and Kevin Lucia. This blog originally appeared on The Commonwealth Fund Blog on June 19, 2013 and is reproduced here in its entirety. 

Since the enactment of the Affordable Care Act, the roles of states and the federal government in establishing health insurance exchanges—marketplaces where people can shop for comprehensive and affordable health plans—have evolved considerably. While the law originally stipulated that states either would choose to run their own exchanges or default to a federally facilitated exchange, what has emerged is a continuum of options in which states and the federal government, to varying degrees, share responsibilities for the core exchange functions of eligibility and enrollment, plan management, consumer assistance, outreach and education, and financial management. The emergence of new models suggests that the federal government has sought to be responsive to states as they have made decisions about their level of involvement in implementing the Affordable Care Act.

As we wrote in a recent study supported by The Commonwealth Fund, states have had, until recently, four main options for exchange establishment. They could establish their own state-based exchange, default to a federally facilitated exchange, or pursue one of two variants of the federally facilitated exchange: a state partnership exchange or a newer option known as “marketplace plan management.” This option appears to have arisen because states that chose not to pursue a state-based or state-partnership exchange, such as Kansas, still wanted the ability to maintain maximum regulatory authority over their insurance markets.

Reflecting the evolving dynamics of exchange implementation, the Department of Health and Human Services (HHS) issued guidance on May 10 allowing yet another exchange model to move forward—Utah’s “bifurcated” exchange, in which the state will operate a small business exchange while the federal government will operate an exchange for individuals. Since then, New Mexico’s exchange board voted to allow the federal government to provide the IT infrastructure to enroll consumers in New Mexico’s individual exchange while the state runs its own small business exchange. Idaho’s governor has indicated it will pursue a similar route for both its individual and small business exchanges. While more detail is needed to distinguish Idaho and New Mexico’s approach from Utah’s, it appears yet another model for shared responsibility between the state and federal government is emerging.

Understanding the Continuum of Exchange Models
As shown on The Commonwealth Fund’s interactive map, there is a lot of variety in the types of exchanges that will open next year. As of June 1, 2013:

• Sixteen states and the District of Columbia chose to establish a state-based exchange. In a state-based exchange, the state is responsible for all core exchange functions, but may use federal services to assist with certain activities, such as determining eligibility for subsidies. These states are California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington State (plus Washington, D.C.). As noted above, Idaho and New Mexico’s exchanges will initially be partially supported by the federal government.
• Thirty-three states chose to default to a federally facilitated exchange. In a federally facilitated exchange, the federal government retains ultimate authority over operation of the exchange; however, states can opt to conduct certain exchange operations either through a state partnership exchange or the marketplace plan management option. Of these 33 states:
  • Seven states chose to pursue a state partnership exchange. Arkansas, Delaware, Illinois, Iowa, Michigan, New Hampshire, and West Virginia opted to establish state partnership exchanges on or before the federal deadline in February 2013. These states can choose to conduct plan management activities and/or consumer assistance, outreach, and education functions.
  • Seven states chose to pursue the marketplace plan management option. Under this option, a state must conduct the same plan management activities as in a state partnership exchange—including submitting recommendations for plan certification to HHS, tracking and resolving consumer complaints, and ensuring continued compliance with certification standards—but the exchange is otherwise federally run. To date, these states are Kansas, Maine, Montana, Nebraska, Ohio, South Dakota, and Virginia.
  • Nineteen states have not opted for a formal role in exchange operations. Although these states decided not to pursue either the state partnership or marketplace plan management options, HHS has indicated its intent to incorporate, where possible, the results of certain reviews already conducted by these states’ insurance departments into its health plan certification decisions for the federally facilitated exchanges in those states (Alaska, Alabama, Arizona, Florida, Georgia, Indiana, Louisiana, Mississippi, Missouri, New Jersey, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming). This will mean, for example, that HHS will incorporate state reviews for compliance with standards such as network adequacy, rate reviews, and essential health benefits to allow states to maintain consistency in their review of plans inside and outside the exchange where possible.
• One state chose to pursue a bifurcated model. As noted above, Utah initially elected to run a state-based exchange but subsequently asked the federal government to run its individual exchange, while it continues to run a state-based small business exchange. In a proposed rule released on June 14, 2013, HHS formalized this approach, noting that “there could be several types of exchanges operating in a state.” As in states pursuing the marketplace plan management option, Utah will conduct plan management activities on behalf of the federally run individual exchange.

Looking Forward 
Exchange establishment continues to be a dynamic process, reflecting the federal government’s acknowledgment of states’ practical and political realities. Interviews we conducted with state officials in 12 states with various exchange models confirmed that states value the ability to maintain control over their insurance markets and tailor the exchanges to their residents. Several states initially considered or began planning for a state-based exchange before ultimately defaulting to a federally facilitated exchange or one of its variants. In most cases, this occurred because states were unable to obtain legal authority to move forward with a state-based exchange, reflecting the inherent challenges in obtaining agreement within state government on which course to pursue.

Although state decisions appear largely made for 2014, states will have another opportunity to transition between models for the second year of exchange operations. The evolution of new options for health insurance exchanges suggests that states will continue to have the opportunity to work with federal regulators to implement exchanges in ways that meet the unique needs of their consumers.