Health Insurance: Seven States' Actions to Establish Exchanges under the Patient Protection and Affordable Care Act
Published: 2013-04-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: The Patient Protection and Affordable Care Act (PPACA), 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. 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 employees are eligible for a private health plan,  Medicaid, or the Children’s Health Insurance Program (CHIP)., This  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). 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 long- term 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?  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: establishing a governance and operating structure; ensuring exchanges will be capable of certifying qualified health ensuring financial sustainability of the exchange.  plans;  simplifying and streamlining eligibility and enrollment systems;  conducting consumer assistance and outreach; and  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. 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  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 state- based 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.
subsections: section_title: Background
paragraphs: 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  premium tax credit, cost sharing reductions, Medicaid, CHIP, and the  Basic Health Program (BHP), 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). 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  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.
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.
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  initial research and exchange planning activities. 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. 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. Of that amount, states returned over $98 million in grant  awards.  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.
section_title: States’ Responsibilities for Establishing Exchanges Vary, Depending on the Type of Exchange
paragraphs: 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, 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.
subsections: section_title: States Must Establish an Operating and Governance Structure
paragraphs: 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.
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).
section_title: States Must Ensure Exchanges Will be Capable of Certifying Qualified Health Plans
paragraphs: 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. 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, (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.
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,  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,  10. Pediatric services including oral and vision care.
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). At a minimum, however, a health insurance issuer  must offer QHPs at both the silver and gold levels of coverage.
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. 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.
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 state- required 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.
section_title: States Must Streamline Eligibility and Enrollment Systems
paragraphs: 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. 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, 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  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.
section_title: States Must Conduct Consumer Assistance and Outreach
paragraphs: 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. HHS  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 hard- to-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: 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 designing a media strategy and other information dissemination tools;  and  submitting a final outreach and education plan to HHS.
section_title: States Must Ensure Financial Sustainability of the Exchange
paragraphs: 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. PPACA allows these exchanges to generate funding for  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.
section_title: Despite Some Challenges, Selected States Have Taken Action to Establish Exchanges and Report They Will Be Ready for Enrollment by October 2013
subsections: section_title: Nearly All Selected States Have Created an Operating and Governance Structure
paragraphs: 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.
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.
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.
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.
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  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.
section_title: States Encountered Time Constraints and Other Challenges, but Are Moving Forward in Simplifying and Streamlining Eligibility and Enrollment Systems
paragraphs: 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  PPACA. 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. 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. 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  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  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.
section_title: States are Developing Outreach and Assistance Programs to Help Consumers Enroll in the Exchange
paragraphs: 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  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.
section_title: States Are Planning for Long-Term Sustainability with Multiple Revenue Options, but Faced Uncertainties Estimating Costs
paragraphs: Officials in six states in our review reported they are considering a  number of revenue options for financially sustaining their exchange. 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 self- sustaining by January 1, 2015.
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 stand- alone 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  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.
section_title: Agency Comments
paragraphs: 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.
section_title: Appendix I: Objectives, Scope & Methodology
paragraphs: 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.
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 ensuring the financial sustainability of the exchange.  plans;  simplifying and streamlining eligibility and enrollment systems;  conducting consumer assistance and outreach; and  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, Iowa,  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  4.  Geographic dispersion; and  5.  The type of exchange states intended to establish, based on data  publicly available as of September 27, 2012.
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.
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  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.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: 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.