Federal Funding for Health
Insurance Exchanges
Annie L. Mach
Analyst in Health Care Financing
C. Stephen Redhead
Specialist in Health Policy
March 28, 2014
Congressional Research Service
7-5700
www.crs.gov
R43066
Federal Funding for Health Insurance Exchanges
Summary
Pursuant to the Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended), a
health insurance exchange has been established in each state and the District of Columbia (DC).
Exchanges are marketplaces where individuals and small businesses can “shop” for health
insurance coverage. The ACA provides that states may establish their own state-based exchanges
(SBE), and as of January 2014, 14 states and DC have done so. It also directs the Department of
Health and Human Services (HHS) to establish exchanges in states that do not establish SBEs,
and 36 states have federally-facilitated exchanges (FFE) in 2014. In some states that have FFEs,
the states carry out certain functions of the exchange; in other states, the exchange is wholly
operated and administered by HHS.
The ACA provided an indefinite appropriation for HHS grants to states to support the planning
and establishment of exchanges. For each fiscal year, the HHS Secretary is to determine the total
amount that will be made available to each state for exchange grants. No grant may be awarded
after January 1, 2015.
There are three different types of exchanges grants. First, planning grants were awarded to 49
states and DC. These grants of about $1 million each were intended to provide resources to states
to help them plan their health insurance exchanges. Second, there have been multiple rounds of
exchange establishment grants. There are two levels of exchange establishment grants: level one
establishment grants are awarded to states that have made some progress using their planning
funds, and level two establishment grants are designed to provide funding to states that are farther
along in the establishment of an exchange. Finally, HHS awarded seven early innovator grants to
states (including one award to a consortium of New England states) to support the design and
implementation of the information technology systems needed to operate the exchanges. To date,
HHS has awarded a total of $4.7 billion to states and DC in planning, establishment, and early
innovator grants.
Under the ACA, each exchange is expected to be self-sustaining beginning January 1, 2015. The
law authorizes exchanges to generate funding to sustain their operations, including by assessing
fees on participating health insurance issuers. HHS has indicated that to raise funds for each of
the FFEs, beginning in 2014, it will assess a monthly fee on each health insurance issuer that
offers plans through an FFE.
The Centers for Medicare & Medicaid Services (CMS) is incurring significant administrative
costs to support FFE operations. According to CMS, a total of $456 million was used to support
exchange operations over the period FY2010-FY2012. In FY2013, CMS spent $1,545 million on
exchange operations and estimates that it will spend $1,390 million in FY2014. The agency is
relying on a mix of annual discretionary appropriations and funding from other sources for these
expenditures. Those sources include expired discretionary funds from the Nonrecurring Expenses
Fund, mandatory funding from the Health Insurance Reform Implementation Fund and the
Prevention and Public Health Fund, and FFE user fees. CMS has budgeted $1.8 billion for
exchange operations in FY2015. Most of that funding is projected to come from FFE user fees.
Congressional Research Service
Federal Funding for Health Insurance Exchanges
Contents
Federal Grants for Health Insurance Exchanges .............................................................................. 1
Exchange Planning Grants ........................................................................................................ 2
Exchange Establishment Grants ................................................................................................ 2
Early Innovator Grants .............................................................................................................. 2
Self-Sustaining Requirement for Health Insurance Exchanges ....................................................... 6
Federal Administrative Funding for Exchanges .............................................................................. 6
Additional Information .................................................................................................................... 8
Figures
Figure 1. ACA Exchange Grants to States (As of March 5, 2014) .................................................. 3
Tables
Table 1. ACA Exchange Funding to States (As of March 5, 2014) ................................................. 3
Table 2. Administrative Funding for Exchange Operations ............................................................. 7
Contacts
Author Contact Information............................................................................................................. 8
Congressional Research Service
Federal Funding for Health Insurance Exchanges
health insurance exchange has been established in every state, as required by the Patient
Protection and Affordable Care Act (ACA).1 Each exchange has two parts, a marketplace
Awhere individuals can shop for and enroll in health insurance coverage, and a small
business health options program (SHOP) exchange for small employers. Some individuals are
eligible to receive financial assistance for their coverage obtained through an exchange,2 and
some small employers can obtain tax credits toward coverage purchased through a SHOP.3
Exchanges are not intended to supplant the private market outside of exchanges, and the ACA
does not require that individuals and small businesses obtain coverage through an exchange.
A state can choose to establish its own state-based exchange (SBE). If a state opts not to, or if the
Department of Health and Human Services (HHS) determines that the state is not in a position to
administer its own exchange, then HHS will establish and administer the exchange in the state as
a federally-facilitated exchange (FFE). As of January 2014, 14 states and the District of Columbia
(DC) have SBEs, and 36 states have FFEs. There are varying levels of state involvement in FFEs.
In some cases, a state has partnered with HHS to establish and administer the exchange, and in
other cases HHS is administering the individual exchange while the state administers the SHOP
exchange. In many states with FFEs, the exchange is wholly operated and administered by HHS.
To fund the establishment of exchanges, the ACA authorizes the HHS Secretary to award grants
to states through 2014. Each exchange is expected to generate its own funds to sustain its
operations beginning January 1, 2015. This report provides a state-by-state breakdown of the
grants awarded to date. It then briefly describes the requirement for exchanges to be self-
sustaining, and concludes with a discussion of the sources and amounts of funding that HHS has
used and plans to use to support FFE operations.
Federal Grants for Health Insurance Exchanges
Section 1311 of the ACA appropriated indefinite (i.e., unspecified) amounts for planning and
establishment grants for health insurance exchanges. For each fiscal year, the HHS Secretary is to
determine the total amount that will be made available to each state for exchange grants. Any
state that intends to do exchange establishment work can apply for and receive a Section 1311
grant; for instance, a state that is not establishing an SBE may receive a grant provided the state
uses the funds for activities related to exchange establishment and implementation. States have
had multiple opportunities to apply for Section 1311 grants. There are four remaining deadlines
for submitting an application this year: May 15, August, 14, October 15, and, finally, November
14. No grants will be awarded after January 1, 2015.4
1 The ACA was signed into law on March 23, 2010 (P.L. 111-148). On March 30, 2010, the President signed the Health
Care and Education Reconciliation Act (HCERA; P.L. 111-152), which amended numerous provisions in the ACA.
HCERA also included multiple new freestanding provisions related to the ACA. Several other bills that were
subsequently enacted during the 111th and 112th Congresses made additional changes to selected ACA provisions. All
references to the ACA in this report refer collectively to the law as amended and to the related stand-alone provisions in
HCERA.
2 For more information about the financial assistance available through exchanges, see CRS Report R41137, Health
Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA), by Bernadette Fernandez.
3 For details, see CRS Report R41158, Summary of Small Business Health Insurance Tax Credit Under the Patient
Protection and Affordable Care Act (ACA), by Annie L. Mach.
4 While no grants may be awarded after December 31, 2014, some states may use the funds they receive in 2014 for a
period of time after such date. For example, a state with a partnership exchange that plans to transition to a state-based
(continued...)
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Federal Funding for Health Insurance Exchanges
HHS has awarded three different types of exchange grants, which are described below. Figure 1
shows the total amount of funding each state has received from the grants as well as the type of
exchange (SBE or FFE) each state has in 2014. Table 1 shows the amount each state has received
from the various types of grants.
Exchange Planning Grants
Exchange planning grants were given to 49 states and DC.5 These grants of about $1 million each
were used by states to conduct the research and planning needed to determine how their
exchanges would be administered and operated. Three states returned all (Florida and Louisiana)
or a portion (New Hampshire) of their exchange planning grants.
Exchange Establishment Grants
There are two levels of exchange establishment grants. Level one establishment grants provide up
to one year of funding to states that have made some progress under their exchange planning
grants. States may seek additional years of level one funding in order to meet the criteria
necessary to apply for level two funds. Level two establishment grants are designed to provide
funding through December 31, 2014, to states that are farther along in the establishment of an
exchange. States applying for level two establishment grants must meet specific eligibility criteria
regarding the structure and governance of the exchange they are developing.
HHS has announced several rounds of exchange establishment grant awards, the most recent of
which was on January 22, 2014. To date, 37 states and DC have received a total of approximately
$4.5 billion in exchange establishment grant funding.6 Within that group, 14 states—California,
Colorado, Connecticut, Hawaii, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New
York, Oregon, Rhode Island, Vermont, and Washington—and DC have received both level one
and level two funds.
Early Innovator Grants
On February 16, 2011, HHS announced that it was awarding seven grants to help a group of
“early innovator” states design and implement the information technology (IT) infrastructure
needed to operate health insurance exchanges.7 The goal is for these states to develop exchange
IT models that can be adopted and implemented by other states. Six states and a consortium of
New England states received a total of $249 million in early innovator grant funding. Three
states—Kansas, Oklahoma, and Wisconsin—have since returned their early innovator grants.
(...continued)
exchange may use grants awarded in 2014 for a period of one to three years after 2014. For more details, see
http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/no-cost-extension-faqs-3-14-14.pdf.
5 Alaska is the only state that did not apply for a planning grant.
6 Authors’ calculation based on data found in Table 1.
7 HHS press release, February 16, 2011, at http://www.hhs.gov/news/press/2011pres/02/20110216a.html.
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Federal Funding for Health Insurance Exchanges
Figure 1. ACA Exchange Grants to States (As of March 5, 2014)
Source: The total amount of grants received and the grant types are based on information from Table 1 of this
report.
Notes: The total amount of grants received by each state is rounded to the nearest million. A $0 amount in a
state indicates that the state has either not received any grants (Alaska) or has returned all funds received from
grants to the federal government (Florida and Louisiana). For more detailed information about the type of
exchange established in each state, see Table 1.
The early innovator grant awarded to the University of Massachusetts Medical School is for a multi-state
consortium, which includes Connecticut, Maine, Massachusetts, Rhode Island, and Vermont. Each of these states
has a green dot in Figure 1 indicating receipt of an early innovator grant; however, the awarded funds are only
included in the funding total for Massachusetts.
Table 1. ACA Exchange Funding to States (As of March 5, 2014)
Funding in Dollars
Health Insurance Exchange Grants
Establishment Grants
Type of
Early
State
Exchange
Planning
Level I
Level II
Innovator
Total
Alabama
FFE 1,180,312 8,592,139
NA
NA 9,772,451
Alaska FFE NA NA NA
NA NA
Arizona
FFE
999,670 29,877,427
NA
NA 30,877,097
Arkansas
FFEa
1,200,928 56,948,903
NA
NA 58,149,831
California SBE
1,000,000
235,901,012
828,782,044 NA
1,065,683,056
Colorado SBE
1,247,599
61,437,747
116,245,677 NA
178,931,023
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Federal Funding for Health Insurance Exchanges
Health Insurance Exchange Grants
Establishment Grants
Type of
Early
State
Exchange
Planning
Level I
Level II
Innovator
Total
Connecticut SBE 996,850
31,150,044
107,358,676 NAb
164,466,462
Delaware FFEa
1,000,000 20,258,247
NA
NA 21,258,247
DC SBE
1,000,000
42,619,506
89,954,422
NA
133,573,928
Florida FFE 0c NA NA
NA 0
Georgia
FFE
1,000,000
NA
NA
NA
1,000,000
Hawai SBE
1,000,000
76,255,636
128,086,634
NA
205,342,270
Idaho FFEd 1,000,000 68,395,587
NA
NA 59,683,889
Illinois FFEa
1,071,784 153,741,352
NA
NA 154,813,136
Indiana
FFE 1,000,000 6,895,126
NA
NA 7,895,126
Iowa FFEa
1,000,000 58,683,889
NA
NA 59,683,889
Kansas FFEe 1,000,000
NA
NA
0f 1,000,000
Kentucky SBE
1,000,000
69,990,613
182,707,738 NA
253,698,351
Louisiana FFE
0g NA NA
NA 0
Maine FFEe
1,000,000 5,877,676
NA
NAb
6,877,676
Maryland SBE
999,227
27,186,749
136,599,681
6,227,454
171,013,111
Massachusetts SBE 1,000,000 53,324,443 80,225,650
35,591,333b
170,141,426
Michigan FFEa
999,772 40,517,249
NA
NA 41,517,021
Minnesota
SBE 1,000,000 112,169,007 41,851,458
NA 155,020,465
Mississippi FFEh 1,000,000 37,039,341
NA
NA 38,039,341
Missouri
FFE 1,000,000 20,865,716
NA
NA 21,865,716
Montana FFEe
1,000,000
NA NA NA
1,000,000
Nebraska FFEe
1,000,000 5,481,838
NA
NA 6,481,838
Nevada
SBE 1,000,000 39,757,756 50,016,012
NA 90,773,768
New
Hampshire
FFEa
334,000i
8,315,325
NA
NA 8,649,325
New
Jersey FFE 1,223,186 7,674,130
NA
NA 8,897,316
New Mexico
FFEd
1,000,000 122,281,600
NA
NA 123,281,600
New
York
SBE 1,000,000 173,762,760 226,871,215 27,431,432 429,065,407
North
Carolina FFE 1,000,000 86,357,315
NA
NA 87,357,315
North Dakota
FFE
1,000,000
NA
NA
NA
1,000,000
Ohio FFEe
1,000,000 NA NA
NA
1,000,000
Oklahoma
FFE
1,000,000 NA NA 0j 1,000,000
Oregon SBE
1,000,000
17,574,301
226,472,074
59,917,212
304,963,587
Pennsylvania FFE 1,000,000 33,832,212
NA
NA 34,832,212
Rhode Island
SBE
1,000,000
37,838,169
66,466,860
NAb
105,305,029
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Federal Funding for Health Insurance Exchanges
Health Insurance Exchange Grants
Establishment Grants
Type of
Early
State
Exchange
Planning
Level I
Level II
Innovator
Total
South Carolina
FFE
1,000,000
NA
NA
NA
1,000,000
South Dakota
FFEe
1,000,000 5,879,569
NA
NA 6,879,569
Tennessee FFE 1,000,000 8,110,165
NA
NA 9,110,165
Texas FFE
1,000,000 NA NA
NA
1,000,000
Utah FFEg
1,000,000 4,247,987
NA
NA 5,247,987
Vermont SBE
1,000,000
67,462,116
104,178,965 NAb
172,641,081
Virginia FFEe
1,000,000 5,567,803
NA
NA 6,567,803
Washington
SBE
996,285 107,576,432 157,453,343
NA 266,026,060
West Virginia
FFEa
1,000,000 19,832,828
NA
NA 20,832,828
Wisconsin FFE 999,873
NA
NA 0k 999,873
Wyoming FFE
800,000 NA NA NA
800,000
Total
—
48,049,486 1,969,279,715 2,568,231,341 129,167,431 4,714,727,973
Source: Table prepared by Congressional Research Service based on grant award announcements and other
information provided by the Center for Consumer Information and Insurance Oversight (CCIIO) at
http://cciio.cms.gov/Archive/Grants/exchanges-map.html.
Notes: NA = not applicable (i.e., state has not applied for or received funding).
a. The fol owing states have entered into agreements with HHS to have partnership exchanges in 2014:
Arkansas, Delaware, Illinois, Iowa, Michigan, New Hampshire, and West Virginia. These states have opted to
run the exchange’s plan management functions or consumer assistance functions, or both. HHS administers
all other aspects of the exchange and retains authority over the exchange.
b. The early innovator grant awarded to the University of Massachusetts Medical School is for a multi-state
consortium, which includes Connecticut, Maine, Massachusetts, Rhode Island, and Vermont; however, the
awarded funds are only included in the funding total for Massachusetts.
c. In February 2011, Florida Governor Rick Scott returned the state’s $1 million exchange planning grant.
d. HHS refers to Idaho and New Mexico as “federally supported SBEs.” Both states planned to have SBEs in
2014 but are currently using the FFE information technology (IT) platform.
e. According to HHS-issued guidance, states can opt to conduct certain plan management functions without
entering into an agreement with HHS to operate a partnership exchange. In such cases, HHS administers all
other aspects of the exchange and retains authority over the exchange. It has been reported that the
fol owing states have such an arrangement: Kansas, Maine, Montana, Nebraska, Ohio, South Dakota, and
Virginia. See Implementing the Affordable Care Act: State Decisions about Health Insurance Exchange
Establishment, Georgetown University Health Policy Institute, April 2013.
f.
In August 2011, Kansas Governor Sam Brownback returned the state’s $31.5 million early innovator grant.
g. Louisiana’s $998,416 exchange planning grant was returned in March 2011.
h. States have the option to elect to administer their SHOP exchanges while HHS administers the state’s
individual exchange. Two states have elected this option for 2014: Mississippi and Utah.
i.
A New Hampshire bill (HB 601) that became law in July 2011 instructed the state insurance commissioner
to return $666,000 in exchange planning grant funds.
j.
Oklahoma’s $54 million early innovator grant was returned in April 2011.
k. In January 2012, Wisconsin Governor Scott Walker returned the state’s $37.7 million early innovator grant.
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Federal Funding for Health Insurance Exchanges
Self-Sustaining Requirement for Health
Insurance Exchanges
Beginning January 1, 2015, the ACA requires that each exchange is self-sustaining. The ACA
provides that an exchange may charge an assessment or user fee to participating issuers, but also
allows an exchange to find other ways to generate funds to sustain its operations.
A description of how each SBE intends to generate funding is currently beyond the scope of this
report; however, HHS has described how it intends to generate funding for the 36 FFEs it
administers. Beginning in 2014, HHS will charge a monthly user fee to all issuers that sell plans
through an FFE. The fee for an issuer is equal to the product of the billable members enrolled in
the plan through an FFE and a monthly user fee rate. For benefit years 2014 and 2015, the
monthly user fee rate is 3.5% of the plan’s monthly premium.8
Federal Administrative Funding for Exchanges
CMS is incurring significant administrative costs supporting exchange operations. CMS operates
a number of IT systems that control various FFE functions including eligibility and appeals,
certification and oversight of qualified health plans, and payment and financial management. It
also operates the data services hub, which routes information about exchange applicants to and
from trusted data sources at other federal agencies (e.g., Internal Revenue Service) in order to
verify eligibility. In addition, CMS provides consumer assistance through a call center and
website for the FFEs, and it funds navigators who offer in-person support. Finally, CMS provides
technical assistance to states operating SBEs.
Table 2 summarizes the sources and amounts of administrative funding for exchange operations
to date. This information was included in CMS’s FY2015 budget submission. During the period
FY2010 through FY2012, a total of $456 million was used to support exchange operations. Of
that amount, $331 million came from annual discretionary appropriations that cover the routine
costs of running federal agencies, including salaries and expenses: $307 million from CMS’s
Program Management account, and an additional $24 million from the HHS Departmental
Management account. The remaining $125 million came from the Health Insurance Reform and
Implementation Fund (HIRIF), a $1 billion fund within HHS that was established and funded to
help pay for the administrative costs of ACA implementation.9
CMS’s administrative costs to support exchange operations totaled $1,545 million in FY2013. In
the FY2013 budget, CMS requested an increase of $1,001 million for its Program Management
account for ACA implementation and other activities. However, Congress did not provide any
additional discretionary funds for ACA implementation in FY2013. CMS instead used funds from
other sources to help pay for ongoing administrative costs associated with exchange operations.
Those funds included (1) discretionary funds transferred from other HHS accounts under the
Secretary’s transfer authority;10 (2) expired discretionary funds from the Nonrecurring Expenses
8 HHS issues the user fee rate in its annual Notice of Benefit and Payment Parameters.
9 The HIRIF was created and funded by Section 1005 of HCERA.
10 Each year the Departments of Labor, Health and Human Services, and Education, and Related Agencies (L-HHS-
(continued...)
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Federal Funding for Health Insurance Exchanges
Fund (NEF);11 (3) mandatory funds from the HIRIF; and (4) mandatory funds from the
Prevention and Public Health Fund (see Table 2).12
Table 2. Administrative Funding for Exchange Operations
Dollars in Millions, by Fiscal Year
2010-2012
2013
2014
2015
Funding Source
Actual
Actual
Estimate
Request
Discretionary Appropriations
CMS Program Managementa 307
520
711b 629
HHS Departmental Management
24
—
—
—
Secretary’s Transfer Authority
—
114
109
—
Nonrecurring Expenses Fund
—
300
350
—
Mandatory and Other Funds
Health Insurance Reform Implementation Fund
125
158
20
—
Prevention and Public Health Fund
—
454
—
—
FFE User Fees
—
—
200
1,159
Total
456
1,545
1,390
1,788
Source: Table prepared by the Congressional Research Service based on data provided in the Centers for
Medicare & Medicaid Services’ FY2015 congressional budget justification document, available at
http://www.cms.gov/About-CMS/Agency-Information/PerformanceBudget/Downloads/FY2015-CJ-Final.pdf.
Notes: Figures in each column may not add to total due to rounding.
a. Includes spending under both the Program Operations and the Federal Administration budget accounts.
b. This amount includes $100 million in budget authority that was made available by using NEF funds for non-
FFE activities.
In FY2014, CMS’s administrative costs for exchange operations will total an estimated $1,390
million. The agency requested an increase of $1,397 million for its Program Management account
in the FY2014 budget for ACA implementation and other activities. But as in the previous fiscal
year Congress chose not to give CMS any additional funding. Once again, the agency is relying
on transferred departmental funds as well as NEF and HIRIF funding to help support exchange
operations in FY2014. In addition, CMS will collect an estimated $200 million in FFE user fees
(see Table 2).
(...continued)
ED) Appropriations Act provides the HHS Secretary with limited authority to transfer funds between appropriations
accounts. No more than 1% of the funds in any given account may be transferred, and recipient accounts may not be
increased by more than 3%. Congressional appropriators must be notified in advance of any transfer.
11 The Nonrecurring Expenses Fund is an account within the Department of the Treasury. The HHS Secretary is
authorized to transfer to the NEF unobligated balances of expired discretionary funds. NEF funds are available until
expended for use by the HHS Secretary for capital acquisitions including facility and information technology
infrastructure. Congressional appropriators must be notified in advance of any planned use of NEF funds.
12 Section 4002 of the ACA established the Prevention and Public Health Fund (PPHF) and provided it with a
permanent annual appropriation. PPHF funding is intended to support prevention, wellness, and other public health
programs and activities.
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Federal Funding for Health Insurance Exchanges
The President’s FY2015 budget includes a total of $1,788 for exchange operations. Of that
amount, $629 million is from CMS’s Program Management account, and the remaining $1,159
million is projected to come from FFE user fees. The FY2015 budget does not identify any other
sources of funding to support exchange operations (see Table 2). CMS has requested an increase
of $227 million for its Program Management account in FY2015 for ACA implementation and
other activities.
Additional Information
The Center for Consumer Information and Insurance Oversight (CCIIO) at CMS is responsible
for implementing ACA’s private health insurance reforms and administering the grant programs
discussed above. Detailed information on the grants, including funding opportunity
announcements, guidance, news releases, and amounts awarded, is available on CCIIO’s
website.13
Author Contact Information
Annie L. Mach
C. Stephen Redhead
Analyst in Health Care Financing
Specialist in Health Policy
amach@crs.loc.gov, 7-7825
credhead@crs.loc.gov, 7-2261
13 http://cciio.cms.gov/.
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