PPACA directed each state to establish and operate a health insurance marketplace by January 1, 2014. In cases where states elected not to establish and operate a marketplace, the law directed the federal government to establish and operate a health insurance marketplace on their behalf. These marketplaces were expected to provide a seamless, single point-of-access for individuals to enroll in private health insurance plans and apply for income-based financial assistance established under the law. PPACA and HHS regulations and guidance require every state to have marketplace capabilities that enable them to carry out four key functions, among others: Eligibility and enrollment. The marketplace must enable individuals to assess and determine their eligibility for enrollment in healthcare coverage. In addition, the marketplace must provide individuals the ability to obtain an eligibility determination for other federal healthcare coverage programs, such as Medicaid and the Children’s Health Insurance Program (CHIP). Once eligibility is determined, individuals must be able to apply for and enroll in applicable coverage options. Plan management. The marketplace is to provide a suite of services for state agencies and health plan issuers to facilitate activities such as submitting, monitoring, and renewing qualified health plans. Financial management. The marketplace is to facilitate payments of premiums to health plan issuers and also provide additional services such as payment calculation for risk adjustment analysis and cost- sharing reductions for individual enrollments. Consumer assistance. The marketplace must be designed to provide support to consumers in completing an application, obtaining eligibility determinations, comparing coverage options, and enrolling in healthcare coverage. To provide these capabilities, PPACA further required the states, as well as HHS (who delegated this role to CMS) to establish supporting automated systems and capabilities. Toward this end, states and CMS undertook projects to design, develop, implement, and operate health insurance marketplace systems. States electing to establish their own marketplaces (hereafter referred to as a state-based marketplace) were required, in accordance with CMS guidance and regulations, to develop their own IT solutions, including a web portal for individual consumers to interact with and select healthcare coverage, as well as supporting systems that perform functions such as real-time eligibility queries, transferring application information to state Medicaid/CHIP agencies, sending taxpayer information to the Internal Revenue Service, and exchanging enrollment information with issuers of qualified health plans. In addition, state-based marketplace IT solutions were required to interface with CMS systems designed to exchange information with external partners, including other federal agencies and states, and facilitate the electronic payment of insurance premiums to plan issuers. As an alternative to their web portals, these states were also required to set up call centers through which consumers could apply for coverage. A state that operates its own marketplace can request that CMS perform eligibility and enrollment functions using federal IT systems. We refer to this as a state-based marketplace using the federal marketplace IT solution. This type of marketplace evolved when certain states encountered IT-related challenges during the development of their state marketplace solutions. Further, if a state elected not to establish its own marketplace, CMS assumed some or all aspects of the marketplace operations for that state using two additional marketplace types: Federally facilitated marketplace: CMS is responsible for all aspects of establishing and operating the marketplace including the four key functions. Federally facilitated partnership: CMS is responsible for establishing and operating the eligibility enrollment and financial management functions, while the state assists with plan management and/or consumer assistance. In these cases, states rely to varying degrees on the systems developed by CMS to support a federally facilitated marketplace. These include Healthcare.gov—the federal website that serves as the user interface for individuals to obtain information about health coverage, set up a user account, select a health plan, and apply for healthcare coverage—and several supporting systems. The supporting systems include a system for verifying an applicant’s identity and establishing a login account; a transactional database to facilitate eligibility and enrollment, plan management, financial services, and other functions; and a data services hub that serves as a single portal for exchanging information with external partners. For example, federal agencies such as the Social Security Administration (SSA), Department of Homeland Security (DHS), and Internal Revenue Service (IRS) provide or verify information used in making determinations of a person’s eligibility for coverage and financial assistance. For plan year 2015, 14 states had a state-based marketplace, 3 had a state-based marketplace using the federal marketplace IT solution, 27 had a federally facilitated marketplace, and 7 had a federally facilitated partnership (see fig. 1). Depending on the type of marketplace established in his or her state, an individual user would apply for health coverage through either their state’s web portal or through Healthcare.gov. The key functions required to enroll that individual would then be carried out by a combination of state and federal systems specific to the type of marketplace. A general depiction of both the state and federal marketplace IT solutions is provided in figure 2. States had access to two sources of federal funding to establish their marketplaces: federal marketplace grants and Medicaid matching funds. CMS allows states to use both Medicaid matching funds and marketplace grants to pay for shared system services and functions that states needed to establish for marketplace operations, such as developing a rules engine system and establishing interfaces to the federal data services hub. Various offices within CMS were tasked with overseeing grant reviews, Medicaid advanced planning document reviews, and IT gate reviews to ensure that states followed a standardized funding process for their marketplace-related IT projects. These offices included the Center for Consumer Information and Insurance Oversight (CCIIO), Center for Medicaid and Chip Services (CMCS), and the Office of Technology Solutions (OTS). PPACA authorized HHS to award federal exchange grants (now referred to as marketplace grants) for planning and establishing marketplaces. The act did not specify an exact amount of marketplace grant funding, but appropriated to HHS, out of any moneys in the Treasury not otherwise appropriated, an amount necessary to make marketplace grant awards. The act directed HHS to determine the total amount of funding that it would make available to each state for each fiscal year and authorized the department to award marketplace grants to states through December 2014. On the basis of this authority, HHS established four separate programs for awarding marketplace grants to states. Planning Grants: Provided states with resources to conduct the initial research and planning needed to build a marketplace and determine how it would be operated and governed. The grants were awarded to states in 2010 and 2011 and provided 1 year of funding. A state could receive only one planning grant. Early Innovator Grants: Provided funding to a state or group of states that were identified as early leaders in building their marketplaces, to assist in designing and implementing the IT infrastructure needed to operate the marketplaces. All marketplace IT components, including software and data models, developed with these grants could be adopted and modified by other states to fit their specific needs. The grants were awarded in February 2011 and the grant funds were available for 2 years. A state could only receive one of these grants. Establishment Grants (Level 1): Provided funding for a 1-year project period to states pursuing any marketplace type. This funding was intended to help states undertake additional marketplace establishment activities, such as changes in response to legislative or regulatory requirements, developing IT systems, and consulting with key stakeholders. The grants were awarded between May 2011 and December 2014. Once awarded, the funds were available for 1 year, and a state could apply for multiple grants. Establishment Grants (Level 2): Provided funding for a multi-year project period to states that have legal authority to implement a marketplace and are further along in marketplace development and are pursuing a state-based marketplace. This funding was designed to help the states carry out all marketplace activities, including consumer and stakeholder engagement and support, eligibility and enrollment, plan management, and technology development. The grants were awarded between May 2011 and December 2014. Once awarded, the grant funds remain available for up to 3 years. A state could receive only one grant. States establishing state-based marketplaces were expected to carry out activities in a number of areas to receive these marketplace grants. These activity areas included stakeholder consultation, program integration, IT systems development, financial management, oversight and program Integrity, health Insurance market reform, and business operations of the marketplace. Once grants were awarded, funding was disbursed using the Payment Management System, which is an HHS-administered system that provides federal agencies and grant recipients the tools to manage grant payments. Grantees submitted progress reports documenting financial expenditures and program progress through an online data collection system on a monthly and semi-annual basis. As of December 31, 2014, CMS had awarded approximately $5.51 billion in federal marketplace grants to states. Of these grant funds awarded, CMS had authorized states to spend approximately $2.16 billion on IT to support state-based marketplaces and federally facilitated partnerships as of March 2015. According to CMS, funds authorized for IT contracts could be designated as restricted and required prior approval from the various CMS offices mentioned previously before the funds could be spent. For states that opted to use the federally facilitated marketplace, IT funds were not provided after it was determined that these states were not establishing a state-based marketplace. With the enactment of PPACA, changes to Medicaid eligibility and enrollment systems were needed in order for the Medicaid program to operate seamlessly with the marketplaces, as well as to implement new Medicaid eligibility policies. Specifically, in all states, the Medicaid eligibility and enrollment system had to be replaced or modernized to meet the more streamlined enrollment process requirements of PPACA and its implementing policies, which included real-time transfer of applications between the state Medicaid agencies and the marketplace and immediate Medicaid eligibility determinations, regardless of the type of marketplace a state elected to use.