Arkansas Governor Beebe recently noted that some Republican Governors are warming to the idea of running their own health insurance marketplace. I hope that they know that their time is running out!

Setting up a state-based health insurance marketplace is no small task, and unlike the Medicaid expansion decision, states that want to do it only have nine months left to apply for federal funds to do so. For the 34 states that have not yet launched a state-based marketplace, this means that this legislative session is likely the last call for state-based health insurance marketplace.

Do states really need federal funds to launch a state-based health insurance marketplace?
Massachusetts and Utah established marketplaces before the passage of the Affordable Care Act. But the 14 other state-based marketplace states and DC have benefitted from federal funds for startup costs. There are many elements that go into building the state marketplace: building eligibility and enrollment systems; designing consumer assistance and complaints and appeals processes; certifying plans; and running a small employer health options program. But the greatest focus of time and money seems to be developing the information technology needed for all of this to run smoothly. States that move to a state based marketplace at this point will have the benefit of learning from other state’s mistakes, and can hopefully launch more efficiently and effectively. However, they still need federal funds to set up the marketplace until they have enough people enrolled to charge a small user fee and become self-sufficient.

What do states need to apply for federal funds?
In order to apply for the most substantial pot of federal funding, a state needs to have the legal authority to establish and operate a marketplace that complies with federal requirements. In some states, the governor can do this by executive order. While in other states, it requires legislation. In order to meet the federal criteria for a Level Two Establishment grant, the marketplace has to have an established governance structure; an initial plan discussing long-term operational costs of the exchange; a plan outlining steps to prevent waste, fraud and abuse; and a plan for providing assistance to individuals and small business including provision of a call center.

Is there wiggle room on the timing?
The final marketplace grant application date has little wiggle room. The ACA is very clear that assistance to states to establish exchanges expires at the end of 2014. The law says, “No grant shall be awarded under this subsection after January 1, 2015.” (42 USC 18031(a)(4)(B)). The last date that HHS has made available for states to apply for Level Two grant funding to create a marketplace is November 14, 2014. Technically, HHS could push this back to the very end of 2014, but they also want to give themselves time to review grant applications and make decisions, so it may not budge.

How long do states have to spend the money?
The grants do provide plenty of time going forward for states to build and launch state-based marketplaces. Level Two Establishment grants can last up to three years, and can even be extended for a maximum of five years past the date of the award. States have flexibility under federal guidance to spend the grants funds until: 1) the end of the start-up year that coverage is provided through the Exchange; 2) the time a State-based Exchange becomes self-sufficient; or 3) the grant funds have been expended, whichever comes first.

What states are likely to move to a state-based marketplace?
Any of the states currently home to a federal partnership marketplace—Iowa, Illinois, Arkansas, Michigan, West Virginia, New Hampshire, and Delaware—are at the top of my list of states to watch this year. Some of these states have focused more on the plan certification side, and others more on consumer assistance, but they all may be interested in controlling the whole marketplace process, including eligibility and enrollment, in the future so that it can be integrated into other state health reform efforts, like the Medicaid expansion. Other states to watch are those where the Governor has at least hinted at supporting some version of a Medicaid expansion, such as Florida, Missouri, Tennessee, or Virginia.