The options for states to take part in the Affordable Care Act’s health insurance marketplaces have evolved over time. While the law initially contemplated only two models—state-based or federal marketplaces—political and practical circumstances ultimately led to the creation of multiple avenues through which states could establish marketplaces in 2014 and take on responsibilities for running various marketplace functions. States have the opportunity to tailor their marketplaces to their needs, and have received far more funding for critical functions such as consumer assistance than have federally run marketplaces.
The U.S. Department of Health and Human Services (HHS) recently released the 2015 marketplace models for states (Exhibit 1). Moving forward, states may continue to move between different marketplace models. In doing so, they will consider a number of factors, including the likelihood of obtaining legal authority to run a state-based marketplace, funding availability, desire to maximize state regulatory oversight, and their technological capabilities. To transition from a federally run to a state-based or state-partnership marketplace, states must meet key deadlines this spring and establishment grants cannot be awarded after January 1, 2015. Conversely, states choosing to relinquish marketplace operation to the federal government must notify HHS at least 12 months in advance.
Exhibit 1. Marketplace Establishment Models, 2015
| Marketplace Establishment Models, 2015 | Key Comparisons with 2014 | Application Process |
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State-Based Marketplace: State operates all core functions; may use federal services to carry out certain functions. |
In 2014, two states adopted an informal option known as a "supported state-based marketplace" in which they used the federal IT platform. In 2015, this option has been contemplated by several states, though again it is not formally recognized model. |
State must submit a declaration letter by May 1, 2014, and a blueprint by June 1, 2014. Blueprints must be approved by June 15, 2014. |
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State SHOP (Small Business Health Options Program) Marketplace (“bifurcated” marketplace): State operates all core functions for small-business marketplace; federal government operates individual marketplace. |
In 2014, the state-based SHOP marketplace was not included as an initial option for states but was subsequently allowed via regulation. |
State must submit a declaration letter by May 1, 2014, and a blueprint by June 1, 2014. |
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State-Partnership Marketplace: A variant of the federally facilitated marketplace in which a state conducts consumer assistance, outreach, and education functions on behalf of the federal government; the federal government operates remaining core functions. |
In 2015, plan management will no longer be a formal option for state-partnership marketplaces. In 2014, states could formally elect to conduct plan management, consumer assistance, or both via a state-partnership marketplace. |
State must submit a declaration letter by May 1, 2014, and a blueprint by June 1, 2014. |
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Federally Facilitated Marketplace: Federal government operates all core marketplace functions. |
In 2015, states may conduct plan management on behalf of the federal government on an ad hoc basis. In 2014, states conducting plan management activities for the federal marketplace under an arrangement known as "marketplace plan management" were required to submit a letter to HHS attesting that they could complete all core plan management functions. |
State marketplaces wishing to cease operations must notify HHS 12 months prior to doing so. |
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Regional or subsidiary marketplace: |
None. |
States that are interested in requirements as a regional or subsidiary marketplace should contact the Center for Consumer Information and Insurance Oversight. |
Source: 2015 Blueprint for Approval of Affordable State-Based and State Partnership Insurance Exchanges and authors’ analysis.
Few States Moving Toward New State-Based Marketplaces
To date, only four states—Arkansas, Illinois, Iowa, and Mississippi—appear to be taking active steps to transition from federal to state-based marketplaces. In 2014, each of these except Mississippi established a state-partnership marketplace, a model that HHS envisions as a potential stepping stone to a state-based marketplace. So far, only Arkansas has enacted legislation allowing for a transition to a state-based marketplace. The governor of Illinois has continued to advocate for passage of establishment legislation, while Iowa has proposed establishment legislation and recently received a grant to transition to a state-based marketplace. The legislation in Arkansas specifies that a state-based marketplace can open no earlier than the 2016 plan year; moreover, practical challenges, such as the need to approve marketplace health plans prior to the November 2014 open enrollment period, make it unlikely that any of these states will have a fully operating state-based marketplace in time for the 2014–15 open enrollment period.
SHOP Marketplaces for Small Businesses
Mississippi has opted not to run an individual marketplace but is building a state SHOP marketplace in 2014. After originally defaulting to a federally facilitated marketplace, the state obtained conditional approval in October 2013 to build a SHOP marketplace.
Technology a Factor in Transition Decisions
The importance of a well-functioning website has been one of the clearest themes to emerge from the initial rollout of health insurance marketplaces. Given the challenge of building a marketplace IT system, two states that decided late in spring of 2013 to establish state-based marketplaces—Idaho and New Mexico—relied on the federal website for the initial year of operation, a model known informally as a “supported state-based marketplace.”1 Both of these states are now developing their own technology, with plans to become fully operational by the next open enrollment period.
By contrast, at least six states—Hawaii, Maryland, Massachusetts, Minnesota, Nevada, and Oregon—have continued to work on solutions to their ongoing technology problems, while successful rollouts in other states are presenting new opportunities. Connecticut, for example, is creating a new entity to make its marketplace technology available to other states, with Maryland the first state to pursue this option. The board for Oregon's marketplace, which considered this solution, instead decided to utilize the federal marketplace technology in 2015. Whether or not Oregon maintains its status as a state-run marketplace could depend on ongoing discussions with federal regulators about which functions the state will retain, such as customer outreach and health plan management, as well as the potential need for state legislative action. Although reliance on alternative technology platforms does not necessarily reflect a formal transition between marketplace models, it could affect the ability of state-based marketplaces to carry out their intended policies, and raises new questions about how customers, health plans, and agents will transition to the new technology platforms.
Several States Considering Regional Marketplaces
Federal rules allow states to enter into partnerships with other states to create regional marketplaces, an option that some are beginning to explore. West Virginia, for instance, completed a study in 2013 outlining considerations for implementing a regional marketplace, while Iowa’s governor recently announced interest in a potential regional marketplace with surrounding states including South Dakota, Nebraska, and Kansas. Despite opportunities to achieve economies of scale by sharing technology or other resources, regional marketplaces also may be challenged by differences among state insurance markets.
Looking Forward
Health insurance marketplace implementation to date has led to a far more varied landscape than was outlined by the Affordable Care Act. The next few years of implementation may be similarly dynamic, although with establishment legislation having passed in only one state and with governors required to sign the state declaration letters due May 1st, it is unlikely that any new state-based marketplaces will be created in 2015.
One clear lesson based on experience thus far is that time is of the essence in authorizing a state-based marketplace to allow for critical design decisions and well-functioning technology. States should use this and other lessons to their advantage as they decide on their role in the marketplaces—but with a final deadline to apply for establishment grants this fall, and just a year to go before insurers start submitting their products for the 2016 open enrollment cycle, they shouldn’t delay.
1 Idaho relied on the federal technology for both its individual and SHOP marketplaces, while New Mexico built its own SHOP marketplace and relied on the federal technology platform for its individual marketplace.