Patient Protection and Affordable Care Act: Status of CMS Efforts to Establish Federally Facilitated Health Insurance Exchanges
Published: 2013-06-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Patient Protection and Affordable Care Act required the establishment in all states of exchangesmarketplaces where eligible individuals can compare and select health insurance plans. CMS must oversee the establishment of exchanges, including approving states to operate one or establishing and operating one itself in states that will not do so. CMS will approve states to assist it in carrying out certain FFE functions. CMS will also operate an electronic data hub to provide eligibility information to the exchanges and state agencies. Enrollment begins on October 1, 2013, with coverage effective January 1, 2014. GAO was asked to examine CMSs role and preparedness to establish FFEs and the data hub. In this report, GAO describes (1) the federal governments role in establishing FFEs for operation in 2014 and state participation in that effort; and (2) the status of federal and state actions taken and planned for FFEs and the data hub.
GAO reviewed regulations and guidance issued by CMS and documents indicating the activities that the federal government and states are expected to carry out for these exchanges. GAO also reviewed planning documents CMS used to track the implementation of federal and state activities, including documents describing the development and implementation of the data hub. GAO also interviewed CMS officials responsible for establishment of the exchanges. GAO relied largely on documentation provided by CMSincluding information CMS developed based on its contacts with the statesregarding the status of the exchanges and did not interview or collect information directly from states.
section_title: What GAO Found
paragraphs: The Centers for Medicare & Medicaid Services (CMS) will operate a health insurance exchange in the 34 states that will not operate a state-based exchange for 2014. Of these 34 federally facilitated exchanges (FFE), 15 are in states expected to assist CMS in carrying out certain FFE functions. However, the activities that CMS plans to carry out in these 15 exchanges, as well as in the state-based exchanges, have evolved and may continue to change. For example, CMS approved states' exchange arrangements on the condition that they ultimately complete activities necessary for exchange implementation. CMS indicated that it would carry out more exchange functions if any state did not adequately progress towards implementation of all required activities.
CMS completed many activities necessary to establish FFEs by October 1, 2013, although many remain to be completed and some were behind schedule. CMS issued numerous regulations and guidance and took steps to establish processes and data systems necessary to operate the exchanges. The activities remaining cross the core exchange functional areas of eligibility and enrollment, plan management, and consumer assistance. To support consumer-eligibility determinations, for example, CMS is developing a data hub that will provide electronic, near real-time access to federal data, as well as provide access to state and third party data sources needed to verify consumer-eligibility information. While CMS has met project schedules, several critical tasks, such as final testing with federal and state partners, remain to be completed. For plan management, CMS must review and certify the qualified health plans (QHP) that will be offered in the FFEs. Though the system used to submit applications for QHP certification was operational during the anticipated time frame, several key tasks regarding plan management, including certification of QHPs and inclusion of QHP information on the exchange websites, remain to be completed. In the case of consumer assistance, for example, funding awards for Navigators--a key consumer assistance program--have been delayed by about 2 months, which has delayed training and other activities. CMS is also depending on the states to implement specific FFE exchange functions, and CMS data show that many state activities remained to be completed and some were behind schedule.
Much progress has been made, but much remains to be accomplished within a relatively short amount of time. CMS's timelines provide a roadmap to completion; however, factors such as the still-evolving scope of CMS's required activities in each state and the many activities yet to be performed--some close to the start of enrollment--suggest a potential for challenges going forward. And while the missed interim deadlines may not affect implementation, additional missed deadlines closer to the start of enrollment could do so. CMS recently completed risk assessments and plans for mitigating risks associated with the data hub, and is also working on strategies to address state preparedness contingencies. Whether these efforts will assure the timely and smooth implementation of the exchanges by October 2013 cannot yet be determined.
In commenting on a draft of this report, the Department of Health and Human Services emphasized the progress it has made in establishing exchanges, and expressed its confidence that exchanges will be open and functioning in every state by October 1, 2013.

section_title: Letter
paragraphs: The Patient Protection and Affordable Care Act (PPACA) requires the  establishment in all states of health insurance exchanges—marketplaces  where eligible individuals can compare and select among insurance plans  offered by participating private issuers of health coverage. The  Department of Health and Human Services’ (HHS) Centers for Medicare  & Medicaid Services (CMS) is responsible for overseeing the  establishment of these exchanges. Enrollment in the exchanges is to  begin on October 1, 2013, and the exchanges are to become operational  and offer health coverage starting on January 1, 2014. The Congressional  Budget Office estimated that about 7 million individuals will enroll in  exchanges by 2014, increasing to about 24 million by 2022.
The exchanges are intended to provide a seamless, single point of  access for individuals to enroll into private health plans, apply for income- based financial subsidies established under the law, and, as applicable,  obtain an eligibility determination for other health coverage programs,  such as Medicaid or the State Children’s Health Insurance Program  (CHIP). an exchange, individuals must complete an application and meet certain  eligibility requirements defined by PPACA; for example, they must be  U.S. citizens or legal immigrants. To support exchanges’ efforts to  determine applicants’ eligibility to enroll, CMS is building a tool called the  federal data services hub (data hub). According to CMS officials, the data  hub is to provide one electronic connection to federal sources for near  real-time access to data, as well as provide access to state and other  data sources needed to verify consumer exchange application  information.
Medicaid is a joint federal-state program that finances health care coverage for certain  low-income individuals. CHIP is a federal-state program that provides health care  coverage to children 18 years of age and younger living in low-income families whose  incomes exceed the eligibility requirements for Medicaid. on state decisions. As directed by PPACA, FFEs must carry out the same  functions as exchanges established and operated by a state. The federal  government bears responsibility for establishing and operating FFEs;  however, in establishing the framework within which an FFE in a  particular state will be established and operated, CMS has provided  states the option to assist with certain FFE operations. CMS refers to  FFEs in these states as partnership exchanges. States seeking to  operate a state-based exchange were required to submit an application to  CMS containing attestations regarding when the state would complete  specific required activities CMS deemed essential to operating an  exchange. States electing not to establish a state-based exchange, but  seeking to participate in a partnership exchange were required to  complete an abbreviated version of that application tailored to the  particular activities that the state would assist the FFE to carry out. On the  basis of this documentation, CMS conditionally approved states to  establish a state-based exchange or to participate in a partnership  exchange on the basis that they complete the required activities by  certain dates, among other steps necessary for the operation of an  exchange. States electing not to establish a state-based exchange or  participate in a partnership exchange were not required to submit an  application to CMS.
As the required start of health plan enrollment draws near, an important  question is whether CMS will have FFEs ready to begin accepting  applications by October 1, 2013, and fully operational by January 1, 2014.  You asked us to examine the federal government’s role and  preparedness to establish FFEs and the data hub, and the sources and  amounts of funding used by the federal government to carry out  preparatory activities. In this report, we describe  1.  the federal government’s role in establishing FFEs for operation in  2014 and state participation in that effort,  2.  the status of federal and state actions taken and planned for FFEs  and the data hub, and  3.  CMS spending to support establishment of FFEs and the data hub.
To describe the federal government’s role in establishing FFEs for  operation in 2014 and state participation in that effort, we reviewed  regulations and guidance issued by CMS in preparation for establishing  the FFEs. We examined documentation from CMS indicating the activities  that the federal government and states are expected to carry out for these  exchanges. We also interviewed CMS officials to clarify these documents  and obtain updated information on the evolving decisions related to  federal and state activities in specific areas.
To describe the status of federal and state actions taken and planned for  FFEs and the data hub, we examined planning documents used by CMS  to track the implementation of key activities to be conducted by the  federal government to establish FFEs and the data hub. In particular, we  reviewed a February 22, 2013, timeline used by CMS to track the  activities that remained to be completed before the implementation of the  exchanges. In addition, we developed a data collection instrument for  CMS to complete about its key activities underway or planned for  establishing the FFEs. The instrument asked CMS to provide information  on the percent of each activity that it had completed, the expected or  actual completion date, and a description of key activities completed and  remaining to be completed. For those FFEs where states chose to  participate in a partnership exchange, we examined the activities they  agreed to perform as a requirement of their conditional approval from  CMS. We examined those activities and targeted completion dates that  were reported in the conditional approval letters issued from December  2012 through March 2013. CMS later provided us with an update on the  status of certain of these activities as of April 24, 2013. We also  interviewed CMS officials to understand CMS’s plans for establishing  FFEs and, in early May, obtained updated information on the status of  key federal activities. We discussed with CMS other activities generally  related to exchanges that the agency may have to perform if states  planning to operate a state-based exchange or participate in a  partnership exchange decide not to or are unable to perform as planned.  To provide an overview of the status of CMS’s development and  implementation of the data hub, we reviewed project management  documentation, such as plans, schedules, and technical documentation  describing the data hub’s functionality. We also assessed project  management documents that described the extent to which CMS had  completed steps towards implementing the data hub, such as evidence of  test results and project milestone reviews. When examining the actions  taken by the federal government and states, we relied largely on  information and documents provided to us by CMS regarding the status of  the exchanges—including information CMS developed based on its  contacts and information exchanges with states—and did not interview or  collect information directly from states.
To describe CMS spending to support establishment of FFEs and the  data hub, we requested data from CMS on the sources of funding for  activities conducted for the purpose of establishing the FFEs and the data  hub, including activities carried out by contractors, and the total amount of  such funding obligated or expected to be obligated through fiscal year  2013. We received data from CMS on obligations for contracts and  interagency agreements from fiscal year 2010 through March 31, 2013, to  assist in the development and operation of the FFEs and the data hub  and carry out certain other exchange-related activities. CMS provided  the total amounts obligated, the appropriations account to which the  obligations were charged, a brief description of the projects, and the  contractors or other recipients of funds. CMS officials said the data do not  include CMS staff salaries and other administrative expenses, which are  not tracked specifically for the FFEs and the data hub. In addition, the  data do not include obligations for grants CMS awarded to states to assist  in the establishment of FFEs. We performed data reliability checks, such  as checking the data for obvious errors and examining the actions taken  by CMS to ensure its reliability. We determined that these data were  sufficiently reliable for the purpose of this report.
We conducted this performance audit from February 2013 through June  2013 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Exchanges are intended to allow eligible individuals to obtain health  insurance, and all exchanges, whether state-based or established and  operated by the federal government, will be required to perform certain  functions. The federal government’s role with respect to an exchange for  any given state is dependent on the decisions of that state.
subsections: section_title: Overview of Exchanges
paragraphs: PPACA required that exchanges be established in each state to allow  consumers to compare health insurance options available in that state  and enroll in coverage. Once exchanges are established, individual  consumers will be able to access the exchange through a website, toll- free call centers, or in person. The exchanges will present qualified health  plans (QHP) approved by the exchange and offered in the state by the  participating issuers of coverage. The benefits, cost-sharing features,  and premiums of each QHP are to be presented in a manner that  facilitates comparison shopping of plans by individuals. Once individuals  wish to select a QHP, they will complete an application—through the  exchange website, over the phone, in person, or by mailing a paper  form—that collects the information necessary to determine their eligibility  to enroll in a QHP. On the basis of the application, the exchange will  determine individuals’ eligibility for enrollment in a QHP, and also  determine their eligibility for income-based financial subsidies—advance  payment of premium tax credits and cost-sharing subsidies—to help pay  for that coverage. Also at the time of the application, the exchange will  determine individuals’ eligibility for Medicaid and CHIP. After an individual  has been determined to be eligible for enrollment in a QHP, the individual  will be able to use tools on the exchange website to compare plans and  make a selection. For individuals applying for enrollment in a QHP and for  income-based financial subsidies, eligibility determinations and  enrollment should generally occur on a near real-time basis, to be  accomplished through the electronic transfer of eligibility information  between the exchange and federal and state agencies, and through the  electronic transfer of enrollment data between the exchange and QHP  issuers. Assistance with the enrollment process will be provided to  individuals either through the website, an established telephone call  center, or in person.
To undertake these functions, all exchanges, including those established  and operated by the federal government, will be required to perform  certain activities, many of which fall within the core functions of eligibility  and enrollment, plan management, and consumer assistance.
Eligibility and enrollment: All exchanges will be required to  determine an individual’s eligibility for QHP enrollment, income-based  financial subsidies, and enrollment in Medicaid and CHIP.  Exchanges will be required to enroll eligible individuals into the  selected QHP or transmit information for individuals eligible for  Medicaid or CHIP to the appropriate state agency to facilitate  enrollment in those programs. The exchange is to use a single,  streamlined enrollment eligibility system to collect information from an  application and verify that information. CMS is building the data hub to  support these efforts. The data hub is intended to provide data  needed by the exchanges’ enrollment eligibility systems to determine  each applicant’s eligibility. Specifically, the data hub will provide one  electronic connection and near real-time access to the common  federal data, as well as provide access to state and third party data  sources needed to verify consumer application information. For  example, the data hub is to verify an applicant’s Social Security  number with the Social Security Administration (SSA), and to access  the data from the Internal Revenue Service (IRS) and the Department  of Homeland Security (DHS) that are needed to assess the applicant’s  income, citizenship, and immigration status. The data hub is also  expected to access information from the Veterans Health  Administration (VHA), Department of Defense (DOD), Office of  Personnel Management (OPM), and Peace Corps to enable  exchanges to determine if an applicant is eligible for insurance  coverage from other federal programs that would make them ineligible  for income-based financial subsidies. In states in which an FFE will  operate, the hub is also expected to access information from state  Medicaid and CHIP agencies to identify whether FFE applicants are  already enrolled in those programs.
Plan management: Exchanges will be required to develop and  implement processes and standards to certify health plans for  inclusion as QHPs and recertify or decertify them, as needed. As  part of these processes, the exchange must develop an application for  issuers of health coverage that seek to offer a QHP. The exchange  must review a particular plan’s data to ensure it meets certification  standards for inclusion in the exchange as a QHP. The exchange  must also conduct ongoing oversight and monitoring to ensure that  the plans comply with all applicable regulations.
Consumer assistance: All exchanges will be required to provide a  call center, website, and in-person assistance to support consumers  in filing an application, obtaining an eligibility determination,  comparing coverage options, and enrolling in a QHP. Other  consumer assistance function activities that exchanges must conduct  are outreach and education to raise awareness of and promote  enrollment in QHPs and income-based financial subsidies. One such  form of consumer assistance required by PPACA is the establishment  of Navigators—entities, such as community and consumer-focused  nonprofit groups, to which exchanges award grants to provide fair and  impartial public education regarding QHPs, facilitate selection of  QHPs, and refer consumers as appropriate for further assistance.
section_title: Federal and State Roles in Exchanges
paragraphs: The role of the federal government with respect to an exchange for a  state is dependent on whether that state seeks to operate a state-based  exchange. States can choose to establish exchanges as directed by  PPACA and seek approval from CMS to do so. States electing to  establish and operate a state-based exchange in 2014 were required to  submit to CMS, by December 14, 2012, a declaration of intent and the  “Blueprint for Approval of Affordable State-based and State Partnership  Insurance Exchange.” Through this Blueprint, the state attests to how its  exchange meets, or will meet, all legal and operational requirements  associated with a state-based exchange. For example, the state must  demonstrate that it will establish the necessary legal authority and  governance, oversight, financial-management processes, and the core  exchange functions of eligibility and enrollment, plan management, and  consumer assistance. Although a state assumes responsibility for the  exchange when it elects to operate a state-based exchange, it can  choose to rely on the federal government for certain exchange-related  activities, including determining individuals’ eligibility for income-based  financial subsidies and activities related to reinsurance and risk  adjustment.issuers on behalf of enrollees in all exchanges.
In addition, CMS will make financial subsidy payments to  Under PPACA, if a state did not elect to establish a state-based exchange  or is not approved by CMS to operate its own exchange, then CMS is  required to establish and operate an FFE in that state. Although the  federal government retains responsibility to establish and operate each  FFE, CMS has identified possible ways that states may assist it in the  day-to-day operation of these exchanges:
CMS indicated that a state can choose to participate in an FFE  through a partnership exchange by assisting CMS with the plan  management function, consumer assistance function, or both.  According to CMS, the overall goal of a partnership exchange is to  enable the FFE to benefit from efficiencies to the extent states have  regulatory authority and capability to assist with these functions, help  tailor the FFE to that state, and provide a seamless experience for  consumers. The agency also noted that a partnership exchange can  serve as a path for states toward future implementation of a state- based exchange. Although the states would assist in carrying out  the plan management function, consumer assistance function, or both  on a day-to-day basis, CMS would retain responsibility for these and  all other FFE functions. For example, for plan management, states  would recommend QHPs for certification, and CMS would decide  whether to approve the states’ recommendations and, if so,  implement them. In the case of consumer assistance, states would  manage an in-person assistance program and Navigators and may  choose to conduct outreach and education activities. However, CMS  would be responsible for awarding Navigator grants and training  Navigators, and would operate the exchange’s call center and  website. By February 15, 2013, states seeking to participate in a  partnership exchange had to submit a declaration letter and Blueprint  to CMS regarding expected completion dates for key activities related  to their participation.
CMS indicated in guidance issued on February 20, 2013, that an FFE  state choosing not to submit a Blueprint application for a partnership  exchange by the February 15, 2013, deadline could still choose to  assist it in carrying out the plan management function on a day-to-day  basis. CMS officials said that, operationally, the plan management  functions performed by these states will be no different than the  functions performed by partnership exchange states. Instead of a  Blueprint application, states interested in participating in this  alternative type of arrangement had to submit letters attesting that the  state would perform all plan management activities in the Blueprint  application.
Even in states in which CMS will operate an FFE without a state’s  assistance, CMS plans to rely on states for certain information. For  example, it expects to rely on state licensure of health plans as one  element of its certification of a QHP.
After a state submits an application to operate a state-based exchange or  participate in a partnership exchange, CMS may approve or conditionally  approve the state for that status. Conditional approval indicates that the  state had not yet completed all steps necessary to carry out its  responsibilities in a state-based exchange or partnership exchange, but  its exchange is expected to be ready to accept enrollment on October 1,  2013. To measure progress towards completing these steps, CMS  officials indicated that the agency created a set of typical dates for when  specific activities would need to be completed in order for the exchanges  to be ready for the initial enrollment period. The agency then adapted  those dates for each state establishing a state-based exchange or  participating in a partnership exchange. The agency officials said that if  the state indicated in its Blueprint that it planned to complete an activity  earlier than CMS’s typical targeted completion date, CMS accepted the  state’s earlier date. If the state proposed a date that was later than CMS’s  typical targeted completion date, the state had to explain the difference  and CMS determined whether that date would allow the exchange to be  ready for the initial enrollment period. The agency indicated that a state’s  conditional approval continues as long as it conducts the activities by the  target dates agreed to with the individual state and demonstrates its  ability to perform all required exchange activities.
CMS’s role in operating an exchange in a particular state may change for  future years if states reassess and alter the roles they play in establishing  and operating exchanges. For example, a state may be approved to  participate in a partnership exchange in 2014 and then apply, and receive  approval, to run a state-based exchange in 2015. Although the federal  government would retain some oversight over the state-based exchange,  the responsibility for operating the exchange would shift from the federal  government to the state.
section_title: Funding for FFEs and the Data Hub
paragraphs: HHS indicated that it has drawn from several different appropriations to  fund CMS activities to establish and operate FFEs and the data hub.  These include the Health Insurance Reform Implementation Fund,  HHS’s General Departmental Management Account, and CMS’s Program  Management Account. HHS also indicated that it plans to use funds  from the Prevention and Public Health Fund and the agency’s  Nonrecurring Expenses Fund to pay for certain exchange activities in  2013.will assist with eligibility determinations and activities to make people   Specifically, the agency plans to use these funds for activities that  aware of insurance options and enrollment assistance available to them.  For fiscal year 2014, CMS has estimated that it will need almost $2 billion  to establish and operate the FFEs. Specifically, the President’s fiscal year  2014 budget requests $1.5 billion in appropriations for CMS’s Program  Management Account for the implementation and operation of the  exchanges. In addition to this amount, it estimated that $450 million in  user fees will be collected from issuers of health coverage participating in  the exchanges in fiscal year 2014 and credited to the Program  Management Account.used for activities related to operation of the exchanges, including  eligibility and enrollment, consumer outreach, plan oversight, SHOP and  employer support, information-technology systems, and financial  management.
According to the agency, these funds will be  In addition to these sources of funding, the agency also awarded grants  with funds appropriated under section 1311 of PPACA to states in which  an FFE will operate for activities related to the FFE. These include the  plan management and consumer assistance activities that certain states  will undertake on behalf of the FFE, as well as the development of state  data systems to coordinate with the FFE.
section_title: CMS Expects to Operate an Exchange in Most States, but Planned CMS and State Exchange Activities Continue to Evolve
paragraphs: CMS expects to operate an FFE in 34 states in 2014. States are expected  to assist with certain day-to-day functions in 15 of these FFEs. However,  the precise activities that CMS and the states will perform have not been  finalized and may continue to evolve.
subsections: section_title: CMS Expects to Operate FFEs, including Partnership Exchanges, in 34 States in 2014
paragraphs: For 2014, CMS will operate the exchange in 34 states, although it expects  that states will assist in carrying out certain activities in almost half of  those exchanges. As of May 2013, 17 states were conditionally approved  by CMS to establish state-based exchanges. CMS granted conditional  approval to these states in letters issued from December 2012 to January  2013. CMS is required to operate an FFE in the remaining 34 states.  While CMS will retain full authority over each of these 34 FFEs, it plans to  allow 15 of the states to assist it in carrying out certain exchange  functions. Specifically, as of May 2013, CMS granted 7 FFE states  conditional approval to participate in a partnership exchange. CMS issued  these conditional approval letters from December 2012 to March 2013. Of  the 7 partnership exchange states, 6 (Arkansas, Delaware, Illinois,  Michigan, New Hampshire, and West Virginia) indicated that they planned  to assist with both the plan management and consumer assistance  functions of the exchange and 1 (Iowa) indicated that it would only assist  with the plan management function. In an alternate arrangement, CMS  plans to allow the other 8 of these 15 FFE states (Kansas, Maine,  Montana, Nebraska, Ohio, South Dakota, Utah, and Virginia) to assist   In the remaining 19 FFE states,  with the plan management function.CMS plans to operate all functions of an FFE without states’ assistance  for plan year 2014. (See fig. 1 for a map of exchange arrangements for  2014.)
Some states also informed CMS of whether or not they chose to carry out  certain other activities related to the exchanges. First, CMS officials said  that all states with an FFE are to notify CMS whether or not their relevant  state agencies will determine the Medicaid/CHIP eligibility for individuals  who submit applications to the FFE or if the states will delegate this  function to the FFE. As of May 2, 2013, CMS officials indicated that  none of the 34 FFE states had notified CMS as to whether they would  conduct Medicaid/CHIP eligibility determinations rather than delegate this  responsibility to CMS. CMS officials indicated that states do not have a  deadline for notifying CMS of their decisions on this area, but would have  to do so before initial enrollment on October 1, 2013. Second, states  notified CMS as to whether they would operate a transitional reinsurance  program. CMS indicated that for plan year 2014, two state-based  exchange states—Connecticut and Maryland—notified CMS that they  would each operate a transitional reinsurance program, leaving CMS to  operate programs in the remaining 49 states.
section_title: Planned CMS and State Activities to Establish Exchanges Have Evolved Recently and May Continue to Change
paragraphs: The activities that CMS and the states each plan to carry out to establish  the exchanges have evolved recently. CMS was required to certify or  conditionally approve any 2014 state-based exchanges by January 1,  2013. CMS extended application deadlines leading up to that date to  provide states with additional time to determine whether they would  operate a state-based exchange. On November 9, 2012, CMS indicated  that in response to state requests for additional time, it would extend the  deadline for submission of the Blueprint application for states that wished  to operate state-based exchanges in 2014 by a month to December 14,  2012. The agency noted that this extension would provide states with  additional time for technical support in completing the application. At the  same time, the agency extended the application deadline for states  interested in participating in a partnership exchange by about 3 months to  February 15, 2013. In addition, the option for FFE states to participate in  an alternative arrangement to provide plan management assistance to the  FFE was made available to states by CMS in late February. CMS did not  provide states with an explicit deadline for them to indicate their intent to  participate in this arrangement, but CMS officials said April 1, 2013, was a  natural deadline because issuers of health coverage had to know by then  to which entity—CMS or the state—to submit health plan data for QHP  certification.
The specific activities CMS will undertake in each of the state-based and  partnership exchanges may continue to change if states do not make  adequate progress toward completion of their required activities. When  CMS granted conditional approval to states, it was contingent on states  meeting several conditions, such as obtaining authority to undertake  exchange activities and completing several required activities by specified  target dates. For example, in April 2013, CMS officials indicated that  Michigan—a state that had been conditionally approved by CMS in March  to participate in a partnership exchange—had not been able to obtain  passage of legislation allowing the state to use federal grant funds to pay  for exchange activities, which had been a requirement of its conditional  approval. As of May 2, 2013, CMS officials expected that Michigan would  remain a partnership exchange state, but indicated that Michigan may not  be able to conduct consumer assistance without funding authority. They  noted, however, that a final decision about Michigan’s responsibilities had  not been determined. In addition, on May 10, 2013, CMS indicated that it  intended to allow Utah’s exchange, which was conditionally approved as  a state-based exchange in January 2013, to now be an FFE. Officials  indicated that final approval for state-based and partnership exchanges  will not be granted until the states have succeeded in completing required  activities, and that some of these exchanges may still be under  conditional approval when enrollment begins on October 1, 2013.
Agency officials indicated that they are working with each state to develop  mitigation strategies to ensure that all applicable exchange functions are  operating in each state on October 1, 2013. CMS officials said that they  are assessing the readiness of each state as interim deadlines approach.  For example, issuers began submitting applications to exchanges for  QHP certification on April 1, 2013. Therefore, CMS officials said that they  began assessing state readiness for this activity in March 2013. They also  indicated that CMS is doing this kind of assessment for each state as  deadlines approach for other functions—such as eligibility and enrollment,  and consumer assistance. If a state is not ready to carry out a specific  responsibility, CMS officials said the agency will support them in this area.  As of May 2, 2013, CMS had not granted final approval to any state to  operate a state-based exchange or participate in a partnership exchange.  If any state conditionally approved to operate a state-based exchange or  to participate in a partnership exchange does not adequately progress  towards implementation of all required activities, CMS has indicated that it  would carry out more exchange functions in that state. CMS officials  indicated that exchanges receiving this assistance would retain their  status as a state-based or partnership exchange.
section_title: CMS Completed Many Activities to Establish FFEs and the Data Hub by the Beginning of Open Enrollment, Although Completion of Some Activities Was Behind Schedule
paragraphs: CMS has completed many activities necessary to establish FFEs and the  data hub. The agency established targeted completion dates for the many  activities that remain to be completed by the beginning of initial  enrollment on October 1, 2013, and certain activities were behind  schedule.
subsections: section_title: CMS Issued Numerous Regulations and Guidance Necessary to Establish FFEs, and Made Progress in Each of the Core Exchange Functions and in Developing the Data Hub
paragraphs: CMS issued numerous regulations and guidance that it has said are  necessary to set a framework within which the federal government,  states, issuers of health coverage, and others can participate in the  exchanges. For example, in March 2012, the agency issued a final rule  regarding implementation of exchanges under PPACA, and in February  2013, it issued a final rule setting forth minimum standards that all health  insurance issuers, including QHPs seeking certification on a state-based  exchange or FFE, have to meet. The March 2012 rule, among other  things, sets forth the minimum federal standards that state-based  exchanges and FFEs must meet and outlines the process a state must  follow to transition between types of exchanges. The February 2013 rule  specifies benefit design standards that QHPs must meet to obtain  certification. That rule also established a timeline for QHPs to be  accredited in FFEs. CMS also issued a proposed rule related to the  Navigator program on April 5, 2013. This rule proposes conflict of  interest, training, and certification standards that will apply to Navigators  in FFEs. CMS officials expected to issue this final rule prior to initial  enrollment. CMS officials indicated that before initial enrollment begins in  October 2013, they would propose an additional rule that would set forth  exchange oversight and records retention requirements, among other  things. On June 14, 2013, CMS released this proposed rule, which will be  published in the Federal Register on June 19, 2013.
CMS also issued guidance specifically related to the establishment of  FFEs and partnership exchanges to assist states seeking to participate in  a partnership exchange and issuers seeking to offer QHPs in an FFE,  including a partnership exchange. For example, the agency issued  general guidance on FFEs and partnership exchanges in May 2012 and  January 2013, respectively. On April 5, 2013, the agency issued guidance  to issuers of health coverage seeking to offer QHPs through FFEs or  partnership exchanges.
In addition to establishing the basic exchange framework for state-based  exchanges and FFEs, including partnership exchanges, CMS also  completed activities needed to establish the core FFE functions— eligibility and enrollment, including the data hub; plan management; and  consumer assistance. (See table 1.)
CMS established timelines to track its completion of the remaining  activities necessary to establish FFEs. CMS has many key activities  remaining to be completed across the core exchange functions—eligibility  and enrollment, including development and implementation of the data  hub; program management; and consumer assistance. In addition, the  agency established targeted completion dates for the required activities  that states must perform in order for CMS to establish partnership  exchanges in those states. However, the completion of certain activities  was behind schedule.
CMS expects to complete development and testing of the information  technology systems necessary for FFEs to determine eligibility for  enrollment into a QHP and to enroll individuals by October 1, 2013, when  enrollment is scheduled to begin for the 2014 plan year. As of April 2013,  CMS indicated that it still needed to complete some steps to enable FFEs  to be ready to test development of key eligibility and enrollment functions,  including calculation of advance payments of the premium tax credits and  cost-sharing subsidies, verification of consumer income, and verification  of citizenship or lawful presence. CMS indicated that these steps will be  completed in July 2013. For one activity—the capacity to process  applications and updates from applications and enrollees through all  channels, including in-person, online, mail, and phone—CMS estimated  that the system will be ready by October 1, 2013. CMS officials said that  redeterminations of consumer eligibility for coverage will not occur until  the middle of 2014.
Effective use of the FFEs’ eligibility and enrollment systems is dependent  upon CMS’s ability to provide the data needed to carry out eligibility  determination and enrollment activities through the implementation of the  data hub. According to program officials, CMS established milestones for  completing the development of required data hub functionality by July  2013, and for full implementation and operational readiness by  September 2013. Project schedules reflect the agency’s plans to provide  users access to the hub for near real-time data verification services by  October 1, 2013.
Agency officials stated that ongoing development and testing activities  are expected to be completed to meet the October 1, 2013, milestone.  Additionally, CMS has begun to establish technical, security, and data  sharing agreements with federal partner agencies and states, as required  by department-level system development processes. These include
Business Service Definitions (BSDs), which describe the activities,  data elements, message formats, and other technical requirements  that must be met to develop, test, and implement capabilities for  electronically sharing the data needed to provide various services,  such as income and Social Security number verification.
Computer Matching Agreements, which establish approval for data  exchanges between various agencies’ systems and define any  personally identifiable information the connecting entity may access  through its connection to the data hub; and
Data Use Agreements, which establish the legal and program  authority that governs the conditions, safeguards, and procedures  under which federal or state agencies agree to use data.
For example, CMS officials stated that they established Data Use  Agreements with OPM and the Peace Corps in April 2013 and completed  BSDs by mid-June. Additionally, these officials plan to obtain final  approval of Computer Matching Agreements with IRS, SSA, DHS, VHA,  and DOD by July 2013.
CMS began conducting both internal and external testing for the data hub  in October 2012, as planned. The internal testing includes software  development and integration tests of the agency’s systems, and the  external testing begun in October included secured communication and  functionality testing between CMS and IRS. These testing activities were  scheduled to be completed in May 2013. CMS has also begun to test  capabilities to establish connection and exchange data with other federal  agencies and the state agencies that provide information needed to  determine applicants’ eligibility to enroll in a QHP or for income-based  financial subsidies, such as advance premium tax credits and cost- sharing assistance, Medicaid, or CHIP. For example, CMS officials stated  that testing with 11 states began on March 20, 2013, and with five more  states in April. They also stated that, although originally scheduled to  begin in April, testing with SSA, DHS, VHA and Peace Corps started early  in May 2013 and that testing with OPM and DOD was scheduled to begin  in July 2013. Additionally, CMS recently completed risk assessments and  plans for mitigating identified risks that, if materialized, could negatively  affect the successful development and implementation of the data hub.
While CMS stated that the agency has thus far met project schedules and  milestones for establishing agreements and developing the data hub,  several critical tasks remain to be completed before the October 1, 2013,  implementation milestone. (See fig. 2). According to CMS officials and the  testing timeline:
Service Level Agreements (SLA) between CMS and the states, which  define characteristics of the system once it is operational, such as  transaction response time and days and hours of availability, are  planned to be completed in July 2013;
SLAs between CMS and its federal partner agencies that provide  verification data are expected to be completed in July 2013; and
Completion of external testing with all federal partner agencies and all  states is to be completed by the beginning of September 2013.
The activities that remain for CMS to implement the plan management  function primarily relate to the review and certification of the QHPs that  will be offered in the FFEs. CMS has set time frames that it anticipates  will allow it to certify and upload QHP information to the exchange  website in time for initial enrollment. CMS indicated that its system for  issuers of health coverage to submit applications for QHP certification  was available by April 1, 2013, and issuers were to submit their   Once received, CMS, with the assistance  applications by May 3, 2013.of its contractor, expects to evaluate and certify health plans as QHPs by  July 31, 2013. CMS will then allow issuers to preview and approve QHP  information that will be presented on the exchange website by August 26,  2013. CMS then expects to finalize the QHP information and load it into  the exchange website by September 15, 2013.
For those 15 FFEs for which states will assist with the plan management  function, CMS will rely on the states to ensure the exchanges are ready  by October 2013. In contrast to other FFE states in which CMS manages  all aspects of the QHP application and certification process, these   15 states were to evaluate health issuer plan applications to offer a QHP  in the exchange and submit recommendations to CMS regarding the  plans to be certified as QHPs. CMS indicated that the states are expected  to submit their recommendations by July 31, 2013, which is also when  CMS expects to complete its evaluation of QHPs for the other FFE  states. (See fig. 3.)
CMS has yet to complete many activities related to consumer assistance  and outreach, and some initial steps were behind schedule. Specifically,  several steps necessary for the implementation of the Navigator program  in FFEs have been delayed by about 2 months. CMS had planned to  issue the funding announcement for the Navigator program in February  2013 and have two rounds of awards, in June and September 2013.  However, the announcement was delayed until April 9, 2013, and CMS  officials indicated that there would be one round of awards, with an  anticipated award date of August 15, 2013. CMS did not indicate the  number of awards it expected to make, but noted that it expects that at  least two types of applicants will receive awards in each of the 34 FFE  states, and at least one will be a community or consumer-focused  nonprofit organization. CMS officials indicated that, despite these delays,  they planned to have Navigator programs operating in each FFE state by  October 1, 2013.
Before any federally funded in-person assisters, including Navigators, can  begin their activities, they will have to be trained and certified. For  example, these individuals are required to complete an HHS-approved  training program and receive a passing score on all HHS-approved  certification exams before they are able to assist with enrollment  activities. CMS officials said that the required training for Navigators will  be web-based, and it is under development. According to CMS, the  Navigator training will be based on the training content that is being  developed for agents and brokers in the FFEs and partnership  exchanges, which CMS indicates is near completion. In addition, CMS is  developing similar web-based training for the state partnership exchange  in-person assistance programs. While CMS had planned to begin  Navigator training in July 2013, under its current plan, the agency will not  have awarded Navigator grants by this date. CMS indicated that it plans  to complete development of the training curriculum and certification exam  in July or August 2013. CMS officials expected that the training would  begin in the summer of 2013, following completion of the curriculum and  exam.
Each of the six partnership exchange states that CMS conditionally  approved to assist with certain consumer assistance responsibilities plans  to establish other in-person assistance programs that will operate in  addition to Navigator programs in these states. The dates by which the  states planned to release applications and select in-person assisters  varied. (See fig. 4.) For example, according to the conditional approval  letters, one partnership exchange state planned to select in-person  assisters by March 1, 2013, to begin work by May 15, 2013, while another  planned to make that selection by August 1, 2013, to begin work by  September 1, 2013. Five of the states’ required activities indicated that  they planned to add state-specific modules to the required federal training  for Navigators and in-person assisters.
As of April 24, 2013, CMS indicated that these six partnership exchange  states had made progress, but the completion of some activities was  behind schedule.the applications to select in-person assisters by April 2013 had done so.  While the deadline for most states to select in-person assisters had not  passed as of April 24, 2013, there were delays for two states. One state  that planned to select in-person assisters by March 15, 2013 delayed that  deadline to May 30, 2013, while the other delayed it to June 15. CMS  indicated that these delays are not expected to affect the implementation  of these programs. However, the state now planning to complete  selection by May 30, 2013, had originally planned to begin training  assisters in March and begin work May 15, 2013. The second state had  planned that in-person assisters would begin work August 1, 2013.
For example, three states that had planned to release  CMS and states with partnership exchanges have also begun, and  established time frames for, undertaking other outreach and consumer  assistance activities that are necessary to implement FFEs. CMS  recommended that in-person outreach activities begin in the summer of  2013 to educate consumers in advance of the open enrollment period.  Examples of key activities that remain to be completed include the federal  call center, healthcare.gov website, media outreach, and the consumer  complaint tracking system for the FFEs. While states with partnership  exchanges will utilize the federal call center and website, they have  established plans for undertaking other outreach and consumer  assistance activities. (See table 2.)
section_title: CMS Spent Almost $394 Million through Contracts to Support Establishment of the FFEs and Data Hub and to Carry Out Certain Other Exchange-Related Activities as of March 2013
paragraphs: CMS data indicated that the agency spent almost $394 million from fiscal  year 2010 through March 31, 2013, through contracts to complete  activities to establish the FFEs and the data hub and carry out certain  other exchange-related activities. CMS officials said that these totals did  not include CMS salaries and other administrative costs, but rather  reflected the amounts obligated for contract activities. The majority of  these obligations, about $248 million (63 percent), were incurred in fiscal  year 2012. The sources of the $394 million in funding were three  appropriation accounts: HHS’s General Departmental Management  Account, CMS’s Program Management Account, and the Health  Insurance Reform Implementation Fund. The majority of the funding  came from the CMS Program Management Account (66 percent) followed  by the Health Insurance Reform Implementation Fund (28 percent). (See  fig. 5.)
CMS reported that the almost $394 million supported 64 different types of  projects through March 31, 2013. The highest volume of obligations  related to the development of information technology systems for the  FFEs. The 10 largest project types in terms of obligations made through  March 31, 2013, accounted for $242.6 million, 62 percent of the total  obligations. (See table 3.)
These activities were carried out by 55 different contractors.10 contractors accounted for $303.4 million (77 percent of total  obligations) for activities to support establishment of FFEs and the data  hub and carry out certain other exchange-related activities. (See table 4.)  Their contracts were for projects related to information technology, the  healthcare.gov website, call center, and technical assistance for the  FFEs. For one contract, with CGI Federal, CMS obligated about   $88 million for activities to support establishment of the FFEs, such as  information technology and technical assistance. For another contract,  with Quality Software Services, Inc., CMS obligated about $55 million for  related activities, including to support development of the data hub. (See  app. I for each contract by the contractor, the amount obligated, the fiscal  year in which funds were obligated, and the source of funding.)
section_title: Concluding Observations
paragraphs: FFEs along with the data services hub services are central to the goal  under PPACA of having health insurance exchanges operating in each  state by 2014, and of providing a single point of access to the health  insurance market for individuals. Their development has been a complex  undertaking, involving the coordinated actions of multiple federal, state,  and private stakeholders, and the creation of an information system to  support connectivity and near real-time data sharing between health  insurance exchanges and multiple federal and state agencies. Much  progress has been made in establishing the regulatory framework and  guidance required for this undertaking, and CMS is currently taking steps  to implement key activities of the FFEs, and developing, testing, and  implementing the data hub. Nevertheless, much remains to be  accomplished within a relatively short amount of time. CMS’s timelines  and targeted completion dates provide a roadmap to completion of the  required activities by the start of enrollment on October 1, 2013. However,  certain factors, such as the still-unknown and evolving scope of the  exchange activities CMS will be required to perform in each state, and the  large numbers of activities remaining to be performed—some close to the  start of enrollment—suggest a potential for implementation challenges  going forward. And while the missed interim deadlines may not affect  implementation, additional missed deadlines closer to the start of  enrollment could do so. CMS recently completed risk assessments and  plans for mitigating identified risks associated with the data hub, and is  also working on strategies to address state preparedness contingencies.  Whether CMS’s contingency planning will assure the timely and smooth  implementation of the exchanges by October 2013 cannot yet be  determined.
section_title: Agency Comments
paragraphs: We received comments from HHS on a draft of this report (see app. II).  HHS emphasized the progress it has made in establishing exchanges  since PPACA became law, and expressed its confidence that on   October 1, 2013, exchanges will be open and functioning in every state.  HHS also provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to the Secretary of Health and  Human Services and other interested parties. In addition, the report will  be available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have questions about this report, please contact   John E. Dicken at (202) 512-7114 or dickenj@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made major contributions to  this report are listed in appendix III.
section_title: Appendix I: Contractors Supporting the Federally Facilitated Exchanges and Data Hub and Amounts Obligated
paragraphs: Table 5 provides information on the amounts the Department of Health  and Human Services’ (HHS) Centers for Medicare & Medicaid Services  (CMS) obligated for contract activities to support the establishment of the  federally facilitated exchanges (FFE) and the data hub and carry out  certain other exchange-related activities by individual contractors. The  funds were obligated from fiscal year 2010 through March 31, 2013. The  information presented in this table was obtained from CMS. Due to the  large number of contractors, we did not edit the information to correct  typographical or grammatical errors, or clarify the information provided.  We reprinted the abbreviations and acronyms provided by CMS.
section_title: Appendix II: Comments from the Department of Health and Human Services
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact name above, Randy Dirosa and Teresa Tucker,  Assistant Directors; Tonia Brown; Sandra George; Jawaria Gilani;   William Hadley; Thomas Murphy; and Laurie Pachter made key  contributions to this report.