PATIENT 

PROTECTION AND 

AFFORDABLE CARE 

ACT

Status of Federal and 

State Efforts to 

Establish Health 

Insurance Exchanges 

for Small Businesses

Report to the Chairman, Committee on 

Small Business, House of 

Representatives

June 2013

GAO-13-614

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-614, a report to the 

Chairman, Committee on Small Business, 

House of Representatives

June 2013

PATIENT PROTECTION AND AFFORDABLE 

CARE ACT

Status of Federal and State Efforts to Establish 

Health Insurance Exchanges for Small Businesses

Why GAO Did This Study

The Patient Protection and Affordable 

Care Act (PPACA) requires SHOPs—

exchanges or marketplaces where 

small employers can shop for health 

coverage for their employees—to be 

established in all states. PPACA also 

requires similar exchanges to be 

established for individuals. CMS 

oversees the establishment of the 

SHOPs, approving states to operate 

one or establishing and operating one 

itself in states that will not do so. 

Enrollment is to begin October 2013, 

with coverage effective January 2014, 

although a key requirement related to 

employee choice was deferred for 

1 year. GAO was asked to examine 

federal and state readiness to establish 

the SHOPs. In this report, GAO 

describes (1) the roles of the federal 

government and states in establishing 

SHOPs and (2) the status of actions 

taken and planned by the federal 

government and states in preparing to 

establish SHOPs.

GAO reviewed CMS regulations and 

guidance on the roles of CMS and 

states in establishing both SHOPs and 

individual exchanges, as progress 

establishing the two exchanges is 

related. GAO reviewed CMS planning 

documents used to track the progress 

of key activities to be conducted by 

CMS to establish FF-SHOPs and 

FFEs. GAO also reviewed target 

completion dates for key activities 

CMS established for states and 

obtained updates from CMS on state 

progress. GAO interviewed CMS 

officials and relied largely on 

documentation from CMS—including 

information CMS developed on the 

basis of its contacts with states—and 

did not interview states.

What GAO Found

For 2014, the Department of Health and Human Services’ (HHS) Centers for 

Medicare & Medicaid Services (CMS) granted conditional approval to 18 states 

to establish state-based Small Business Health Options Programs, or SHOPs, 

and to 17 states to operate health insurance exchanges for individuals. CMS is 

required to operate a federally facilitated SHOP (FF-SHOP) and a federally 

facilitated exchange for individuals (FFE) in the remaining states. Of the 33 

states with FF-SHOPs and 34 states with FFEs, 15 states are expected to assist 

CMS to carry out certain functions of the exchange. However, the activities that 

CMS plans to complete in these 15 exchanges have evolved, and CMS activities 

in these and other exchanges may continue to change. For example, CMS 

approved state roles in SHOPs and individual exchanges on the condition that 

they ultimately complete key activities for exchange establishment. CMS 

indicated that it would assume more responsibilities in these exchanges if any 

state did not adequately progress towards completion of all required activities. 

CMS and states have made progress in establishing SHOPs, although many 

activities remain to be completed and some were behind schedule. CMS issued 

regulations and guidance necessary to establish SHOPs and took steps to 

establish processes and data systems necessary to operate the FF-SHOPs. 

Many activities remain to be completed in the core functional areas of eligibility 

and enrollment, plan management, and consumer assistance, and while the 

agency has established timelines for completion of these activities, some were

behind schedule. For example, funding awards and development of a training 

curriculum for a key program that will provide outreach and enrollment assistance 

to small employers and employees have been delayed by about 2 months. 

Regarding states, CMS data showed that most had completed preliminary 

activities such as obtaining the necessary authority to operate an exchange, and 

many had made progress in each of the core functional areas. Many key 

activities remained to be completed—some scheduled for near the start of 

enrollment in October 2013—and, as of May 2013, states were behind schedule 

in completing some key activities. In particular, about 44 percent of the key 

activities CMS initially targeted for completion by March 31, 2013, were behind 

schedule, although CMS reported that it had revised many target dates and other 

delays were not expected to affect exchange operations. 

Much progress has been made, but much remains to be accomplished by CMS 

and states within a relatively short amount of time. CMS’s timelines for the 

remaining key activities provide a roadmap for completion; however, factors such 

as the still-evolving scope of CMS’s required activities in each state and the 

many activities yet to be completed—some close to the start of enrollment—

could suggest the potential for future challenges. And while missed interim 

deadlines may not affect implementation, additional missed deadlines could do 

so. CMS said it is working on strategies in each state to address contingencies. 

Whether CMS’s contingency planning will assure the timely and smooth 

implementation of the exchanges by October 2013 cannot yet be determined.

In commenting on a draft of this report, HHS emphasized the progress it has 

made in establishing exchanges, and expressed its confidence that exchanges 

will be open and functioning in every state by October 1, 2013.

View GAO-13-614. For more information, 

contact John Dicken at (202) 512-7114 or 

dickenj@gao.gov.
Page i GAO-13-614 Small Business Health Insurance Exchanges

Letter 1 

Background 5

CMS and State Roles and Activities in Establishing SHOPs Vary and 

May Continue to Evolve 12

CMS and States Have Made Progress Establishing SHOPs and FFSHOPs, but Many Key Activities Are Yet to Be Completed and 

Some Were Behind Schedule 17

Concluding Observations 28

Agency Comments 28

Appendix I Comments from the Department of Health and Human 

Services 30

Appendix II GAO Contact and Staff Acknowledgments 32

Table

Table 1: CMS-Identified Key Activities to Be Completed by Each 

State-based Small Business Health Options Program 

(SHOP) and Individual Exchange, as of May 13, 2013 23

Figures

Figure 1: Health Insurance Exchange Arrangements for 2014, as of 

May 10, 2013 14

Figure 2: Examples of Remaining Key Activities Required for States 

to Establish Exchanges and the Target Completion Dates, 

as of April 24, 2013 26

Contents 
Page ii GAO-13-614 Small Business Health Insurance Exchanges

Abbreviations

CMS Centers for Medicare & Medicaid Services

FFE federally facilitated exchange

FF-SHOP federally facilitated Small Business Health Options

 Program

HCERA Health Care and Education Reconciliation Act of 2010

HHS U.S. Department of Health and Human Services

IT information technology

PPACA Patient Protection and Affordable Care Act

QHP qualified health plan

SHOP Small Business Health Options Program

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

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Page 1 GAO-13-614 Small Business Health Insurance Exchanges

441 G St. N.W.

Washington, DC 20548

June 19, 2013

The Honorable Sam Graves

Chairman

Committee on Small Business

House of Representatives

Dear Mr. Chairman:

The Patient Protection and Affordable Care Act (PPACA),1 requires the 

establishment in all states2 of Small Business Health Options Programs 

(SHOP)—exchanges, or marketplaces, where small employers can shop 

for and purchase health coverage for their employees.3 PPACA also 

requires the establishment of individual exchanges in each state where 

eligible individuals can compare and select private insurance coverage 

from among participating health insurance plans. The SHOPs and 

individual exchanges are intended to provide single points of access to 

enroll employees of small businesses and individuals into private health 

plans.4 The Department of Health and Human Services’ (HHS) Centers 

for Medicare & Medicaid Services (CMS) is responsible for overseeing 

the establishment of these exchanges. PPACA requires that enrollment 

for the exchanges begin on October 1, 2013, and that the exchanges 

become operational and offer health coverage starting on January 1, 

2014.5

 

1

Pub. L. No. 111-148, §§ 1311(b), 1321(c),124 Stat. 119, 173, 186 (Mar. 23, 2010) 

(hereafter, “PPACA”), as amended by the Health Care and Education Reconciliation Act of 

2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010) (hereafter, “HCERA”). In this 

report, references to PPACA include any amendments made by HCERA. 

The Congressional Budget Office estimated in May 2013 that 

2

In this report, the term “state” includes the District of Columbia.

3

Under PPACA, until 2016, states have the option to define “small employers” either as 

those with 100 or fewer employees or 50 or fewer employees.

4

Individual exchanges will also be the access point to determine eligibility for incomebased premium subsidies and assess eligibility for other health coverage programs, such 

as Medicaid or the State Children’s Health Insurance Program. Medicaid is a joint federalstate program that provides health care coverage for certain low-income individuals. The 

Children’s Health Insurance Program is a federal-state program that provides health care 

coverage to children 18 years of age and younger living in low-income families whose 

incomes exceed the eligibility requirements for Medicaid.

5

PPACA, § 1311(b), 124 Stat. at 173.

 
 

Page 2 GAO-13-614 Small Business Health Insurance Exchanges

about 2 million individuals will enroll in employer-based coverage through 

SHOPs and 7 million individuals will enroll in individual exchanges by 

2014, respectively, increasing to about 4 million and 24 million by 2022, 

respectively.6

PPACA directed states to establish state-based exchanges by January 1, 

2014.7 In states electing not to establish and operate such an exchange, 

PPACA requires the federal government to establish and operate an 

exchange in the state, both a federally facilitated SHOP (FF-SHOP) and a 

federally facilitated exchange (FFE) for individuals.8

 

6

Congressional Budget Office, Effects on Health Insurance and the Federal Budget for the 

Insurance Coverage Provisions in the Affordable Care Act—May 2013 Baseline

(Washington, D.C.: May 14, 2013).

As a result, the 

federal government’s role with respect to an exchange for any given 

state—and, in particular, whether it will establish an exchange or oversee 

a state-based exchange in the state—is dependent on state decisions. As 

directed by PPACA, FF-SHOPs and FFEs must carry out the same 

functions as exchanges established and operated by a state. The federal 

government bears responsibility for establishing and operating the FFSHOP and FFE; however, in establishing the framework within which an 

FF-SHOP and FFE in a particular state will be established and operated, 

CMS has invited states to assist with certain FF-SHOP and FFE 

operations. CMS refers to FF-SHOPs and FFEs in these states as 

partnership exchanges. States seeking to operate a state-based

exchange were required to submit an application to CMS that attests to 

when the state would complete specific activities CMS deemed essential 

to operating an exchange. States electing not to establish a state-based 

exchange, but seeking to participate in a partnership exchange were 

required to complete an abbreviated version of that application tailored to 

the particular activities that the state would carry out for the FF-SHOP 

and FFE. On the basis of this documentation, CMS conditionally 

approved states to establish a state-based exchange or to participate in a 

partnership exchange on the basis that they complete key activities by 

targeted completion dates, and take other steps necessary for the 

operation of an exchange. States’ decisions to operate an exchange 

generally apply to both the SHOP and individual exchanges—states 

7

PPACA, § 1311(b)(1), 124 Stat. at 173.

8

PPACA, § 1321(c), 124 Stat. at 186.
 

Page 3 GAO-13-614 Small Business Health Insurance Exchanges

generally do not operate just one or the other.9

As the October 1, 2013, required start of health plan enrollment draws 

nearer, an important question is whether the SHOPs will be ready to 

begin accepting applications on that date and be fully operational by 

January 1, 2014. You asked that we examine state and federal readiness 

to establish the SHOPs. In this report, we describe

States electing not to 

establish a state-based exchange or participate in a partnership 

exchange were not required to submit any documentation to CMS.

1. the roles of the federal government and states in establishing SHOPs, 

and

2. the status of actions taken and planned by the federal government 

and states in preparing to establish SHOPs.

Our objectives were to focus on the SHOPs, rather than the individual 

exchanges; however, the progress made in establishing the SHOPs and 

the individual exchanges is interrelated. Fundamental elements of the 

exchanges, such as the entities that will operate them, the governance 

structure, and the IT infrastructure, are largely common to both types of 

exchanges with limited exceptions, so progress on these exchange 

elements generally applies to both SHOPs and individual exchanges. 

Therefore, throughout this report, our discussion of the status of efforts to 

establish SHOPs generally relates to both the SHOPs and the individual 

exchanges unless otherwise noted.10

To describe the roles of the federal government and states in establishing 

SHOPs, GAO reviewed HHS regulations, guidance, and other documents 

 

9

Although PPACA directs states to establish both an individual exchange and a SHOP 

exchange, the law allows states to operate only one exchange for providing individual and 

SHOP exchange services. PPACA, § 1311(b)(2), 124 Stat. at 173-4. However, CMS 

announced a proposed rule that, if finalized, would permit a state to operate a SHOP while 

CMS operates the individual exchange in the state. This proposed rule was released by 

CMS on June 14, 2013, and will be published in the Federal Register on June 19, 2013.

10GAO reported on actions taken by seven states in establishing their individual 

exchanges. See GAO, Health Insurance: Seven States’ Actions to Establish Exchanges 

Under the Patient Protection and Affordable Care Act, GAO-13-486 (Washington, D.C.: 

Apr. 30, 2013). GAO is also reporting on the progress made by CMS in developing the 

FFE. See GAO, Patient Protection and Affordable Care Act: Status of CMS Efforts to 

Establish Federally Facilitated Health Insurance Exchanges, GAO-13-601 (Washington, 

D.C.: June 19, 2013).
 

Page 4 GAO-13-614 Small Business Health Insurance Exchanges

issued by CMS—including an application that CMS required states 

seeking to establish a state-based exchange or participate in a 

partnership exchange in 2014 to complete. This application describes the 

roles of CMS and states in establishing both SHOPs and individual 

exchanges, as establishment of the two types of exchanges is closely 

related. We also interviewed CMS officials to clarify these documents and 

obtain updated information on the evolving decisions related to federal 

and state responsibilities for specific activities to be performed in each 

state.

To describe the status of federal actions taken and planned to establish 

FF-SHOPs, we examined planning documents and timelines used by 

CMS to track the status of key activities to be conducted by the federal 

government to establish FF-SHOPs and FFEs. In addition, we developed 

a data collection instrument for CMS to complete about its key activities 

underway or planned in establishing the FF-SHOPs and FFEs. The 

instrument asked CMS to provide information on the activities that it had 

completed and the completion dates, and a description of key activities 

remaining to be completed and the expected completion dates. To 

describe the status of state actions taken and planned towards 

establishing the SHOPs, we reviewed the conditional approval letters in 

which CMS highlighted targeted completion dates for key activities for 

exchange establishment in each of the states conditionally approved by 

CMS to operate state-based exchanges or participate in partnership 

exchanges.11 To determine the extent to which prior targeted completion 

dates had been met, CMS provided us with updated data on the status of 

the key activities that were targeted for completion through March 31, 

2013. Additionally, we reviewed other publically available information from 

organizations tracking progress towards exchange establishment, such 

as the State Refor(u)m12

 

11CMS noted in its letters that these key activities and targeted completion dates would 

function as a gauge of progress, but did not represent all that the states must do to 

operate as a state-based exchange.

—an online network for health reform 

implementation. We also interviewed CMS officials to better understand 

the status of the FF-SHOP and state-based SHOPs. To describe both 

federal and state actions in establishing exchanges, we relied largely on 

information and documentation provided to us by CMS—including 

12State Refor(u)m, http://www.statereforum.org, is an initiative of the National Academy for 

State Health Policy, funded by the Robert Wood Johnson Foundation. 
 

Page 5 GAO-13-614 Small Business Health Insurance Exchanges

information CMS developed on the basis of its contacts and information 

exchanges with states—and did not interview or collect information 

directly from state officials.

We conducted this performance audit from February 2013 through June 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

SHOPs are intended to allow eligible small businesses and their 

employees to obtain health insurance, and all SHOPs, whether statebased or established and operated by the federal government, will be 

required to perform certain functions. The federal government’s role with 

respect to a SHOP in any given state is dependent on the decisions of 

that state.

PPACA required that SHOPs be established in each state to allow small 

employers in that state to compare health insurance options available and 

facilitate the enrollment of their employees in coverage. Once the SHOPs 

are established, employers and employees will be able to access the 

SHOPs through a website, toll-free call centers, or in person. The SHOP 

in a particular state will present the qualified health plans (QHP) approved 

by the SHOP for the small-employer market and offered in the state by 

the participating issuers of health coverage.13

 

13The QHPs offered through the exchanges are required to meet certain benefit design, 

consumer protection, and other standards. In addition, all issuers or members of the same 

issuer group with a market share greater than 20 percent in the state’s small group health 

insurance market must participate in a state’s FF-SHOP if they wish to participate in its 

FFE. 

The benefits, cost-sharing 

features, and premiums of each QHP are to be presented in a manner 

that facilitates comparison shopping of plans by small employers and their 

employees. Employers will determine their contribution towards employee 

coverage and choose which QHP or QHPs will be offered to their 

employees. Both employers and employees will complete an 

application—through the SHOP website, over the phone, in person, or by 

Background 

Overview of SHOPs
 

Page 6 GAO-13-614 Small Business Health Insurance Exchanges

mail—that collects the information necessary to screen the small 

employer’s eligibility and the eligibility of each of its employees to enroll in 

a QHP.14 Small employers and employees may receive assistance to 

compare coverage options and complete an application through an 

insurance agent, broker, or a Navigator.15

SHOPs have various options regarding how to allow employers to select 

coverage for their employees. A SHOP may allow a qualified employer to 

select a specific level or “tier” of coverage —bronze, silver, gold, or 

platinum—and allow the employer to make all QHPs within that tier 

available to the employee.

CMS has noted that brokers 

will play a vital role in the SHOPs, as they currently do in the small-group 

health coverage market, providing service at the time of plan selection 

and enrollment and customer service throughout the plan year.

16

 

14Under PPACA, until 2016, states have the option to define “small employers” either as 

those having from 1 through 100 full-time equivalent employees or those having from 

1 through 50 full-time equivalent employees. Beginning in 2016, small employers will be 

defined in all states as those with 100 or fewer full-time equivalent employees. Beginning 

in 2017, states may allow issuers of health insurance coverage in the large group 

market—issuers offering coverage to groups of 101 or more full-time equivalent 

employees—to offer QHPs through an exchange and, in turn, may allow large employers 

to obtain coverage through the exchange. To be eligible for SHOP coverage, a small 

employer must also offer, at a minimum, all full-time employees coverage in a QHP 

through a SHOP, and may either offer coverage to all eligible employees through the 

SHOP serving the area in which the employer has its principal business address or offer 

coverage to each eligible employee through the SHOP that serves that employee’s 

primary worksite. Sole proprietors are considered individuals and will purchase through 

the individual exchange, not through a SHOP. To be eligible to enroll in a QHP through a 

SHOP, an individual must have been offered health insurance coverage by a qualified 

employer through a SHOP.

A SHOP may also allow an employer to offer 

broader employee choices among multiple plans across different tiers. 

The ability of employees to choose a plan that best meets their needs 

among multiple plans offered to them by their employer is referred to as 

15Navigators are individuals and entities, such as community and consumer-focused 

nonprofit groups, to which exchanges award grants to provide information and services in 

a fair and impartial manner. The duties of a Navigator include providing public education 

to raise awareness about the exchange, facilitating selection of a QHP, and, as 

appropriate, referring consumers for assistance with complaints or questions regarding 

their health coverage.

16PPACA sets standards for the percentage of total average costs for covered benefits 

that most health plans including QHPs offered on an exchange are required to cover. For 

example, for a bronze plan, on average, an employee would be responsible for 40 percent 

of the costs of all covered benefits, while for a platinum plan, on average, an employee 

would be responsible for 10 percent of the costs of all covered benefits.
 

Page 7 GAO-13-614 Small Business Health Insurance Exchanges

“employee choice.” CMS had noted that employee choice was a 

fundamental new benefit of SHOPs, in that small employers would now 

be able to offer multiple plans from more than one issuer of health 

coverage—much in the way large employers traditionally have, and 

SHOPs were required to have the capacity to allow employers to provide 

employee choice beginning in 2014. Under a final rule issued in June

2013, however, SHOPs will not be required to have this capacity until 

2015.

17 State-based SHOPs may voluntarily offer this option in 2014, but 

FF-SHOPs will not make it available until 2015, when all SHOPs will be 

required to allow a qualified employer to select a single tier of coverage 

and make all QHPs within that tier available to employees. To make it 

more administratively efficient for employers to provide their employees a 

choice of QHP, CMS also required SHOPs to aggregate the QHP 

premiums for multiple employees enrolling in a particular QHP, provide 

the relevant qualified employer with a bill identifying the total amount that 

is due to a particular QHP, and collect the relevant amount from each 

employer and pay QHP issuers directly.18 However, like the deferral on 

employee choice, this requirement was deferred until 2015; state-based 

SHOPs may voluntarily provide this premium aggregation in 2014, but 

FF-SHOPs will not.19

Some small employers may also be eligible for a small business premium

tax credit when they offer health coverage.20

 

1778 Fed. Reg. 33233, 33239 (June 4, 2013).

Through 2013, small 

employers may be eligible for a credit of up to 35 percent of the 

employers’ share of the employees’ premiums. Starting in 2014, the 

maximum tax credit increases to 50 percent, but is available only to small 

employers who purchase coverage through the SHOP. Small employers 

are eligible for this larger tax credit for a maximum of 2 years. Nonprofit 

employers meeting the eligibility criteria can receive credits for 25 percent 

1877 Fed. Reg. 18310, 18464 (Mar. 27, 2012).

1978 Fed. Reg. at 33239 (June 4, 2013). In the proposed rule, CMS noted that this delay 

was in response to concerns expressed by issuers of health coverage that they would not 

be able to complete enrollment and accounting system changes required to interact with 

the SHOP enrollment and premium aggregation systems required by employee choice; 

and whether there would be adequate time to educate employers, employees, and 

brokers about the employer and employee choices available in the SHOP.

20To be eligible, an employer must: (1) have fewer than the equivalent of 25 full-time 

workers, (2) have an average annual employee wage below $50,000, and (3) cover at 

least 50 percent of the cost of health insurance coverage for employees.
 

Page 8 GAO-13-614 Small Business Health Insurance Exchanges

of the employer’s share of premium costs through 2013 and, beginning in 

2014, 35 percent of these premium costs for coverage purchased through 

a SHOP for a maximum of 2 years.

To establish the SHOPs, the federal government and states will be 

required to perform certain activities, many of which can be grouped into 

three core exchange functional areas: eligibility and enrollment, plan 

management, and consumer assistance. These functional areas are the 

same for the SHOPs and individual exchanges, although some activities 

may vary.

• Eligibility and enrollment: All SHOPs will be required to have the 

capacity to determine small employer and employee eligibility for QHP 

enrollment and to enroll employers and their employees into the 

applicable QHPs. The SHOPs will use a streamlined enrollmenteligibility system to collect information from employer and employee 

applications and verify that information. To carry out these functions, 

states and the federal government will need to develop complex 

information technology (IT) systems that securely facilitate the 

movement of information between various entities such as small 

employers, employees, and issuers of health coverage.

• Plan management: SHOPs will be required to develop and implement 

processes and standards to certify health plans for inclusion as QHPs 

and recertify or decertify them, as needed.21

 

21A SHOP may initially certify a plan as a QHP if the plan meets the required minimum 

criteria and if the exchange determines that it is in the best interest of eligible employers 

and employees to have such a plan available. The annual recertification process, at a 

minimum, must include a review of the general certification criteria and must be completed 

on or before September 15 of the applicable calendar year. The SHOP must also have the 

ability to decertify a plan at any time if the SHOP determines that the QHP no longer 

meets the certification requirements.

As part of this, the SHOP 

must develop an application for issuers of health coverage that seek 

to offer a QHP. The SHOP must review the health plan data to ensure 

it meets certification standards for inclusion in the SHOP as a QHP. 

For example, the SHOP is to ensure that the health plan will accept 

payment from the SHOP on behalf of an employer and enroll an 

employee in accordance with the employer’s annual employee open 

enrollment period. The SHOP must also conduct ongoing oversight 

Core Functions of SHOPs
 

Page 9 GAO-13-614 Small Business Health Insurance Exchanges

and monitoring to ensure that the QHPs comply with all applicable 

regulations.

• Consumer assistance: SHOPs will be required to provide a call 

center, website, and in-person assistance to support small employers 

and their employees in filing an application, obtaining an eligibility 

determination, comparing coverage options, and enrolling in a QHP.22

Other consumer assistance activities that SHOPs must conduct are 

outreach and education to raise awareness of and promote enrollment 

in QHPs.

The role of the federal government with respect to a SHOP for a state is 

dependent on whether the state seeks to operate a state-based 

exchange. States can choose to establish exchanges as directed by 

PPACA and seek approval from CMS to do so. States electing to 

establish and operate a state-based exchange, including a SHOP, were 

required to submit to CMS, by December 14, 2012, the “Blueprint for 

Approval of Affordable State-based and State Partnership Insurance 

Exchange.” Through this Blueprint application, the state attests to how its 

exchange meets, or will meet, all legal and operational requirements.23

 

22In general, SHOPs are required to provide in-person assistance only for the purpose of 

assisting small employers and employees to complete an application. CMS notes that 

licensed agents and brokers will provide much of the in-person assistance for 

FF-SHOP enrollees.

For example, the state must demonstrate that it will establish the 

necessary legal authority and governance, oversight, financialmanagement processes, and the core exchange functions of eligibility 

and enrollment, plan management, and consumer assistance. For each 

activity in the Blueprint application, the state must attest to either the 

completion of the activity or its expected completion date and provide a 

timeline and work plan. Depending on the activity, the state may also be 

required to provide supporting documentation. Although a state assumes 

responsibility for the exchange when it elects to operate a state-based 

SHOP and individual exchange, it can choose to rely on the federal 

23A state that elects to operate its own exchange has a number of legal and operational 

decisions to make, including decisions related to its organizational structure 

(governmental agency or a nonprofit entity) and governance (governing board and 

standards of conduct).

Federal and State Roles in 

Operating SHOPs
 

Page 10 GAO-13-614 Small Business Health Insurance Exchanges

government for certain exchange-related activities, including having the 

federal government operate activities related to risk adjustment.24

Under PPACA, if a state did not elect to establish a state-based exchange 

or is not approved by CMS to operate its own exchange, then CMS is 

required to establish and operate an FF-SHOP and FFE in that state. 

Although the federal government retains responsibility to establish and 

operate the FF-SHOPs and FFEs, CMS has identified possible roles for 

states to play in the day-to-day operation of these exchanges.

• CMS indicated that a state can choose to participate in an FF-SHOP 

and FFE through a partnership exchange by assisting CMS with plan 

management, consumer assistance, or both. According to CMS, the 

overall goal of a partnership exchange is to enable the FF-SHOP and 

FFE to benefit from efficiencies to the extent states have regulatory 

authority and capability to assist with these functions, help tailor the 

FF-SHOP and FFE to that state, and provide a seamless experience 

for consumers. The agency also noted that a partnership exchange 

can serve as a path for states toward future implementation of a statebased exchange.25 Although the states would assist in carrying out 

plan management or consumer assistance, or both, on a day-to-day 

basis, CMS would retain responsibility for these activities and the 

activities within other functional areas. By February 15, 2013, states 

seeking to participate in a partnership exchange had to submit a 

Blueprint application to CMS regarding expected completion dates for 

required activities related to their participation.

• CMS indicated in guidance issued on February 20, 2013 that an 

FF-SHOP and FFE state choosing not to submit a Blueprint 

application for a partnership exchange by the February 15, 2013, 

 

24PPACA and implementing regulations provide that, beginning with the 2014 benefit 

year, states electing to operate a state-based exchange may establish a permanent riskadjustment program for all nongrandfathered plans in the individual and small-group 

markets both inside and outside of the exchanges. HHS will establish this risk-adjustment 

program for any state that will have an FFE, including a partnership exchange, or for 

states operating a state-based exchange but that do not elect to administer the riskadjustment program. This risk-spreading mechanism is designed to mitigate the potential 

effect of adverse selection and provide stability for health insurance issuers in the 

individual and small group markets.

25Through regulation, CMS has outlined a process for states, regardless of whether they 

participate in a partnership exchange, to seek approval to establish a state-based 

exchange after 2014.
 

Page 11 GAO-13-614 Small Business Health Insurance Exchanges

deadline could still choose to assist with the plan management 

function.26 CMS officials said that, operationally, the activities 

performed by these states will be no different than the activities 

performed by states as part of a partnership exchange. Instead of a 

Blueprint application, states interested in participating in this

alternative arrangement had to submit letters attesting that the state 

would perform all plan management activities in the Blueprint 

application.27

• Even in states in which CMS will operate an FF-SHOP and FFE 

without states’ assistance, CMS plans to rely on states for certain 

information. For example, it expects to rely on state licensure of health 

plans as one element of its certification of a QHP. Additionally, CMS 

has indicated that for states in which an FF-SHOP will operate, 

including as part of a partnership exchange, it will adopt the states’ 

upper threshold of 50 or 100 full-time equivalent employees for its 

small group market in 2014 and 2015 for the purpose of determining 

whether a small employer is qualified to participate in the SHOP.

After a state submits an application to operate a state-based SHOP and 

individual exchange or participate in a partnership exchange, CMS may 

approve or conditionally approve the state for that status. Conditional 

approval indicates that the state had not yet completed all steps 

necessary to carry out its responsibilities in a state-based exchange or 

partnership exchange, but its SHOP and individual exchange are 

expected to be ready by the beginning of initial enrollment on October 1, 

2013. To measure progress towards completing these steps, CMS 

officials indicated that the agency created a set of typical dates for when 

specific key activities would need to be completed in order for the 

exchanges to be ready for the initial enrollment period. The agency then 

 

26For the purposes of this report, we refer only to states that have been conditionally 

approved to participate in partnership exchanges as partnership states.

27CMS officials said that they considered whether to offer FF-SHOP and FFE states this 

type of arrangement for other functional areas. However, they noted that there are 

differences between plan management and consumer assistance that made plan 

management a better candidate for such an arrangement. In particular, they said that 

many elements of plan management are similar to those activities that states engage in as 

a part of their traditional role as an insurance regulator. Therefore, according to these 

officials, these states would not have to take many additional steps to assist with an 

FF-SHOP’s and FFE’s plan management function. They said that, in contrast, consumer 

assistance, which is not a function that states previously performed, is more likely to be 

resource-intensive for the states. 
 

Page 12 GAO-13-614 Small Business Health Insurance Exchanges

adapted those dates for each state establishing a state-based SHOP and 

individual exchange or participating in a partnership exchange. CMS 

officials said that if the state indicated in its Blueprint application that it 

planned to complete an activity earlier than CMS’s typical target 

completion date, CMS accepted the state’s earlier date. If the state 

proposed a date that was later than CMS’s typical target date, the state 

had to explain the difference, and CMS determined whether that date 

would allow the exchange to be ready for the initial enrollment period. The 

agency indicated that a state’s conditional approval continues as long as 

it meets the key activity target dates agreed to with the individual state 

and demonstrates its ability to perform all required exchange activities.

The federal government’s role in operating a SHOP and individual 

exchange in a particular state may change in future years if states 

reassess and alter the roles they play in establishing and operating 

exchanges. For example, a state may be approved to participate in a 

partnership exchange in 2014 and then apply, and receive approval, to 

run a state-based SHOP and individual exchange in 2015. Although the 

federal government would retain some oversight over the state-based 

exchanges, the responsibility for operating the exchange would shift from 

the federal government to the state.

CMS conditionally approved 18 states to operate state-based SHOPs in 

2014, and expects to operate FF-SHOPs in 33 states in 2014. However, 

the nature of the activities that CMS and the states will conduct has not 

been finalized and may continue to evolve.

CMS and State Roles 

and Activities in 

Establishing SHOPs 

Vary and May 

Continue to Evolve
 

Page 13 GAO-13-614 Small Business Health Insurance Exchanges

For 2014, CMS conditionally approved 18 states to operate state-based 

SHOPs and individual exchanges.28 CMS issued conditional approval 

letters to these states from December 2012 to January 2013. While Utah 

was originally conditionally approved to operate a state-based exchange, 

in February 2013, the governor of Utah proposed that the federal 

government operate the individual exchange, and the state build upon 

and operate its existing small business health insurance marketplace as a 

SHOP. On May 10, 2013 CMS indicated that it planned to issue a 

proposed rule that, if finalized, would permit Utah to adopt this approach. 

On June 14, 2013, CMS released this proposed rule, which will be 

published in the Federal Register on June 19, 2013. In the remaining 

states that did not apply to operate state-based exchanges or were not 

conditionally approved to do so, CMS is required to operate an FF-SHOP 

and FFE. While CMS will retain full authority over each of the 33 FFSHOPs and 34 FFEs, it plans to allow 15 of these states to assist in 

carrying out certain exchange functions. Specifically, as of May 2013, 

CMS granted the 7 states with an FF-SHOP and FFE conditional 

approval to participate in a partnership exchange. CMS issued these 

conditional approval letters from December 2012 to March 2013. Of those 

states participating in a partnership exchange, 6 (Arkansas, Delaware, 

Illinois, Michigan, New Hampshire, and West Virginia) indicated that they 

planned to assist with both the plan management and consumer 

assistance functions of the exchange and 1 (Iowa) indicated that it would 

only assist with the plan management function. In an alternate 

arrangement, CMS plans to allow the other 8 states (Kansas, Maine, 

Montana, Nebraska, Ohio, South Dakota, Utah,29

 

28The 18 state-based SHOPs include California, Colorado, Connecticut, Hawaii, Idaho, 

Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, 

Oregon, Rhode Island, Utah, Vermont, Washington, and the District of Columbia.

and Virginia) to assist 

with the plan management function. (See fig. 1 for a map of exchange 

arrangements for 2014.)

29CMS intends to permit Utah to operate a state-based SHOP, while it operates an FFE 

for individuals in the state.

CMS Conditionally 

Approved 18 States to 

Operate State-Based 

SHOPs, and Expects to 

Operate FF-SHOPs in the 

Remaining 33 States in 

2014
 

Page 14 GAO-13-614 Small Business Health Insurance Exchanges

Figure 1: Health Insurance Exchange Arrangements for 2014, as of May 10, 2013

Note: Unless otherwise indicated, the exchange arrangement shown for each state applies to both 

the Small Business Health Options Program (SHOP) and the individual exchange.

a

Iowa intends to assist with the plan management function, and not the consumer assistance function.

b

On May 10, 2013, CMS indicated that it planned to issue a proposed rule that, if finalized, would 

permit Utah to operate a state-based SHOP, while CMS would operate the individual exchange as an 

FFE, for which Utah would assist with plan management. On June 14, 2013, CMS released this 

proposed rule, which will be published in the Federal Register on June 19, 2013.
 

Page 15 GAO-13-614 Small Business Health Insurance Exchanges

Some states also informed CMS of whether or not they chose to carry out 

certain other activities related to the exchanges.30 For example, CMS 

indicated that Massachusetts would operate a risk-adjustment program 

for benefit year 2014, leaving CMS to operate programs in the remaining 

states.

Although decisions about the roles of CMS and the states in the 

exchanges have been made, the activities that CMS and the states each 

plan to carry out have evolved recently. CMS was required by statute to 

certify or conditionally approve any state-based SHOPs and individual 

exchanges by January 1, 2013.31

 

30Although not specifically related to exchange operation, states are also informing CMS 

whether they are enforcing, or plan to enforce, new health insurance market reforms 

enacted under PPACA. Some of these reforms, including a provision prohibiting lifetime 

limits on the dollar value of benefits provided under a group or individual health plan, are 

already in effect; others, including a provision prohibiting issuers of group and individual 

health coverage from denying coverage or charging higher premiums because of 

preexisting conditions, do not take effect until 2014. These provisions apply whether a 

plan is offered on an exchange or outside of an exchange. States were asked to notify 

CMS whether they would enforce PPACA’s health insurance market reforms. As required 

under a 1999 rule implementing the Health Insurance Portability and Accountability Act of 

1996, CMS is required to enforce these and other health insurance market regulations 

under the Public Health Service Act in states that do not have authority to enforce them or 

otherwise fail to enforce them. CMS indicated that, as of April 8, 2013, 11 states notified 

CMS that they do not have the authority to enforce or are not otherwise enforcing PPACA 

insurance market provisions, leaving CMS to assume an enforcement role. CMS officials 

indicated that there is no deadline for this notification, but a notification is required of all 

states.

CMS extended application deadlines 

leading up to that date to provide states with additional time to determine 

whether they would operate a state-based SHOP and individual 

exchange. On November 9, 2012, CMS indicated that in response to 

state requests for additional time, it would extend the deadline for 

submission of the application for states that wished to operate statebased exchanges in 2014 by about 1 month to December 14, 2012. The 

agency noted that this extension would provide states with additional time 

for technical support in completing the application. At the same time, the 

agency also extended the application deadline for states interested in 

participating in a partnership exchange by about 3 months to 

February 15, 2013. In addition, the option for FFE states to participate in 

an alternate arrangement to provide plan management assistance to the 

31There was no statutory deadline for approvals of partnership exchanges, as such 

exchanges were not specifically identified in PPACA.

Planned CMS and State 

Activities to Establish 

SHOPs Have Evolved 

Recently and May 

Continue to Change
 

Page 16 GAO-13-614 Small Business Health Insurance Exchanges

FFE was made available to states by CMS in late February 2013. CMS 

did not provide states with an explicit deadline for them to indicate their 

intent to participate in this arrangement, but CMS officials said April 1, 

2013, was a natural deadline because issuers of health coverage had to 

know by then to which entity—CMS or the state—to submit health plan 

data for QHP certification.

The specific activities CMS will undertake in each of the state-based and 

partnership exchanges may continue to change if states do not make 

adequate progress toward completion of their key activities. When CMS 

granted conditional approval to states, it was contingent on states 

meeting several conditions, such as obtaining authority to undertake 

exchange activities and completing key activities by specified target 

dates. For example, in April 2013, CMS officials indicated that Michigan—

a state that had been conditionally approved by CMS to participate in a 

partnership exchange—had not been able to obtain the legislative 

authority needed to use federal grant funds to pay for exchange activities, 

which has been a requirement of its conditional approval. As of May 2, 

2013, CMS officials expected that Michigan would participate in a 

partnership exchange, but indicated that Michigan may not be able to 

conduct consumer assistance without funding authority.32

CMS officials indicated that they are working with each state to develop 

mitigation strategies to ensure that all applicable exchange functions are 

operating in each state on October 1, 2013. Agency officials said that they 

are assessing the readiness of each state as interim deadlines approach. 

They noted, 

however, that a final decision about Michigan’s responsibilities had not 

been determined. In addition, on May 10, 2013, CMS indicated that it 

intended to operate Utah’s individual exchange—which was conditionally 

approved as a state-based exchange in January 2013—as an FFE. 

Officials indicated that final approval for state-based and partnership 

exchanges will not be granted until the states have succeeded in 

completing all of their key activities, and that some of these exchanges 

may still be under conditional approval when enrollment begins on 

October 1, 2013.

 

32CMS officials noted that it is generally more resource intensive for states to implement 

consumer assistance activities than plan management activities, because, unlike plan 

management activities which are similar to traditional state insurance functions, consumer 

assistance is not a function in which states previously participated and would represent a 

significant new investment for the states. 
 

Page 17 GAO-13-614 Small Business Health Insurance Exchanges

For example, issuers began submitting applications to exchanges for 

QHP certification on April 1, 2013. Therefore, CMS officials said that they 

began assessing state readiness for this activity in March 2013. They also 

indicated that they are doing this kind of assessment for each state as 

deadlines approach for other activities—such as those related to eligibility 

and enrollment and consumer assistance functions. If a state is not ready

to carry out a specific activity, CMS officials said the agency will support 

them in this area. As of May 2, 2013, CMS had not granted final approval 

to any state to operate a state-based exchange or to participate in a 

partnership exchange. If any state conditionally approved to operate a 

state-based exchange or participate in a partnership exchange does not 

adequately progress towards completion of all required activities, CMS 

has indicated that it would carry out more exchange activities in that state. 

CMS officials indicated that exchanges receiving this assistance would 

retain their status as a state-based or partnership exchange.

CMS has made progress in core functional areas towards establishing the 

FF-SHOPs and FFEs; CMS has many activities yet to complete; and 

completion of certain activities was behind schedule. Similarly, states 

have completed many required activities towards establishing the SHOPs 

and individual exchanges, although many activities remained to be 

completed and some activities were behind schedule.

CMS and States Have 

Made Progress 

Establishing SHOPs 

and FF-SHOPs, but 

Many Key Activities 

Are Yet to Be 

Completed and Some 

Were Behind 

Schedule 
 

Page 18 GAO-13-614 Small Business Health Insurance Exchanges

CMS issued regulations and guidance to set a framework within which the 

federal government, states, issuers of health coverage, and others can 

participate in the exchanges, including state-based SHOPs and 

FF-SHOPs. For example, in March 2012 CMS issued a final rule on 

establishment of exchanges that, among other things, outlined the 

minimum required functions for a SHOP and the standards that 

employers must meet to participate in the SHOP.33 In June 2013, CMS 

issued a final rule that created transitional policies for employee choice 

and premium aggregation requirements for 2014, and aligned special 

enrollments periods to those used in state small group markets today.34

In addition to establishing the basic exchange framework for state-based 

SHOPs and FF-SHOPs, CMS also completed activities needed to 

establish the core FF-SHOP functions—eligibility and enrollment, plan 

management, and consumer assistance—many of which are related to 

FFE functions.

CMS also issued guidance specifically related to the establishment of 

FF-SHOPs and FFEs to assist states seeking to participate in a 

partnership exchange and issuers seeking to offer QHPs in an FF-SHOP 

and FFE, including a partnership exchange. For example, the agency 

issued general guidance on FF-SHOPs and FFEs in May 2012, and 

issued guidance on partnership exchanges in January 2013. On April 5, 

2013, the agency issued guidance to issuers of health coverage seeking 

to offer QHPs through FF-SHOPs and FFEs, including partnership 

exchanges.

• Eligibility and Enrollment: In late January 2013, CMS released a draft 

of the online and paper applications that small employers and 

employees will use to apply for health care coverage in the 

FF-SHOPs. Following a public comment period, the final applications 

were issued on May 31, 2013. CMS indicated that, since May 2012, it 

has consulted with, received feedback from, and provided training to 

issuers on the eligibility and enrollment process standards for the 

FF-SHOPs and FFEs.

 

3377 Fed. Reg. 18310 (Mar. 27, 2012).

3478 Fed. Reg. 33233 (June 4, 2013).

CMS Completed Many 

Activities to Establish 

State-Based SHOPs and 

FF-SHOPs; CMS Has Many 

Activities Yet to Complete; 

and Some Activities Were 

Behind Schedule
 

Page 19 GAO-13-614 Small Business Health Insurance Exchanges

• Plan management: CMS indicated that it completed development of 

the IT systems necessary for it to carry out the plan management 

function and awarded a contract to help the agency certify QHPs that 

will be offered in the FF-SHOPs and FFEs.35 Officials said that the 

contractor will review plan data, perform quality-assurance checks, 

and help CMS determine whether issuers applying for QHP 

certification are in full compliance with PPACA requirements. Officials 

also said that submission of plan information by issuers of health 

coverage to CMS for QHP certification began on April 1, 2013.

• Consumer assistance: In 2010, CMS awarded Consumer Assistance 

Program grants to 36 states and 4 territories,36

CMS has many key activities remaining to be completed across the core 

functional areas—eligibility and enrollment, plan management, and 

consumer assistance—and has established timelines to track its 

completion of the remaining activities necessary to establish FF-SHOPs 

and FFEs, but the agency has faced delays in the completion of certain 

activities.

including 23 states 

with FF-SHOPs and FFEs. The agency awarded a contract on 

February 28, 2013, for the development of training and quality 

assurance metrics for the call center that will provide consumer 

assistance for FF-SHOPs and FFEs.

37

 

35In FFEs where the state will assist with plan management, the state will review plan data 

and make recommendations for certification to CMS.

36PPACA appropriated $30 million to the Secretary of HHS for the award of federal grants 

to states to establish, expand, or provide support for offices of health insurance consumer 

assistance or health insurance ombudsmen programs. PPACA, § 1002, 124 Stat. at 138. 

Consumer Assistance Program grants are to be used to assist consumers with filing 

health insurance coverage complaints and appeals, assist consumers with enrollment into 

health insurance coverage, and educate consumers on their rights and responsibilities 

with respect to such coverage. According to CMS, as of June 2013, there were Consumer 

Assistance Programs operating in 22 states and one territory. 

37The CMS activities for which we report progress here are not exhaustive. In particular, 

CMS also tracks its progress in developing the federal data services hub and related IT 

tasks. It also tracks the progress of states participating in partnership exchanges, which is 

also relevant to CMS’s progress in establishing the FFEs. Progress in establishing the 

FFEs and the federal data services hub is examined more closely in a related report. See 

GAO-13-601. 
 

Page 20 GAO-13-614 Small Business Health Insurance Exchanges

CMS expects to complete development and testing of the IT systems 

necessary for the FF-SHOPs and FFEs to determine eligibility for 

enrollment into a QHP and to enroll employees by October 1, 2013, when 

enrollment is scheduled to begin for the 2014 plan year. However, as of 

April 2013, CMS indicated that it still needed to complete some steps in 

order to enable the FF-SHOPs and FFEs to determine eligibility. CMS 

indicated that these steps will be completed in July 2013.

The activities that CMS needs to complete for the plan management 

function primarily relate to the review and certification of the QHPs that 

will be offered in the FF-SHOPs and FFEs. CMS has set time frames that 

it anticipates will allow it to certify and upload QHP information to the 

FF-SHOP and FFE websites in time for initial enrollment. CMS indicated 

that issuers of health coverage were to submit their applications for QHP 

certification by May 3, 2013.38 Once received, CMS, with the assistance 

of its contractor, expects to evaluate and certify eligible plans as QHPs by 

July 31, 2013. CMS will then allow issuers to preview and approve QHP 

information that will be presented on the exchange website by August 26, 

2013. CMS then expects to finalize the QHP information and load it into 

the exchange website by September 15, 2013. In the 15 states in which 

states will assist with the plan management function, the states will 

evaluate health issuer plan applications and submit recommendations to 

CMS regarding the plans they recommend should be certified as QHPs.

CMS indicated that the states are expected to submit their 

recommendations by July 31, 2013, which is also when CMS expects to 

complete its evaluation of QHPs for the other FF-SHOP and FFE states.39

 

38CMS officials said that on April 30, 2013, the deadline for issuers to submit their 

applications was pushed back from April 30, 2013, to May 3, 2013.

39Seven of the 15 states submitted an application to CMS and were approved to assume 

this responsibility on the condition that they complete certain required activities by 

targeted completion dates. In contrast, an additional 7 states were not required to submit 

an application and CMS officials indicated that the agency has no formal monitoring 

relationship with the state. Instead, CMS conducted a one-day review of these states in 

February and March to determine the states’ operational plans and capacity to assist with 

the plan management functions. The last state, Utah, was originally conditionally approved 

to operate a state-based exchange. On May 10, 2013, CMS indicated that it intended to 

allow the exchange to instead operate as an FFE and the state attested that it would be 

able to assist with all aspects of the plan management function.

Eligibility and Enrollment

Plan Management 
 

Page 21 GAO-13-614 Small Business Health Insurance Exchanges

CMS has yet to complete many activities related to assistance and 

outreach to small employers and employees, and some initial steps were 

behind schedule. Specifically, several steps necessary for the 

implementation of the Navigator program in FF-SHOPs and FFEs were 

delayed by about 2 months. CMS had planned to issue the funding 

announcement for the Navigator program in February 2013 and have two 

rounds of awards, in June and September 2013. However, the 

announcement was delayed until April 9, 2013, and CMS officials 

indicated that there would be one round of awards, with an anticipated 

award date of August 15, 2013. CMS did not indicate the number of 

awards it expected to make, but noted that it expects, consistent with 

federal regulations, to make awards to at least two different applicants in 

each of the 33 FF-SHOP and 34 FFE states.40

Before any federally funded in-person assisters, including Navigators, can 

begin their activities, they will have to be trained and certified.

CMS officials indicated 

that, even with these delays, they planned to have Navigator programs 

operating in each FF-SHOP and FFE state by October 1, 2013.

41

 

40CMS indicated that it would award up to $54 million to organizations and individuals in 

the 34 FFE, including partnership exchange, states. It indicated that award funds would be 

allocated among states on the basis of their numbers of uninsured people, but at least 

$600,000 would be available for award in each state. Texas was allocated the largest 

share of funding for award at approximately $8.2 million. CMS gave applicants until June 

7, 2013 to submit their applications. Federal regulations require exchanges to award 

Navigator grants to at least two types of entities, including a community and consumerfocused nonprofit organization. 45 C.F.R. § 155.210(c)(2).

For 

example, these individuals are required to complete an HHS-approved 

training program and to receive a passing score on all HHS-approved 

certification exams before they are able to assist with enrollment 

activities. While CMS had planned to begin Navigator training in July 

2013, under its current plan the agency will not have awarded Navigator 

grants by this date. In coordination with the Navigator training, CMS is 

also developing web-based training for other types of in-person 

assistance programs, such as agents, brokers, and the state partnership 

exchange in-person assistance programs. CMS officials said that the 

overall content of the training for these groups of individuals will be similar 

to that of the Navigator training. CMS indicated that it plans to complete 

development of the training curriculum and certification exam by August 

41In addition to establishing a Navigator program, exchanges may also establish an inperson assister program to provide similar in-person assistance to consumers.

Consumer Assistance
 

Page 22 GAO-13-614 Small Business Health Insurance Exchanges

2013 and noted that training can begin when the training curriculum is 

made available.

CMS and states with partnership exchanges have also begun and 

established time frames for implementing other outreach and assistance 

activities that are necessary to implement FF-SHOPs and FFEs. 

Examples of key activities that remain to be completed include the federal 

call center, healthcare.gov website, media outreach, and the consumer 

complaint tracking system for the FF-SHOPs and FFEs. CMS 

recommended that in-person outreach activities begin in the summer of 

2013 to educate small employers and employees in advance of the open 

enrollment period. CMS has indicated that it expects agents and brokers 

to play a large role in working with small employers. Additionally, CMS 

reported in April 2013 that SHOP-focused training and materials were 

currently under development to assist small employers in understanding 

the PPACA provisions that relate to them. CMS also reported that the 

Small Business Administration will play a role in educating small 

employers about how PPACA affects them and providing basic 

information to them about SHOPs. 

In late 2012 and early 2013, CMS provided each state that was 

conditionally approved to operate a state-based exchange with a list of 

key activities and target completion dates that CMS would use to gauge 

that state’s progress. These key activities were a subset of the more than 

100 required activities listed in the Blueprint application. Some of the key 

activities specific to SHOPs include establishing enabling authority and 

developing a coordination strategy with the individual exchange. The total 

number of key activities each state had to complete varied from as few as 

20 for Maryland, to as many as 56 for Idaho.42 See table 1. CMS officials 

told us that the number and type of key activities assigned to each state 

varied because not all key activities are applicable to each state’s specific 

circumstances, and because some states had already completed certain 

key activities when these target completion dates were established.

 

42The original number of key activities was provided in state conditional approval letters.

CMS provided us with updated information on each state’s number of key activities in April 

and May of 2013, noting that some activities no longer applied for certain states.

States Have Completed 

Many Activities to 

Establish SHOPs; Many 

Key Activities Remain to 

Be Completed; and Some 

Activities Were behind 

Schedule 
 

Page 23 GAO-13-614 Small Business Health Insurance Exchanges

Table 1: CMS-Identified Key Activities to Be Completed by Each State-based Small 

Business Health Options Program (SHOP) and Individual Exchange, as of May 13, 

2013

State 

Total number of key 

activities to be completed 

California 45

Colorado 37

Connecticut 42

District of Columbia 45

Hawaii 48

Idaho 56

Kentucky 39

Maryland 20

Massachusetts 40

Minnesota 47

Nevada 40

New Mexico 53

New York 39

Oregon 43

Rhode Island 47

Utah 39

Vermont 41

Washington 39

Source: GAO analysis of CMS data.

States have completed many required activities in developing their 

SHOPs and individual exchanges. For example, many states have 

completed preliminary activities such as obtaining the necessary authority 

to operate an exchange, conducting initial analyses of current and 

required IT capabilities and hiring an exchange executive director or 

equivalent. In addition, according to CMS data updated as of March 31, 

2013, states had completed between 3 and 14 of the key activities, 

representing, on average, about 15 percent of each state’s total number 

of key activities. In the functional areas of eligibility and enrollment, plan 

management, and consumer assistance, states had made varying 

degrees of progress by the end of March.

• Eligibility and enrollment: Many states had developed a coordination 

strategy with relevant state agencies and the SHOP.
 

Page 24 GAO-13-614 Small Business Health Insurance Exchanges

• Plan management: Most states had already completed key activities 

such as establishing a QHP certification timeline and standard 

operating procedures and making their QHP application and 

certification standards publicly available.

• Consumer assistance: Some states had awarded a call-center 

contract, begun outreach and education-material dissemination, 

released a Navigator grant application, and established policy for 

agents and brokers, where applicable.43

With regard to key activities remaining to be completed for establishment 

of state-based SHOPs and individual exchanges, the total number and 

target completion dates varied by state. Specifically, according to CMS 

data updated through March 31, 2013, states had between 16 and 52 key 

activities remaining to be completed, or on average, about 85 percent of 

their total key activities. Among these key activities that were not 

completed, states may have nevertheless made significant progress 

towards their completion. We separately reported in more detail on the 

range of actions selected states have taken to establish their individual 

exchanges.

Other key activities related to 

consumer assistance generally will not be completed until closer to 

the launch of open enrollment in October 2013.

44

• Eligibility and enrollment: Most remaining eligibility and enrollment key 

activities were targeted to be completed by states by July 31; 

however, a few states had target completion dates ranging from 

August to October 2013. For example, by July 31, 2013, all states 

were targeted to have SHOP applications approved (if not using CMSdeveloped applications), while almost all states were targeted to have 

necessary data-sharing agreements signed by that time. Similarly, 

most states were targeted to have completed key activities related to 

eligibility and enrollment technology by July 31, 2013, such as 

demonstrating the functionality and verifying the code for eligibility and 

enrollment exchange components.

 

43The state may permit agents and brokers to assist employers with the application 

process and enroll employees in a QHP in the SHOP. Such agents and brokers must 

agree to comply with the SHOP’s privacy and security requirements.

44See GAO-13-486. 
 

Page 25 GAO-13-614 Small Business Health Insurance Exchanges

• Plan management: Many key activities related to plan management 

were targeted to be completed in July through September, closer to 

the October 2013 launch of open enrollment. For example, most 

states were targeted to complete their QHP certification process in 

July through September, and post their plan options on-line in August 

or September.

• Consumer assistance: Many key activities related to consumer 

assistance were targeted to be completed in the 3 months leading up 

to the launch of open enrollment in October 2013, with some key 

activities not expected to be completed for most state-based 

exchanges until August or September. For example, most states were 

targeted to launch their campaigns not before May, or to begin call 

center training not before July. Similarly, key consumer support 

activities such as call centers and websites going live, and Navigators, 

agents, and brokers beginning work, were generally not targeted to be 

completed until August or September 2013.

• SHOP-specific key activities: State-based exchanges had only one 

SHOP-specific key activity, which related to capabilities for 

aggregating premiums. Most states were targeted to complete this 

key activity by the end of June 2013.45

See figure 2 for examples of the target completion dates for remaining 

key activities by functional area.

 

45Under a June 2013 final rule, CMS postponed the requirement that SHOPs provide 

premium aggregation in 2014, and this key activity now only applies to states that choose 

to offer premium aggregation in 2014. As of April 2013, CMS officials did not have a count 

of such states, but indicated that most state-based SHOPs intended to offer premium 

aggregation in 2014. 
 

Page 26 GAO-13-614 Small Business Health Insurance Exchanges

Figure 2: Examples of Remaining Key Activities Required for States to Establish Exchanges and the Target Completion 

Dates, as of April 24, 2013

Notes: The 18 state-based exchanges include California, Colorado, Connecticut, Hawaii, Idaho, 

Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode 

Island, Utah (SHOP only), Vermont, Washington, and the District of Columbia. CMS determined the 

key activities necessary for each state to complete in order to operate a state-based exchange.

These key activities vary by state, and thus not every key activity listed applied to each of the 

18 state-based exchanges.

a

As of April 24, 2013, one additional state was scheduled to complete this key activity, however the 

target completion date was yet to be determined.
 

Page 27 GAO-13-614 Small Business Health Insurance Exchanges

CMS officials told us that the number of key activities remaining to be 

completed and their target completion dates provide only a partial 

measure of state progress in establishing their exchanges. They noted 

that another measure would include the extent to which states were 

completing key activities by the targeted completion dates. Therefore, we 

examined the extent to which key activities originally scheduled for 

completion from December 2012 through March 31, 2013, met their target 

completion dates, on the basis of data provided by CMS in April and May 

2013. While state timeliness varied, overall, about 44 percent of all states’ 

key activities scheduled for completion during this period (89 of 201) were 

behind schedule. CMS data showed that the share of each states’ key 

activities that were behind schedule ranged from as low as about 

17 percent to as high as 75 percent. Among all states, about 40 percent 

of the key activities that were behind schedule (36) were related to 

CMS—either the agency revised the target completion dates (26), such 

as where CMS reported it had improved the specificity of new targeted 

completion dates for a particular activity, or CMS’s own actions required 

states to delay completion of an activity (10), such as where state 

activities had to await CMS issuance of enrollment or QHP applications. 

The remaining 60 percent of the activities that were behind schedule (53) 

related to state factors, such as delays states had incurred in issuing 

regulations or guidance, coordinating between state agencies, or 

procuring contract support. While most of these delayed activities were 

rescheduled to be completed during May and June of 2013, about 

17 percent (15) were rescheduled for July through September or did not 

have new completion dates established as of May 13. 

While 44 percent of states’ key activities were delayed, states may have 

nevertheless made progress on them, and CMS noted that many of the 

delays were not expected to affect exchange operational readiness.

Additionally, CMS reported that most states were on track for initial open 

enrollment beginning October 1, 2013; however, the agency noted that 

some states may need to continue to build their capabilities and improve 

their operations during the year. CMS said it would continue to monitor 

state exchange operations, including the outreach, testing, and 

implementation of necessary improvements, during the critical start-up 

year.
 

Page 28 GAO-13-614 Small Business Health Insurance Exchanges

Successfully establishing SHOPs at both the federal and state level by 

the start of 2014 is central to PPACA, as these exchanges are intended to 

serve as a new point of access to health insurance markets for small 

employers and their employees in each state. The establishment of 

exchanges has been a complex undertaking, involving the coordinated 

actions of multiple federal and state stakeholders, as well as private 

stakeholders such as issuers of health insurance coverage. Much 

progress has been made in establishing the regulatory framework and 

guidance required for this undertaking, and CMS and states are 

continuing to take steps necessary to complete activities required for 

establishing the SHOPs and individual exchanges. Nevertheless, much 

remains to be completed within a relatively short amount of time. CMS’s 

timelines and targeted completion dates provide a roadmap to completion 

of the required activities by the start of enrollment on October 1, 2013. 

However, certain factors, such as the still-unknown and evolving scope of 

the exchange activities to be performed in each state by CMS, and the 

large numbers of activities remaining to be completed—some close to the 

start of enrollment—suggest a potential for implementation challenges 

going forward. And while the interim deadlines missed by CMS and states 

thus far may not affect progress, any additional missed deadlines closer 

to the start of enrollment could do so. CMS said it will monitor progress to 

establish exchanges, and is working on strategies in each state to 

address contingencies. Whether CMS’s contingency planning will assure 

the timely and smooth implementation of the exchanges by October 2013 

cannot yet be determined.

We received comments from HHS on a draft of this report (see app. I). 

HHS emphasized the progress it has made in establishing exchanges 

since PPACA became law, and expressed its confidence that on 

October 1, 2013, exchanges will be open and functioning in every state. 

HHS also provided technical comments, which we incorporated as 

appropriate.

We are sending copies of this report to the Secretary of Health and 

Human Services and other interested parties. In addition, the report is 

available at no charge on the GAO website at http://www.gao.gov. 

Concluding 

Observations 

Agency Comments 
 

Page 29 GAO-13-614 Small Business Health Insurance Exchanges

If you or your staff have any questions about this report, please contact 

John E. Dicken at (202) 512-7114 or dickenj@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made key contributions to 

this report are listed in appendix II. 

Sincerely yours,

John E. Dicken

Director, Health Care
Appendix I: Comments from the Department of 

Health and Human Services

Page 30 GAO-13-614 Small Business Health Insurance Exchanges

Appendix I: Comments from the Department 

of Health and Human Services
Appendix I: Comments from the Department of 

Health and Human Services

Page 31 GAO-13-614 Small Business Health Insurance Exchanges
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 32 GAO-13-614 Small Business Health Insurance Exchanges

John E. Dicken, (202) 512-7114 or dickenj@gao.gov

In addition to the contact name above, Randy DiRosa, Assistant Director; 

Ashley Dixon; Jawaria Gilani; William Hadley; Sandra George; 

Laurie Pachter; and Christina Ritchie made key contributions to this 

report.

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(291111)
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