Health Insurance: Seven States' Actions to Establish Exchanges under the Patient Protection and Affordable Care Act
Released: 2013-05-30T00:00:00

Letter

Background

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.

States’ Responsibilities for Establishing Exchanges Vary, Depending on the Type of Exchange

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.

States Must Establish an Operating and Governance Structure

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).

States Must Ensure Exchanges Will be Capable of Certifying Qualified Health Plans

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.

States Must Streamline Eligibility and Enrollment Systems

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.

States Must Conduct Consumer Assistance and Outreach

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.

States Must Ensure Financial Sustainability of the Exchange

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.

Despite Some Challenges, Selected States Have Taken Action to Establish Exchanges and Report They Will Be Ready for Enrollment by October 2013

Nearly All Selected States Have Created an Operating and Governance Structure

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.

States Encountered Time Constraints and Other Challenges, but Are Moving Forward in Simplifying and Streamlining Eligibility and Enrollment Systems

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.

States are Developing Outreach and Assistance Programs to Help Consumers Enroll in the Exchange

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.

States Are Planning for Long-Term Sustainability with Multiple Revenue Options, but Faced Uncertainties Estimating Costs

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.

Agency Comments

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.

Appendix I: Objectives, Scope & Methodology

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.

Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.