HEALTH INSURANCE

Seven States’ Actions 

to Establish 

Exchanges under the 

Patient Protection and 

Affordable Care Act

Report to Ranking Member, Committee 

on the Judiciary, U.S. Senate

April 2013

GAO-13-486 

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-486, a report to the 

Ranking Member, Committee on the Judiciary, 

U.S. Senate

April 2013

HEALTH INSURANCE

Seven States’ Actions to Establish Exchanges under 

the Patient Protection and Affordable Care Act

Why GAO Did This Study

A central provision of PPACA requires 

the establishment of exchanges in 

each state—online marketplaces 

through which eligible individuals and 

small business employers can 

compare and select health insurance 

coverage from participating health 

plans. Exchanges are to begin 

enrollment by October 1, 2013, with 

coverage to commence January 1, 

2014. States have some flexibility with 

respect to exchanges by choosing to 

establish and operate an exchange 

themselves (i.e., state-based), or by 

ceding this authority to HHS (i.e., 

federally facilitated). States may also 

choose to enter into a partnership with 

HHS whereby HHS establishes the 

exchange and the state assists with 

operating various functions. According 

to HHS, 18 states will establish a statebased exchange, while 26 will have a 

federally facilitated exchange. Seven 

states will partner with HHS. 

GAO was asked to report on (1) states’ 

responsibilities for establishing 

exchanges, and (2) actions selected 

states have taken to establish 

exchanges and challenges they have 

encountered. To do this work, GAO 

reviewed PPACA provisions and HHS 

implementing regulations and 

guidance. GAO also conducted 

semistructured interviews with state 

officials in the District of Columbia, 

Iowa, Minnesota, Nevada, New York, 

Oregon, and Rhode Island. For this 

review, GAO refers to the District of 

Columbia as a state. GAO selected 

these states based on several criteria, 

such as a 3-year average of states’ 

uninsured population and geographic 

dispersion. HHS and the seven states 

in our review provided technical 

comments on this report, which GAO 

incorporated as appropriate.

What GAO Found

The Patient Protection and Affordable Care Act (PPACA) and the Department of 

Health and Human Services (HHS) regulations, supplemented by HHS guidance, 

require states and American Health Benefit Exchanges (exchanges) to carry out 

a number of key functions, for which state responsibilities vary by exchange type. 

A state that chooses to operate its exchange is responsible for: (1) establishing 

an operating and governance structure, (2) ensuring exchanges are capable of 

certifying qualified health plans and making them available to qualified 

individuals, (3) developing electronic, streamlined, and coordinated eligibility and 

enrollment systems, (4) conducting consumer outreach and assistance, and 

(5) ensuring the financial sustainability of the exchange. A state that partners with 

HHS may assist HHS with certain functions, such as making qualified health plan 

recommendations and conducting aspects of consumer outreach and assistance. 

Despite some challenges, the seven selected states in GAO’s review reported

they have taken actions to create exchanges, which they expect will be ready for 

enrollment by the deadline of October 1, 2013. For example: 

• Six states will operate as a state-based exchange, with most choosing 

this option as a way to maintain control of their insurance markets and 

better meet the needs of their state’s residents. The seventh state—

Iowa—will partner with HHS. 

• All seven states have taken steps toward deciding which qualified health 

plans would be included in the exchange. Two states have decided that

their exchanges will have the authority to actively select which qualified 

health plans may participate in the exchange, while the remaining five 

states will allow all qualified health plans to participate in the exchange. 

• All states are in various stages of developing an information technology 

(IT) infrastructure, including redesigning, upgrading, or replacing their 

outdated Medicaid and Children’s Health Insurance Program eligibility 

and enrollment systems. Six states are also building the exchange IT 

infrastructure needed to integrate systems and allow consumers to 

navigate among health programs, but identified challenges with the 

complexity and magnitude of the IT projects, time constraints, and 

guidance for developing their systems.

• Six of the seven states included in our review are in various stages of 

developing a consumer outreach and assistance program to reach out to

and help enroll potential consumers. As a partnership state, Iowa has not 

yet decided whether and to what extent it will assume responsibility for 

aspects of this function. 

• Officials in the six state-based exchanges reported they are considering 

revenue options for financially sustaining their exchange. For example,

three states plan to charge fees to insurance carriers participating in the 

exchange. However, some states reported challenges with developing 

these options, given uncertainties related to exchange enrollment, on 

which the fees are based.

View GAO-13-486. For more information, 

contact Stanley J. Czerwinski at (202) 512-

6806 or czerwinskis@gao.gov.
Page i GAO-13-486 Health Insurance

Letter 1 

Background 4

States’ Responsibilities for Establishing Exchanges Vary, 

Depending on the Type of Exchange 11

Despite Some Challenges, Selected States Have Taken Action to 

Establish Exchanges and Report They Will Be Ready for 

Enrollment by October 2013 18

Agency Comments 28

Appendix I Objectives, Scope & Methodology 29

Appendix II GAO Contact and Staff Acknowledgments 33

Tables

Table 1: Summary of Exchange Operating and Governance 

Structures in Selected States 19

Table 2: Selected States’ Insurance Market Organization and 

Essential Health Benefits (EHB) 21

Table 3: Characteristics of States Included in GAO Study 31

Figures

Figure 1: Distribution of State Decisions on Exchange Type, as of 

March 14, 2013 7

Figure 2: Timeline for Key Exchange Milestones 8

Figure 3: Range of exchange grant funding by state, as of March 27, 

2013a 10

Contents 
Page ii GAO-13-486 Health Insurance

Abbreviations

BHP Basic Health Program

CBO Congressional Budget Office

CCIIO Center for Consumer Information and Insurance Oversight

CHIP Children’s Health Insurance Program

CMS Centers for Medicare & Medicaid Services

EHB essential health benefits

HCERA Health Care Education and Reconciliation Act

HHS U.S. Department of Health and Human Services

IT information technology

PPACA Patient Protection and Affordable Care Act

QHP Qualified Health Plan

SNAP Supplemental Nutrition Assistance Program

TANF Temporary Assistance for Needy Families

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Page 1 GAO-13-486 Health Insurance

441 G St. N.W.

Washington, DC 20548

April 30, 2013

The Honorable Charles E. Grassley

Ranking Member

Committee on the Judiciary

United States Senate

Dear Senator Grassley:

The Patient Protection and Affordable Care Act (PPACA),1 signed into law 

on March 23, 2010, contains a number of provisions intended to reform 

aspects of the private health insurance market and expand the availability 

and affordability of coverage. A central provision of the law requires the 

establishment of American Health Benefit Exchanges (exchanges) in 

each state—online marketplaces through which eligible individuals and 

small business employers can compare and select health insurance 

coverage from among participating health plans.2 Intended to provide 

seamless “no wrong door” access to coverage options, in general, 

exchanges will need to be able to determine whether individuals and 

small business employees3 are eligible for a private health plan, 

Medicaid,4 or the Children’s Health Insurance Program (CHIP).5

,

6 This 

 

1

Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010) (PPACA), as amended by the Health 

Care and Education Reconciliation Act, (HCERA) Pub. L. No. 111-152,124 Stat.1029 

(Mar. 30, 2010). In this report, references to PPACA include any amendments made by 

HCERA. 

2

Pub. L. No. 111-148, § 1311(b), 124 Stat. at 173.

3 PPACA requires the establishment of a Small Business Health Options Program, or 

SHOP—exchanges where small employers can shop for and purchase coverage for their 

employees. 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. Beginning in 2016, 

small employers will be defined as those with 100 or fewer employees. Beginning in 2017, 

states may allow large employers to obtain coverage through an exchange (but will not be 

required to do so). For purposes of our review, we did not include SHOP exchanges in the 

scope of our work.

4

Medicaid is a joint federal-state program that finances health care coverage for certain 

categories of low-income individuals. 

5

CHIP is a federal-state program which 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. 

6 Pub. L. No. 111-148, § 1413(c), 124 Stat. at 234. 

 
 

Page 2 GAO-13-486 Health Insurance

means that no matter how an individual submits an application or which 

program receives the application, there will be a process by which the 

individual can receive an eligibility determination using the same 

application, without the need to submit information to multiple programs. 

Exchanges are to begin enrollment by October 1, 2013, with coverage to 

commence January 1, 2014. The Congressional Budget Office has 

estimated that about 7 million individuals will be enrolled in exchanges in 

2014, increasing to about 26 million by 2022.

While PPACA places some requirements on the design and function of 

exchanges, states also have a number of operational decisions to make. 

A state may establish the exchange itself (referred to as a state-based 

exchange), cede the responsibility entirely to the Department of Health 

and Human Services (HHS) (referred to as a federally facilitated 

exchange), or enter into a partnership with HHS (referred to as a 

partnership exchange).7 Depending on the type of exchange, states are 

facing a number of critical policy and implementation decisions, subject to 

HHS regulation and approval. Such decisions involve determining 

individuals’ eligibility and enrolling them in health insurance plans, 

conducting consumer outreach and assisting potential enrollees, ensuring 

qualified health plans are certified, and ensuring the exchange’s longterm financial sustainability. In addition, states must develop information 

technology (IT) systems that securely facilitate the movement of 

information to provide enrollees with answers about their eligibility and 

enhance their ability to enroll in health insurance coverage. States are 

faced with unprecedented levels of data sharing and coordination 

between federal agencies, private health plans, state insurance 

commissioners, and state Medicaid agencies. As of March 27, 2013, the 

federal government has awarded states nearly $3.7 billion in grant 

funding to cover some of the states’ planning and implementation costs.

You asked us to report on the actions states are taking to establish 

exchanges. This report addresses the following questions:

1. What are states’ responsibilities for establishing exchanges?

 

7

A partnership exchange is a variation of a federally facilitated exchange. HHS will 

establish and operate this type of exchange with states assisting HHS to carry out certain 

functions of that exchange.
 

Page 3 GAO-13-486 Health Insurance

2. What actions have selected states taken to establish exchanges and 

what challenges have they encountered?

To identify states’ responsibilities for establishing exchanges, we 

reviewed selected PPACA provisions and HHS implementing regulations 

and guidance related to the following categories of responsibilities:8

• establishing a governance and operating structure;

• ensuring exchanges will be capable of certifying qualified health 

plans;

• simplifying and streamlining eligibility and enrollment systems;

• conducting consumer assistance and outreach; and

• ensuring financial sustainability of the exchange.

During our review, we obtained status updates on the development of 

regulations and guidance from the Center for Consumer Information and 

Insurance Oversight (CCIIO) within HHS’s Centers for Medicare & 

Medicaid Services (CMS) that oversees the implementation of 

exchanges. We also met with CCIIO officials to discuss the ways in which 

they provided guidance to the states.

To identify the actions selected states have taken to establish exchanges 

and the challenges they encountered, we conducted semi-structured 

interviews with state exchange officials in the District of Columbia and six 

states: Iowa, Minnesota, Nevada, New York, Oregon, and Rhode Island. 

For the purposes of this report, we hereafter refer to the District of 

Columbia as a state. We selected these states on the basis of: (1) a 3-

year average of the uninsured population within states; (2) the uninsured 

population in states in 2011; (3) the amount of federal exchange grants 

awarded to states on a per capita basis; (4) geographic dispersion, and 

(5) whether states will have a state-based, federally facilitated, or 

partnership exchange.9 Six states in our review plan to establish and 

operate a state-based exchange, while one state—Iowa—opted for a 

partnership exchange. We also met with budget officials in some of these 

 

8

For purposes of this report, we focused on certain categories of responsibilities. 

Therefore, this list does not include all states’ responsibilities related to creating and 

operating an exchange.

9 Specifically, we selected states on the basis of whether they intended to establish a 

state-based, federally facilitated, or partnership exchange, as of September 27, 2012. At 

that time, states had not yet formally declared their intention to HHS. We used the most 

readily available information at that time from HHS and the Kaiser Family Foundation.
 

Page 4 GAO-13-486 Health Insurance

states to discuss the fiscal aspects of establishing exchanges, including 

how states will ensure financial sustainability for their exchange. The 

findings from these interviews cannot be generalized to all state 

exchange and budget offices. We obtained additional information from 

interviews with officials from state associations, including the National 

Association of Insurance Commissioners, the National Association of 

State Budget Officers, and the National Conference of State Legislatures.

Two states that will have federally facilitated exchanges—Florida and 

Maine—were initially selected for inclusion in our review. However, 

exchange officials in those states declined to be interviewed. Therefore, 

this review focuses on states’ responsibilities and actions related to statebased and partnership exchanges. A more detailed description of our 

objectives, scope, and methodology is included in appendix I.

We conducted our work from September 2011 to April 2013 in 

accordance with generally accepted government audit 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.

Exchanges are online marketplaces where eligible individuals and small 

businesses can purchase health insurance. PPACA prescribes a 

seamless, streamlined eligibility process for consumers to submit a single 

application and receive an eligibility determination for enrollment in a 

qualified health plan through the exchange, advance payments of the 

Background 
 

Page 5 GAO-13-486 Health Insurance

premium tax credit,10 cost sharing reductions,11 Medicaid, CHIP, and the 

Basic Health Program (BHP),12 if applicable.

Under PPACA, an exchange must be operational in each state by 

January 1, 2014. States have some flexibility with respect to exchanges, 

by choosing to establish and operate an exchange themselves (referred 

to as a state-based exchange) or by ceding this authority to HHS 

(referred to as a federally facilitated exchange).13 States choosing to 

establish a state-based exchange were required to submit an application 

“blueprint” to HHS by December 14, 2012. Subject to HHS review and 

approval, the blueprint detailed how the states planned to implement 

various functions and activities that HHS deemed essential to operating 

this type of exchange. HHS identified a third type of exchange states 

 

10Beginning on January 1, 2014, a premium tax credit will be available to help eligible tax 

filers and their dependents pay for qualified health plans purchased through PPACA 

exchanges. The premium tax credit is available on an advance basis, referred to as 

advance payments of the premium tax credit, and any advance payments are reconciled 

on a tax filer’s tax return. Ultimately, tax credits will be calculated using income reported 

on tax returns. The credits will generally be available to eligible tax filers and their 

dependents who are (1) enrolled in one or more qualified health plans through an 

exchange, and (2) not eligible for other health insurance coverage. More specifically, to 

qualify for the premium tax credit, an individual or family must generally have income 

between 100 and 400 percent of the federal poverty level and not qualify for other health 

care coverage, such as Medicare, Medicaid, or employer-sponsored coverage that meets 

a minimum value standard specified in PPACA. 

11PPACA provides cost sharing subsidies to certain individuals to help them pay for costs 

related to the use of health services. Cost sharing generally refers to costs that an 

individual must pay when using services that are covered under the health plan that the 

person is enrolled in. Common forms of cost sharing include copayments and deductibles. 

12The Basic Health Program (BHP) is an alternative to qualified health plans under which

states may offer subsidized coverage to non-elderly individuals with incomes between 133 

and 200 percent of the federal poverty level who are otherwise not eligible for other types 

of coverage such as affordable employer-sponsored insurance or traditional Medicaid. For 

operating this program, states will receive federal funding equivalent to 95 percent of the 

premium tax credits and cost sharing reductions that would apply to individuals if they 

were enrolled in exchange plans. 

13PPACA requires states to establish exchanges by January 1, 2014. Pub. L. No. 111-

148, § 1311(b), 124 Stat. 173. The Secretary of HHS must establish and operate an 

exchange in states that do not elect to operate an exchange or in states where the 

Secretary determines, by January 1, 2013, that a state has failed to take actions 

necessary to establish an exchange. Pub. L. No. 111-148, § 1321(c), 124 Stat. 186. 

Through subsequent guidance, HHS has identified options for states to partner with HHS 

when HHS establishes and operates an exchange. Specifically, under this model, states 

may assist HHS in carrying out certain functions of the exchanges. 
 

Page 6 GAO-13-486 Health Insurance

could choose, referred to as a partnership exchange. According to HHS, 

a partnership exchange is a variation of a federally facilitated exchange, 

whereby HHS establishes and generally operates the exchange and the 

state assists HHS with operating various functions of the exchange. 

States opting for a partnership exchange were required to submit an 

application blueprint to HHS by February 15, 2013, detailing how the state 

planned to implement various functions and activities. According to HHS, 

as of March 14, 2013, 18 states have opted to establish a state-based 

exchange. In another 7 states, HHS will establish and operate a 

partnership exchange, with states assisting in certain functions (see figure 

1). HHS’s approval of these exchanges is conditional on the states’ 

addressing a list of activities highlighted in the state’s application 

blueprint. HHS will establish a federally facilitated exchange in the 

remaining 26 states.
 

Page 7 GAO-13-486 Health Insurance

Figure 1: Distribution of State Decisions on Exchange Type, as of March 14, 2013

Regardless of the type of exchange states plan to establish, open 

enrollment in the exchange is to begin on October 1, 2013. See figure 2 

for a timeline of key milestones under PPACA.
 

Page 8 GAO-13-486 Health Insurance

Figure 2: Timeline for Key Exchange Milestones

To help states establish an exchange, federal grants are available for 

planning and implementation activities, as well as for the first year of an 

exchange’s operation. As shown in figure 2, beginning in September 

2010, states could apply for up to $1 million in planning grants to conduct 
 

Page 9 GAO-13-486 Health Insurance

initial research and exchange planning activities.14 Establishment grants 

became available to eligible states to set up their own exchanges or to 

support activities related to the establishment of partnership exchanges or 

federally facilitated exchanges in the state.15 States could also apply for 

“early innovator” grants to help them develop and adapt technology 

systems to determine eligibility and enrollment. These grants were 

awarded in 2011 to states that demonstrated an ability to develop IT 

systems on a fast track schedule and a willingness to share design and 

implementation solutions with other states. Between September 2010 and 

March 2013, HHS awarded exchange grants totaling nearly $3.7 billion to 

50 states.16,17 Of that amount, states returned over $98 million in grant 

awards.18 HHS awarded over $1 billion dollars to the 7 states in our 

review—New York and Oregon were awarded the largest amounts. 

Figure 3 shows the range of exchange grant funding by state as of March

27, 2013.

 

14These grants were awarded to states in 2010 and 2011, and are no longer being 

awarded. These grants provided one year of funding and a state could receive only one

grant.

15There are two types of establishment grants. Level I establishment grants, awarded to 

states in 2010, were available to all states, whether they were developing a state-based 

exchange or participating in a partnership exchange or a federally facilitated exchange. 

These grants provided for one year of funding, and a state could apply for multiple grants. 

Level II establishment grants, awarded on a quarterly basis through 2015, are available 

only to states that create a state-based exchange and are moving ahead at a faster pace. 

16 As noted earlier, for purposes of this report, we refer to the District of Columbia as a 

state.

17One state, Alaska, did not apply for and was not awarded exchange grant funding.

18As of March 27, 2013, certain states had returned this funding to HHS for reasons such 

as the state’s decision not to pursue a state-based exchange.
 

Page 10 GAO-13-486 Health Insurance

Figure 3: Range of exchange grant funding by state, as of March 27, 2013a

a

Grant funding reflects the total amounts awarded minus amounts that a state returned. As noted 

earlier, certain states have returned this funding to HHS for reasons such as a state’s decision not to 

pursue a state-based exchange.
 

Page 11 GAO-13-486 Health Insurance

PPACA and HHS implementing regulations and guidance require states 

and exchanges to carry out a number of key functions, for which state 

responsibilities vary by exchange type. A state that chooses to run its own 

exchange is responsible for: establishing an operating and governance 

structure, ensuring QHPs are certified and available to qualified 

individuals,19 streamlining eligibility and enrollment systems, conducting 

consumer outreach and assistance, and ensuring the financial 

sustainability of the exchange. A state that has created a partnership 

exchange may assist HHS in some of these functions, such as making 

QHP certification recommendations and conducting aspects of consumer 

outreach and assistance.

A state choosing to operate a state-based exchange must establish the 

operating and governance structure through which the exchange will be 

run and managed. Specifically, the state must determine whether the 

exchange will be run as a governmental agency or a nonprofit 

organization. Regardless of whether the exchange will be run as a 

governmental agency or a nonprofit, the state has the authority to allow 

an exchange to contract with other entities to carry out one or more 

responsibilities of the exchange.20

Further, a state operating an exchange as an independent state agency 

or nonprofit entity established by the state must establish a governance 

board that meets certain requirements. For example, the board must be 

administered under a publicly adopted operating charter or by-laws, 

ensure the board’s membership includes at least one voting member who 

is a consumer representative and is not made up of a majority of voting 

representatives with conflicts of interest (for example, representatives of 

health insurance issuers), and ensure that a majority of the voting 

members have relevant health care experience (for example, health 

benefits administration or public health).

 

19Qualified individuals must reside in the state in which the exchange is offered and 

include U.S. citizens and legal immigrants who are not incarcerated. 

20A state exchange may contract with an eligible entity, including a state Medicaid agency

or any other state agency, incorporated under and subject to the laws of at least one state, 

that has demonstrated experience on a state or regional basis in the individual and small 

group health insurance markets and in benefits coverage, but is not an issuer. 

States’ 

Responsibilities for 

Establishing 

Exchanges Vary, 

Depending on the 

Type of Exchange

States Must Establish an 

Operating and Governance 

Structure 
 

Page 12 GAO-13-486 Health Insurance

States choosing to operate their own exchange must ensure the 

exchange will be capable of certifying qualified health plans (QHP) and 

making them available to qualified individuals. A state opting for a 

partnership exchange may choose to engage in this function. In a 

partnership exchange, health insurance issuers will work directly with the 

state to submit all QHP issuer application information in accordance with 

state guidance.21 An exchange may only offer health plans that are 

certified as a QHP. To be certified, a health plan must meet two 

categories of requirements: (1) the health insurance issuer must be in 

compliance with minimum certification requirements as defined by HHS; 

and (2) the availability of the health plan through an exchange must be in 

the interest of qualified individuals and employers. To meet the minimum 

certification requirements, health insurance issuers must, for example, (1) 

be licensed and in good standing in each state in which the insurance 

coverage is offered,22 (2) comply with quality improvement standards, and 

(3) ensure their plan networks are adequate and include essential 

community health providers, where available, to provide timely access to 

services for predominantly low-income, medically underserved 

individuals.

How an exchange determines whether a plan is in the interest of qualified 

individuals and employers may depend on how the state organizes its 

market. The state may choose to organize its market as an “active 

purchaser” or as a “passive purchaser.” As an active purchaser, the state 

will decide which health plans can be offered in the exchange on the 

basis of such factors as select criteria, quality, and price. As a passive 

purchaser, the state may permit all QHPs to participate in the exchange.

 

21CMS will work with states participating in state partnership exchanges to ensure that 

such guidance is consistent with federal regulatory standards and operational timelines. 

CMS anticipates that states will choose to use the National Association of Insurance 

Commissioners’ System for Electronic Rate and Form Filing to collect and review QHP 

data. The state will review issuer applications for QHP certification for compliance with the 

standards and will provide a certification recommendation for each QHP to CMS. CMS will 

review and confirm the state’s recommendations, coordinate plan preview, make final 

certification decisions, and make available certified QHP plans in the exchange for the 

relevant state partnership exchange. CMS will work closely with states in state partnership 

exchanges to coordinate this process.

22 “Good standing” generally means that the insurer has no outstanding sanctions 

imposed by a state’s department of insurance.

States Must Ensure 

Exchanges Will be Capable 

of Certifying Qualified 

Health Plans
 

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In order to be certified as a QHP, plans will also need to meet certain 

coverage requirements. Specifically, PPACA requires that QHPs provide 

essential health benefits (EHB) which include coverage within 10 

categories:

1. Ambulatory patient services,

2. Emergency services,

3. Hospitalization,

4. Maternity and newborn care,

5. Mental health benefits and substance abuse disorder services, 

including behavioral health treatment,

6. Prescription drugs,

7. Rehabilitative and habilitative services and devices,

8. Laboratory services,

9. Preventive and wellness services and chronic disease management, 

and

10. Pediatric services including oral and vision care.23

In addition, within an exchange, health insurance issuers may offer QHPs 

at one of four levels of coverage that reflect out-of-pocket expenses for an 

enrollee. The four levels of coverage correspond to a percentage paid by 

a health plan of the total allowed costs of benefit designated by metal 

tiers: 60 percent (bronze), 70 percent (silver), 80 percent (gold), and 90 

percent (platinum).24 At a minimum, however, a health insurance issuer 

must offer QHPs at both the silver and gold levels of coverage.

 

23Under PPACA, states may require plans to offer benefits in addition to these categories. 

States are required to either make payments to individual enrollees or to the issuers to 

defray the costs of these additional benefits.

24Pub. L. No. 111-148, §§ 1302 (d), 10104(b)(1), 124 Stat. 167, 896. Accordingly, the 

actuarial value of a plan represents the expected percentage of costs the plan will incur for 

the EHB services provided to a standard population. For example, a gold plan with an 80 

percent actuarial value would be expected to pay, on average, 80 percent of a standard 

population’s expected medical expenses for the EHB. The individuals covered by the plan 

would be expected to pay, on average, the remaining 20 percent of the expected costsharing expenses in the form of deductibles, copayments, and coinsurance. 
 

Page 14 GAO-13-486 Health Insurance

States may choose to identify a benchmark plan for their state that, at a 

minimum, covers the EHB. According to HHS, the benchmark plan 

reflects the scope of services and limits offered by a “typical employer” 

plan in the state.25 HHS identified four plans that a state could choose: (1) 

one of the three largest plans in the state’s small group market health 

insurance plans; (2) one of the three largest state employee health benefit 

plans; (3) one of the three largest national plans offered through the 

Federal Employees Health Benefits Program; or (4) the largest 

commercial non-Medicaid health maintenance organization operating in 

the state. If the state does not select a benchmark plan, the state will 

default to the largest plan by enrollment in the largest product by 

enrollment in the state’s small group market.26 

States also have the option of requiring QHPs to offer benefits in addition 

to EHB. If they choose to do so, states must identify which specific staterequired benefits are in excess of the EHB. Under HHS regulations, if a 

state required QHPs to cover benefits beyond EHB on or after January 1, 

2012, the state would be responsible for defraying the cost of these 

services. 

 

25 Each state’s benchmark plan will apply to their respective exchanges for plan years

2014 and 2015, while HHS will revisit this issue for the 2016 plan year. 

26 The term “small group market health plan” is defined as the health insurance market in 

which employers with 100 or fewer employees offer group health plans. 
 

Page 15 GAO-13-486 Health Insurance

States operating their own exchanges generally must ensure that the 

exchanges will be able to determine an applicant’s eligibility for QHPs, as 

well as for Medicaid and CHIP.

27 Specifically, under PPACA and 

implementing regulations, states must establish an electronic, 

streamlined, and coordinated system through which an individual may 

apply for and receive a determination of eligibility for enrollment in a 

QHP,28 Medicaid, CHIP, or Basic Health Program, if applicable.

Exchanges must be able to use a single application that can be 

completed online, by mail, over the telephone, or in person. This means 

that no matter how an individual submits an application or which program 

receives the application, an individual will use the same application and 

receive an eligibility determination, without the need to submit information 

to multiple programs. Thus, state IT systems must be interoperable and 

integrated with an exchange, Medicaid, and CHIP to allow consumers to 

easily switch from private insurance to Medicaid and CHIP as their 

circumstances change. Exchanges must also be able to transmit certain 

data to HHS to be verified before determining applicants’ eligibility. HHS, 

through a “federal data services hub,” will coordinate with the Department 

of Homeland Security, the Internal Revenue Service, and other federal 

agencies to verify applicant information, such as citizenship and 

household income. With the amount of data that states must share with 

HHS in order to verify eligibility, developing streamlined eligibility and 

 

27 States with either state-based exchanges or partnership exchanges have the option of 

(1) allowing exchanges to make eligibility determinations for Medicaid and CHIP or (2) 

having exchanges make an assessment, with the state Medicaid agency or other relevant 

state agency making the actual determinations of eligibility. In addition, PPACA and 

implementing regulations provide for states, regardless of whether they are establishing 

an exchange, to create a transitional reinsurance program for 2014 through 2016 to help 

stabilize premiums for coverage in the individual market. HHS will establish a reinsurance 

program for any state that fails to establish this program. Further, beginning with the 2014 

benefit year, each state electing to operate an exchange may establish a permanent risk 

adjustment program for all non-grandfathered plans in the individual and small group 

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

program for any state that will not operate an exchange or for states operating an 

exchange but which do not elect to administer the risk adjustment program. These riskspreading mechanisms are designed to mitigate the potential impact of adverse selection 

and provide stability for health insurance issuers in the individual and small group 

markets. We did not include states’ reinsurance and risk adjustment activities in the scope 

of our work.

28 In determining eligibility for a QHP, exchanges must also determine whether applicants 

qualify for premium tax credits or cost sharing reductions for these plans. States electing 

to establish and operate state-based exchanges, however, may choose to rely on HHS to 

make these determinations.

States Must Streamline 

Eligibility and Enrollment 

Systems
 

Page 16 GAO-13-486 Health Insurance

enrollment systems is a vast undertaking requiring states to develop 

sophisticated IT systems.

As part of the enrollment and eligibility process, HHS directs exchanges 

to rely on existing electronic sources of data to the maximum extent 

possible to verify relevant information, with high levels of privacy and 

security protection for consumers. For the majority of applicants, an 

automated electronic data matching process should eliminate the need 

for paper documentation.

States that operate their own exchange are required to conduct consumer 

assistance and outreach through a number of activities. States that 

partner with HHS may assume some aspects of this function. Specifically, 

exchanges must have consumer assistance functions that are available to 

consumers to provide help in using the exchange. Such functions are 

required to be accessible to individuals with disabilities and individuals 

with limited English proficiency. Exchanges are also required to operate a 

toll-free call center and maintain a website that, among other things, 

allows consumers to compare qualified health plan benefits, costs, and 

quality ratings, and select and enroll in a plan. Further, exchanges must 

assist consumers with accessing and obtaining coverage, including 

providing tools to help consumers access the exchange, determine which 

plan or program to enroll in, and determine their eligibility for premium tax 

credits and cost sharing reductions.

As part of states’ consumer outreach and assistance activities, each 

exchange is also required to operate a navigator program, which will 

provide eligible organizations with grants so they can raise awareness of 

QHPs’ availability and facilitate consumers’ selection of QHPs. Navigators 

may include organizations such as trade associations, community and 

consumer-focused non-profit groups and chambers of commerce. 

Navigators must maintain expertise in eligibility, enrollment, and program 

specifications. The entity serving as a navigator must deliver information 

to the public in a fair, accurate, and impartial manner that is culturally and 

linguistically appropriate to the needs of the population they serve.29 HHS 

 

29 Unlike insurance agents and brokers, navigators are not authorized to receive 

compensation or other forms of payment—either directly or indirectly—from any health 

insurance issuer in connection with the enrollment of any qualified individuals, or 

employees of a qualified employer, in a QHP.

States Must Conduct 

Consumer Assistance and 

Outreach
 

Page 17 GAO-13-486 Health Insurance

afforded state-based exchanges the opportunity to use in-person 

assisters in certain circumstances to ensure that the full range of services

that the navigator program will provide in subsequent years are provided 

during the exchanges’ initial year of operation. State partnership 

exchanges in which states will assist with consumer assistance functions 

will be required to establish and operate an in-person assistance 

program. While in-person assisters may receive the same training as 

navigators, they are part of a separate and distinct program and can use 

establishment grants to fund their operation.

PPACA requires that exchanges regularly consult with certain groups of 

stakeholders for all activities, including establishing and operating 

consumer assistance programs. These stakeholders include educated 

health care consumers enrolled in QHPs, representatives of small 

businesses and self-employed individuals, advocates for enrolling hardto-reach populations, and individuals and entities with experience in 

facilitating enrollment in health insurance coverage. Further, HHS 

provided supplementing guidance on activities states may want to 

consider as part of their outreach and education, including:30

• performing market analysis or an environmental scan to assess 

outreach and education needs to determine geographic and 

demographic-based target areas and vulnerable populations for 

outreach efforts;

• developing a “toolkit” for outreach to include educational materials and 

information;

• designing a media strategy and other information dissemination tools; 

and

• submitting a final outreach and education plan to HHS.

States operating their own exchanges are required to ensure their 

exchanges will be self-sustaining by 2015—meaning that states must 

ensure their exchanges have sufficient funding to support ongoing 

operations.31 PPACA allows these exchanges to generate funding for 

 

30 HHS, Cooperative Agreement to Support Establishment of State-Operated Health 

Insurance Exchanges, January 20, 2011.

31 PPACA prohibits the awarding of establishment grants for exchanges after January 1, 

2015. HHS has clarified, however, that states seeking federal funding to establish 

exchanges may be awarded such funds until December 31, 2014.

States Must Ensure 

Financial Sustainability of 

the Exchange
 

Page 18 GAO-13-486 Health Insurance

exchange operations in certain ways, such as charging user fees or other 

assessment fees to exchange-participating health insurance issuers. 

Under HHS guidance, states are to submit a plan to HHS to demonstrate 

how their exchanges will be financially sustainable by January 1, 2015.

Six of the seven states in our study were conditionally approved by HHS 

to create a state-based exchange. State exchange officials we 

interviewed said that, among the reasons that states chose to establish 

this type of exchange are that it allows the state to (1) maintain 

consistency between the insurance market inside and outside the 

exchange, (2) better control its insurance market, and (3) have

opportunities to better meet the unique needs of the state’s population. In 

contrast, Iowa officials said the state opted to partner with HHS due to the 

high cost of building and maintaining a state-based exchange—which the 

state estimated to be $15.9 million annually. Iowa officials also reported 

that, by assuming responsibility over certain exchange activities, such as 

overseeing and certifying qualified health plans, partnering with HHS 

allows the state to maintain regulatory control over its insurance market. 

Iowa officials told us that the state plans to transition to a state-based 

exchange sometime in the future.

To begin building an exchange, six of the seven states have established 

an operating structure through state legislation or by executive order. As 

a partnership state, Iowa is not establishing an operating structure at this 

time because HHS will initially establish and operate the exchange. As 

Iowa switches to a state-based exchange, it will need to establish an 

operating structure.

Despite Some 

Challenges, Selected 

States Have Taken 

Action to Establish 

Exchanges and 

Report They Will Be 

Ready for Enrollment 

by October 2013

Nearly All Selected States 

Have Created an Operating 

and Governance Structure
 

Page 19 GAO-13-486 Health Insurance

As shown in table 1, states varied in how they established their exchange 

operating structures. For example, three states—New York, Nevada, and 

Rhode Island—plan to run their exchange as entities within an existing 

state agency. Exchange officials in New York told us that basing the 

exchange within an existing state agency—New York’s Department of 

Health—allows the state to leverage established administrative systems 

and procedures, thereby relieving the exchange from some of the 

administrative burdens common to start-up organizations. Table 1 also 

shows that five out of the six states that have established an exchange 

have also created a governance board that ranges in member 

composition and expertise. Consistent with HHS regulation, all five 

governance boards include members that represent consumer interests.

Table 1: Summary of Exchange Operating and Governance Structures in Selected States

State 

Type of 

exchange Operating structure Governance structure

District of 

Columbia

State-based Independent authority 

established by state 

legislation

11 Board members: 4 non-voting ex officio members (or their 

designees) and 7 voting members appointed by the mayor with the 

consent of the council with demonstrated expertise in at least 2 of 12 

designated areas, such as health care financing and public health 

programs; at least 1 member must possess knowledge of health care 

consumer interest advocacy. An executive director, hired by the 

board, will direct, administer, and manage the operations of the 

authority. 

Iowa Partnership Will defer to HHS Will defer to HHS

Minnesota State-based Board established by state 

legislationa 7 Board members: the commissioner of Human Services (or a designee) and 6 members appointed by the governor with the consent 

of both the state Senate and the House of Representatives—1 

member representing interests of individual consumers eligible for 

individual market coverage, 1 member representing individual 

consumers eligible for public health care program coverage, 1 

member representing small employers, 1 member with expertise in 

health administration and health care finance, 1 member with 

expertise in public health and the uninsured, and 1 member 

representing health policy issues related to small group and individual 

markets. 

Nevada State-based Independent public agency 

established by state 

legislation

10 Board members: 3 ex officio non-voting members (or their 

designees) and 7 voting members—5 appointed by the governor, 1 

member appointed by the Senate majority leader and 1 member 

appointed by the speaker of Assembly. The Board has 5 advisory 

committees: (1) Finance and Sustainability; (2) Plan Certification and 

Management; (3) Small Business Health Options Program Exchange; 

(4) Reinsurance and Risk Adjustment; and (5) Consumer Assistance.
 

Page 20 GAO-13-486 Health Insurance

State 

Type of 

exchange Operating structure Governance structure

New York State-based Division within the New 

York State Department of 

Health established by 

executive order

No board created. The New York Health Benefit Exchange 

established five regional advisory committees to advise and make 

recommendations on the exchange establishment and operations. 

Committee members include consumer advocates, small business 

representatives, health care providers, health plans, agents, brokers, 

insurers, labor organizations, and policy experts.

Oregon State-based Public corporation 

established by legislationb 9 Board members: 2 ex officio voting members (or their designees) 

and 7 voting members appointed by the governor with Senate 

confirmation.

c At least 2 voting members must be: (1) an individual 

consumer purchasing health care through the exchange; and (2) a 

small business employer purchasing health care through the 

exchange. 

Rhode Island State-based Department within 

executive department 

established by executive 

order

13 Board members, including the director of the Department of 

Administration; the Health Insurance Commissioner; the Secretary of 

the executive office of Health and Human Services; the director of the 

Department of Health; and 9 members appointed by the governor: 2 

represent consumer organizations, 2 represent small businesses.d

 A 

director of the Division of the Rhode Island Health Benefits 

Exchange—appointed by the governor—will organize, administer, and 

manage the operations of the division. No member of the Board is 

affiliated with a group or organization that has a conflict of interest with 

the exchange.

Source: GAO analysis of state legislation and executive orders.

a

Under Minnesota law, an agency in the executive branch who is authorized to (1) perform 

administrative acts, (2) issue or revoke licenses or certifications, (3) make rules, or (4) adjudicate 

contested cases or appeals must be designated as a “board.” The Minnesota Insurance Marketplace 

was established with such authorities.

b

The Oregon Health Insurance Exchange Corporation is a public corporation performing 

governmental functions and exercising governmental powers. O.R.S. § 741.001 (2011).

c

The voting members must collectively offer expertise, knowledge, and experience in individual 

insurance purchasing, business, finance, sales, health benefits administration, individual and small 

group health insurance and use of the health insurance exchange.

d

The board must include a balance of members with expertise in a diverse range of health care areas 

including, but not limited to, health benefits plan administration, health care finance and accounting, 

administering a public or private health care delivery system, state employee health purchasing, 

electronic commerce, and promoting health and wellness.

All seven states in our review reported taking steps toward certifying 

QHPs. Two states have decided whether their exchanges will have the 

authority to actively select which QHPs may participate in the exchange. 

As active purchasers, exchanges can select QHPs by applying additional 

criteria and negotiating with health insurance issuers, or by a combination 

of these actions. As table 2 shows, two states decided to organize their 

exchanges as active purchasers, while the remaining five states will 

organize their exchanges as passive purchasers, allowing all plans that 

meet the minimum requirements for QHPs to participate in the exchange.

States Have Taken Steps 

toward Certifying 

Qualified Health Plans
 

Page 21 GAO-13-486 Health Insurance

To identify benchmark plans, all selected states analyzed the plans and 

considered various factors, including whether the plans offered by the 

state required benefits in addition to the EHB required under PPACA. In 

choosing their benchmark plans, all seven states identified plans that 

included state-mandated benefits that did not exceed PPACA’s EHB 

requirements. Table 2 shows that five of the seven states recommended 

benchmark plans to HHS, while two states chose not to identify a 

benchmark plan and will default to the largest small group plan in their 

state.

Table 2: Selected States’ Insurance Market Organization and Essential Health 

Benefits (EHB)

State Market organization

Essential health benefits 

benchmark plan Plan type

District of Columbia passive purchaser recommended small group 

Iowa passive purchaser defaulted small group 

Minnesota passive purchasera defaulted small group 

Nevada passive purchaser recommended small group 

New York passive purchaser recommended small group 

Oregon active purchaser recommended small group 

Rhode Island active purchaser recommended small group 

Source: GAO analysis of HHS documents and the Henry Kaiser Family Foundation as of January 3, 2013 and March 13, 2013.

a

According to Minnesota officials, the state expects to organize its market as an active purchaser in 

2015.

Definitions: “Recommended” means that a state has recommended an EHB benchmark plan to HHS 

or developed a preliminary EHB recommendation. “Defaulted” means that a state has not 

recommended an EHB benchmark plan and will default to the largest small group plan.

All seven states included in our review have taken steps to invite health 

insurers to participate in their exchanges. For example, in January 2013, 

New York released an invitation to participate and began accepting 

applications for licensed insurers in the state (and those expected to be 

licensed by October 2013) to apply for certain QHPs to be offered through 

the New York exchange. The exchange governing board will review the 

applications of individual health plans to make sure they meet all federal 

minimum participation standards and other requirements to be certified as 

QHPs. Officials reported that the exchange anticipates certifying plans by 

mid-July 2013, and will be ready for enrollment on October 1, 2013.

Minnesota and Oregon requested applications in October 2012 from 

insurers who wanted to offer QHPs in the state’s exchange, while the 

District began accepting applications in April 2013. Insurers certified 
 

Page 22 GAO-13-486 Health Insurance

through the exchange must demonstrate the ability to meet minimum 

certification requirements including providing adequate networks, care 

coordination, and quality measures, among other things. Oregon officials 

told us the state plans to certify QHPs by the summer of 2013 and begin

enrolling consumers in October 2013.

All seven states in our review are in various stages of developing an IT 

infrastructure that can support a streamlined and integrated eligibility and 

enrollment system. A major focus of the states’ integration activities is 

redesigning their current Medicaid and CHIP eligibility and enrollment 

systems. State officials described this as the most significant and onerous 

aspect of developing an IT infrastructure to support the exchange, given 

the age and limited functionality of current state systems. All seven states 

in our review use outdated systems, which lack the capacity to support 

web-based streamlined processes. 

Further, the majority of states operate multiple eligibility and enrollment 

systems that serve individuals enrolled not only in Medicaid and CHIP but 

in other public assistance programs, such as Temporary Assistance to 

Needy Families (TANF) and the Supplemental Nutrition Assistance 

Program (SNAP). These separate systems, which may be managed by 

multiple entities across the state, have limited interface capabilities. For 

example, similar to other states in our review, Oregon operates multiple 

enrollment and eligibility systems, whereby only a limited amount of 

enrollee information is accessible and reusable across multiple programs. 

In addition, Oregon has multiple interfaces between these programs to 

support integrated business processes, making systems complex, 

inflexible, and expensive to maintain. To address these kinds of issues, 

states are using enhanced federal funding, referred to as the 90 percent 

match, to either upgrade or rebuild their outdated Medicaid and CHIP 

eligibility and enrollment systems to meet the requirements under 

States Encountered Time 

Constraints and Other 

Challenges, but Are 

Moving Forward in 

Simplifying and 

Streamlining Eligibility and 

Enrollment Systems
 

Page 23 GAO-13-486 Health Insurance

PPACA.32 As states upgrade their Medicaid and CHIP systems, many are 

also taking the opportunity to integrate enrollment and eligibility 

processes for other public assistance programs, such as TANF and 

SNAP, in order to provide shared services across programs.

In addition to upgrading eligibility and enrollment systems, six of the 

seven states are in various stages of building the exchange IT 

infrastructure needed to integrate these systems and allow consumers to 

navigate among health programs and purchase QHPs through a variety 

of access points, using a single streamlined application.33 The integrated 

systems will enable states to collect information needed for eligibility 

determination and verification, not only from their own state systems, but 

from federal systems as well. These systems are to utilize a federal data 

services hub provided by CMS, which will serve as a single source of the 

federal data that are needed to determine eligibility. To use this system, 

state systems are to transmit requests for data through the federal data 

services hub to multiple federal agencies, such as the Department of 

Homeland Security and the Internal Revenue Service.34 The federal data 

services hub is to return the data in near real-time back to the state 

systems where it can be used to verify the information the states collected 

for determining applicants’ eligibility.

Two states—New York and Oregon—are further along in this work than 

the other states in our review, as they were awarded early innovator 

grants to develop an IT infrastructure that will integrate Medicaid, CHIP, 

and other programs. To develop its state integrated systems, Oregon will 

use a commercial framework that can be easily adopted and used by 

 

32States may receive an enhanced administrative federal match—90 percent—for the 

design, development, and installation or enhancement of eligibility determination systems 

until December 31, 2015. In order to qualify for the 90 percent match, states must submit 

an advanced planning document to CMS for review and approval. As part of its review, 

CMS must determine that the design, development, installation, or enhancement of a 

state’s eligibility system meets a number of standards and conditions, including seamless 

coordination with the health insurance exchanges. The 90 percent match is available only 

for costs incurred after April 19, 2011, and before December 31, 2015. Beginning April 19, 

2011, states may also qualify for a 75 percent match for the operation of eligibility systems 

that continue to meet applicable standards and conditions. This enhanced match is not 

available for systems that do not meet these requirements by December 31, 2015. 

33 As a partnership state, Iowa is not required to establish an exchange infrastructure.

34Other federal agencies include the Social Security Administration, the Veteran’s Heath 

Administration, Tricare, the Peace Corps, the Office of Personnel Management, and CMS. 
 

Page 24 GAO-13-486 Health Insurance

other states. As part of its approach and consistent with the intent of the 

early innovator grant, Oregon has begun working with multiple states to 

share this framework, including their analyses, design, and other 

components.

CCIIO officials indicated that readiness testing of states’ eligibility and 

enrollment systems for the exchange will begin in March 2013 and 

continue through August 2013. To date, three of the states in our 

review—Nevada, New York and Oregon—have begun testing various 

aspects of their eligibility, enrollment, and federal data services hub 

functionality with CCIIO. According to CCIIO officials, the remaining 

states in our review are expected to begin testing over the next few 

months. Most state officials told us that because of the complexities of 

developing an integrated and streamlined eligibility and enrollment 

system, they plan to use a phased approach to implementation to ensure 

that key system changes are in place before 2014. Specifically, they will 

focus first on ensuring that new systems are capable of determining 

eligibility for enrollment in QHPs, Medicaid, CHIP, and the exchange, and 

will integrate other assistance programs—such as SNAP and TANF—

during later stages.

While state officials reported they expect to be ready to enroll individuals 

by October 1, 2013 and are moving forward with IT-related efforts, 

officials in six states identified challenges they faced with developing 

aspects of their systems, given compressed timeframes and a lack of 

clear federal requirements related to the federal data services hub. For 

example, exchange officials expressed concerns about the timeframes for 

implementation, because of the complexities and large undertaking of 

integrating and modernizing these systems. Further, most officials 

reported that transitioning multiple programs into a streamlined and 

coordinated eligibility and enrollment system could take years to fully 

implement. Officials in six states told us that developing business rules for 

the eligibility and enrollment system was challenging because they did not 

have complete information on the requirements of the federal data 

services hub. Because of implementation timelines, however, these 

officials said they needed to begin IT-related activities before receiving 

complete federal guidance. Most officials reported they were concerned 

that this could lead to changes late in the development process. To 

address this uncertainty, a few states built in flexibility in their requests for 

proposals when making procurement decisions. Officials in one state also 

reported that, in order to meet timeframes, modifications to the IT 

systems will be completed in 2014 (after enrollment begins), based on 

guidance issued late in the development process. CMS has indicated that 
 

Page 25 GAO-13-486 Health Insurance

while the federal data services hub is still under development, CMS has 

released guidance to the states on how to access or verify data through 

the federal data services hub through such sources as webinars, 

conferences, and other forums. Despite the challenges associated with 

developing the IT systems, officials in six states reported their systems 

will be ready for enrollment by October 1, 2013.

Six of the seven states included in our review are in various stages of 

developing a consumer outreach and assistance program to reach out to 

potential consumers and help them enroll. As a partnership state, Iowa 

has not yet decided whether and to what extent it will assist HHS with 

aspects of this function. Most states have contracted with or plan to 

contract with vendors to design a program. The vendors will assist with 

the exchanges’ branding, which will be able to translate materials into 

multiple languages and take into account the needs of individuals with 

disabilities. The vendors will also design and implement communications 

and marketing plans (for example, radio and television ads) with the goal 

of enrolling the maximum number of eligible individuals into the 

exchange.

As part of the consumer outreach and assistance programs, states will 

use a range of tools to provide potential consumers with information and 

assist them in enrolling in an exchange. These include:

Navigators and in-person assistors. Six of the seven states in our 

review plan to use navigators and assistors to provide in-person 

enrollment assistance to individuals applying for health insurance, such 

as assisting individuals with selecting QHPs or providing information to 

individuals in a way that is culturally and linguistically appropriate. HHS 

plans to assume responsibility for operating the navigator program in 

Iowa, since it is a partnership state. Nearly all states told us that 

assistance will need to be tailored to the unique needs of their 

populations. For example, Nevada officials told us that their program must 

be able to accommodate individuals who live in Nevada’s remote frontier 

region, where population density can be as low as two people per square 

mile and which may lack infrastructure such as Internet access. New York 

officials told us they will address linguistic and cultural challenges 

reaching individuals in some of New York City’s more diverse 

communities.

Four states—the District, New York, Oregon, and Rhode Island—plan to 

leverage state resources within existing health and human services 

States are Developing 

Outreach and Assistance 

Programs to Help 

Consumers Enroll in the 

Exchange
 

Page 26 GAO-13-486 Health Insurance

programs to support navigators and assistors. For example, Oregon plans 

to model its navigator program after a state Medicaid program that 

provides uninsured individuals with premium assistance and access to 

health care information and resources. Similarly, New York, which issued 

a request for application in February 2013 for in-person assistors and 

navigators, will model its approach after its community assistance 

programs and will provide assistance through a variety of access points in 

other local areas across the state. New York officials told us that the state 

plans to sign contracts with navigators and in-person assistors in the 

summer of 2013 and begin training them in August or September 2013.

Web portals and call centers. Six of the seven states in our review are 

designing web portals and contact centers as part of their consumer 

assistance and outreach initiatives. The seventh state, Iowa, is a 

partnership state and is deferring this responsibility to HHS. State 

planning documents in the remaining six states indicated that the web 

portals and the contact centers will be central to assisting residents. State 

officials told us that web portals, in particular, will ease comparisons 

among health plans by providing standardized information about each 

health plan’s premium, benefit structure, and cost-sharing provisions. For 

example, District officials told us that a web portal, which is being 

developed in conjunction with the IT infrastructure, will be the key access 

point for consumers to interface with the exchange. Similarly, Minnesota 

is designing a contact center that will offer multiple modes of assistance 

through such means as Internet access, telephone, mail, and in-person 

assistance. State officials told us they expect the customer service 

functions will be ready to operate on October 1, 2013.

Officials in six states in our review reported they are considering a 

number of revenue options for financially sustaining their exchange.35 For 

example, as part of the planning efforts to develop these options, three 

states—Nevada, Minnesota, and the District—created work groups to 

recommend options for achieving long-term sustainability. In particular, 

both Minnesota and Nevada created working groups intended to review 

and propose financing options to enable the exchange to be selfsustaining by January 1, 2015.

 

35 As a partnership exchange, Iowa is not responsible for carrying out this key function. 

States Are Planning for 

Long-Term Sustainability 

with Multiple Revenue 

Options, but Faced 

Uncertainties Estimating 

Costs 
 

Page 27 GAO-13-486 Health Insurance

While states reported they are considering options to fund ongoing 

exchange costs, such as salaries and benefits, consulting services, 

outreach and marketing, and information technology, three states will 

charge fees to insurance carriers participating in the exchange. 

Specifically:

• Oregon will charge an administrative fee to insurance carriers 

participating in the exchange. In particular, carriers will be required to 

pay a percentage of the premiums (up to 5 percent) based on the 

number of enrollees in the exchange. The fee is designed to decrease 

as enrollment in the exchange increases. For example, if more than 

300,000 individuals enroll in the exchange, the state exchange will 

charge carriers up to a 3 percent fee. If enrollment is at or below 

175,000, the state exchange will charge carriers up to a 5 percent fee. 

Between 100,000 and 120,000 enrollees would be required for the 

exchange to be self-sustaining using the maximum administrative fee 

of 5 percent. Further, any excess revenues generated above the cost 

of operating the exchange may be placed in a reserve fund of up to 6 

months of operating expenses or returned to insurance carriers.

• Nevada plans to charge insurance carriers a per member per month 

fee based on enrollment. In its financial sustainability plan, the state 

estimated the fee will amount to between $7.13 and $7.78 per 

member per month, which the state anticipates insurance carriers will 

build into their QHP premiums. In addition, based on the state’s 

estimates, the state expects the fee will be paid by the advance 

premium tax credit. Nevada is also considering other potential 

sources of supplementary revenue, such as fees charged for standalone vision and dental plans.

• Minnesota plans to charge an administrative fee to insurance carriers 

participating in the exchange. Specifically, insurers will be required to 

pay a percentage of the premiums (about 3.5 percent) sold through 

the exchange. The fee will be based on the volume of insurance 

premiums for plans sold through the exchange.

While the states in our review have developed financing options, some 

state officials identified challenges with developing these options, given 

uncertainties related to exchange enrollment. Specifically, financial 

sustainability will be highly dependent on the size of enrollment and the 

take up rate, which is the percent of individuals that are estimated to 

enroll in coverage out of the entire eligible population. Some state officials 

reported that, estimating enrollment patterns without the benefit of 
 

Page 28 GAO-13-486 Health Insurance

historical data from the exchange, could impact revenue projections. 

Further, according to one state, uptake estimates among various groups 

are “drastically different,” so that estimating enrollment could result in 

significantly different per member per month carrier fees required to fund 

the exchange. Officials from two states reported that given these 

uncertainties, they expect to make adjustments to these estimates over 

time.

We provided a draft of this report to the Secretary of HHS for review and 

comment. In response, HHS provided technical comments, which we 

incorporated as appropriate. Additionally, we provided excerpts of the 

draft report to exchange officials, such as the executive director and chief 

policy research and evaluation officer, in the seven states we interviewed 

for this study. We incorporated their technical comments as appropriate.

As arranged with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

issue date. At that time, we will send copies of this report to the Secretary 

of HHS and interested congressional committees. In addition, the report 

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

If you have any questions concerning this report, please contact Stanley 

J. Czerwinski at (202) 512-6806 or czerwinskis@gao.gov. Contact points 

for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this report. Key contributors to this report are 

listed in appendix II.

Sincerely yours, 

Stanley J. Czerwinski

Director, Strategic Issues

Agency Comments
Appendix I: Objectives, Scope & Methodology

Page 29 GAO-13-486 Health Insurance

This report addresses the following objectives: (1) identify states’ 

responsibilities for establishing health benefit exchanges; and (2) 

describe the actions selected states have taken to establish exchanges 

and the challenges they have encountered.1

To identify states’ responsibilities for establishing exchanges and the 

challenges they encountered, we reviewed selected Patient Protection 

and Affordable Care Act (PPACA) provisions and Department of Health 

and Human Services (HHS) implementing regulations and guidance 

related to the following categories:

• establishing a governance and operating structure;

• ensuring exchanges will be capable of certifying qualified health 

plans;

• simplifying and streamlining eligibility and enrollment systems;

• conducting consumer assistance and outreach; and

• ensuring the financial sustainability of the exchange.

Our review of HHS’s guidance included HHS’s blueprint for approval of 

state-based and partnership exchanges, information bulletins, questions 

and answers, and webinars. We also reviewed reports that have 

summarized state responsibilities with regard to the categories we 

included in our study, including those completed by federal agencies 

monitoring the implementation process and national associations that 

play a role in assisting states with implementation. Specifically, we 

reviewed reports from the Congressional Budget Office, the 

Congressional Research Service, and relevant state associations, such 

as the National Association of Insurance Commissioners, the National 

Conference of State Legislatures, the National Association of State 

Budget Officers, and the National Academy for State Health Policy.

To identify actions selected states have taken to create exchanges and 

the challenges they encountered, we conducted semistructured 

interviews with officials in seven states: the District of Columbia,2 Iowa, 

 

1 For purposes of this report, we focus on certain categories of responsibilities. Therefore, 

this list does not include all states’ responsibilities related to establishing an exchange.

2 For ease of reporting and for purposes of this review, we refer to the District of Columbia 

as a state.

Appendix I: Objectives, Scope & 

Methodology 
Appendix I: Objectives, Scope & Methodology

Page 30 GAO-13-486 Health Insurance

Minnesota, Nevada, New York, Oregon, and Rhode Island. We selected 

these states on the basis of:

1. The percentage of the uninsured population in states based on a 3-

year average (2008 to 2010);

2. The percentage of the uninsured population in states in 2011;

3. The amount of exchange grants awarded to states on a per capita 

basis;3

4. Geographic dispersion; and

5. The type of exchange states intended to establish, based on data 

publicly available as of September 27, 2012.4

Table 3 shows the characteristics of the states selected for our review. 

We initially selected two states that intended to operate as federally 

facilitated exchanges—Florida and Maine. However, exchange officials in 

both states declined to be interviewed. Therefore, this review focused on 

states’ responsibilities to establish state-based and partnership 

exchanges.

 

3

We calculated the amount of total planning, establishment, and early innovator grants 

awarded on a per capita basis in each state as of September 27, 2012. We divided the 

total amount of grants awarded to states by the total state population.

4

Specifically, we selected states on the basis of whether they intended to opt for a statebased, federally facilitated, or partnership exchange as of September 27, 2012. At that 

time, states had not yet formally declared their intention to HHS through the blueprint

application. However, we used the most readily available information at that time from 

HHS and the Henry Kaiser Family Foundation.
Appendix I: Objectives, Scope & Methodology

Page 31 GAO-13-486 Health Insurance

Table 3: Characteristics of States Included in GAO Study

Selected States

Percentage of the 

uninsured 

population based 

on 3-year average

Percentage 

of the 

uninsured 

population 

in 2011

Exchange grants 

awarded on a per 

capita basis as of 

September 27, 2012

Census

region

Status of intended 

state action, as of 

September 27, 2012

District of Columbia 11.4% 8.4% $136.6 South State-based

Iowa 10.7 10 11.6 Midwest Studying options

Minnesota 8.7 9.2 13.9 Midwest Studying options

Nevada 20 22.6 27.7 West State-based

New York 14.2 12.2 9.5 Northeast State-based

Oregon 16.5 13.8 16.9 West State-based

Rhode Island 11.5 12 61.5 Northeast State-based

Floridaa 20.7 19.8 0 South Federally facilitated

Maineb 9.9 10 0.8 Northeast Federally facilitated

Source: GAO analysis of U.S. Census Bureau and HHS data.

a Florida was initially selected for inclusion in our review based on our selection criteria noted, but 

exchange officials declined to be interviewed for our study.

b Maine was initially selected for inclusion in our review based on our selection criteria noted, but 

exchange officials declined to be interviewed for our study.

We conducted initial interviews in person and by telephone between 

October and November 2012 and follow-up interviews between February 

and March 2013. The interview questions focused on states’ actions 

regarding establishing an exchange and the challenges they encountered 

in the following areas: establishing an operating and governance 

structure, developing information technology systems and infrastructure 

to support a streamlined eligibility and enrollment system, ensuring 

exchanges will be capable of certifying qualified health plans, creating 

consumer outreach and assistance, and ensuring the exchange’s 

financial sustainability. We also met with budget officials in some of the 

states to discuss the fiscal aspects of establishing exchanges, including 

how states will ensure exchanges are financially sustainable. The 

responses to the interviews are not intended to be representative of all 

state exchange and budget officials. 

To supplement our interviews, we reviewed state planning, budget, and 

implementation documents, such as state blueprint applications, business 

plans, exchange grant applications, and contracting documents.

In addition, we conducted interviews with officials from the Centers for 

Medicare & Medicaid Services (CMS) and CMS’s Center for Consumer 
Appendix I: Objectives, Scope & Methodology

Page 32 GAO-13-486 Health Insurance

Information and Insurance Oversight and relevant state associations, 

including the National Association of State Budget Officers, National 

Conference of State Legislatures and the National Association of 

Insurance Commissioners.

We conducted our work from September 2011 to April 2013 in 

accordance with generally accepted government audit 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.
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 33 GAO-13-486 Health Insurance

Stanley J. Czerwinski, Director, Strategic Issues, (202) 512-6806 or 

czerwinskis@gao.gov

In addition to the contact named above, Brenda Rabinowitz, Assistant 

Director; Kisha Clark, Analyst-in-Charge; Sandra Beattie, Amy Bowser, 

Robert Gebhart, Sherrice Kerns, Cynthia Saunders, Stacy Ann Spence, 

and Hemi Tewarson made key contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(450936)
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