The Affordable Care Act (“ACA”) requires the establishment of at least one operational Health Insurance Exchange (“Exchange”) in every state by January 1, 2014.The law affords each state the opportunity to build an Exchange to meet the needs of their citizens so long as they follow certain federal requirements.  A state may design an Exchange controlled by the state with financial support from the federal government, or develop a “hybrid system” that allows for a partnership between the state and the federal government, or in the alternative, if no state action is taken or the state elects to defer, the federal government has the authority to develop a federally-controlled Exchange with limited input from the state.  The primary purpose of the Exchange is to provide health insurance options for Individual and Small Group employers.  It will be the decision of the state as whether to keep separate risk pools for the Individual Consumer and Small Group demographics.

Each Exchange will set minimum amounts of insurance coverage, standardize the types of insurance that can be purchased and set benchmarks for premium and cost-sharing subsidies.  Each plan offered on the Exchange must be certified as a Qualified Health Planii (“Plan”).  Additionally, the Plans must provide coverage of Essential Health Benefitsiii (“Benefits”) and preventive services with no patient cost-sharing.  Although the Benefits have yet to be defined, they will fall into ten broad categories:

(1) ambulatory patient services, (2) emergency services (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use 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, and (10) pediatric services, including oral and vision care.iv

The types of Plans offered will not be defined by using pre-determined deductibles, co-pays or coinsurance.  Rather, they will be based on actuarial values and classified as either: Bronze (60%); Silver (70%); Gold (80%); or Platinum (90%).  In most scenarios, the Plan will pay the percentage of the health care expense(s) depending on the type of Plan the member selects, with the member responsible for paying the remainder.  

Although the states have the authority to develop the Exchanges based on the needs of their constituents, two basic models have emerged.  The first, the Facilitator Model, does not go further than the minimum requirements of the ACA and does not provide for any additional or more restrictive mandates.  It allows any willing, qualified competitor to participate in the Exchange, offering two main types of Plans: Silver and Gold.  The second, the Active Purchaser Model, includes significant advances beyond the minimum provisions of the ACA.  This type of Exchange will limit the organizations that can offer insurance products on the platform.  There will be tight controls on product design and ongoing rate scrutiny.  Furthermore, all actuarial value plans will be offered and there may be provisions that limit or control off-Exchange activity with the goal of driving consumers to the Exchange.

This Client Alert reviews the current state of Exchange activity in the following markets: Indiana; Kentucky; and Ohio.


On January 14, 2011, Indiana Governor Daniels (R) issued Executive Order #11-01.  This Order created the Indiana Insurance Market, Inc., a non-profit entity incorporated by the Secretary of the Indiana Family and Social Services Administration.  Preliminary analysis suggests that state legislative action is necessary for the state to implement an Exchange.  The 2012 Indiana General Assembly concluded its session without passing legislation related to the development of such an Exchange. 

Indiana has nevertheless applied and received funding for Exchange planning.  In September 2010, the Governor’s Office of Planning and Budget received a $1 million grant for such Exchange planning.  Additionally, in May 2011, the Indiana Family and Social Services Administration received a Level One Establishment Grant of approximately $6.9 million.  The purpose of the grant is to assist in updating information technology systems, develop a financial management plan and develop expertise on legal, actuarial and financial matters related to the Exchange. 

For the remainder of 2012, the primary focus in Indiana will be on the Gubernatorial Election.  Before taking further state action, outgoing Governor Daniels solicited input from the candidates.  Each responded with their preferred approach for an Exchange:

  • Mike Pence (R) – Repeal and Replace
  • John Gregg (D) – Hybrid Exchange
  • Rupert Boneham (L) – Hybrid Exchange

If Indiana is to develop a state-based Exchange, it must take the following steps prior to November 16, 2012:  

  • Develop an Exchange Blueprint
  • Submit a declaration letter signed by the Governor
  • Submit an application to the Department of Health and Human Services

The outcome of both the 2012 Indiana Gubernatorial and US Presidential elections will impact the direction Indiana takes with regards to Exchange action.  The three gubernatorial candidates have recently outlined their platforms.  President Obama, if re-elected, will continue to push forward with ACA implementation while a Romney Administration may attempt to repeal the ACA or, in the alternative, hinder Exchange implementation through Executive action.


On July 12, 2012, Kentucky Governor Beshear (D) issued Executive Order 587 which established the framework for the Kentucky Exchange.  The Order created the Office of Kentucky Health Benefit Exchange (“OKHBE”), which falls under the purview of the Cabinet for Health and Family Services.  This new office will consist of four Divisions: Health Care Policy and Administration; Information Systems; Financial and Operations Administration; and Communication and Outreach.  Governor Beshear appointed Carrie Banahan to serve as the Executive Director.  The OKHBE will review and discuss topics related to the implementation of an Exchange with an eleven-member Exchange Advisory Board comprised of designees representing state government and corporate organizations.  

Kentucky has already received funding for the development of an Exchange.  In September 2010, the Cabinet for Health and Family Service received a State Planning Grant of $1 million for the purpose of funding an interagency work group, research, analysis and economic and actuarial modeling.  The Kentucky Cabinet for Health and Family Services received two Level One Establishment Grants. The first grant was for $7.6 million to fund information technology systems. The second grant was awarded in February 2012, for $57.8 million.

Kentucky has moved aggressively with the implementation of a state Exchange.  The next steps outlined by the Governor are to:

  • Hold public forums to solicit input on the development of an Exchange
  • Appoint members to the Exchange Advisory Board (September)
  • Submit an Exchange Blueprint and application to the Department of Health and Human Services outlining a plan to operate a state-based Exchange


Of the three states analyzed in this Client Alert, Ohio has made the least amount of progress in developing an Exchange strategy.  Unlike the governors of the two neighboring states, Ohio Governor Kasich (R) has not issued an Executive Order.  Governor Kasich has indicated that Ohio would prefer a state managed Exchange; minimal action towards the establishment of an Exchange strategy has been forthcoming.  Furthermore, Lieutenant Governor Taylor (R) has been a vocal opponent of the ACA.  In January 2012, OH SB 277 was introduced to establish a state-run health insurance exchange.  However, the legislation is still pending and not expected to move forward in the near term.

The Ohio Department of Insurance received a $1 million federal Exchange Planning grant in September 2010.  However, there are no other applications or grants pending.

If Ohio intends to operate a state based or hybrid Exchange model, the state must:

  • Develop an Exchange Blueprint
  • Submit a declaration letter signed by the Governor
  • Submit an application to the Department of Health and Human Services

If Ohio does not develop an Exchange strategy approved by the Department of Health and Human Services, it is likely the federal government will implement an Exchange in the state.  However, again, the 2012 US Presidential election may impact the type and progress of a federally managed Exchange.  Also, the federal government has not provided details about how a federal exchange would operate in a state market.