By Jason Levitis, Christen Linke Younger, Sabrina Corlette, Ellen Montz, and Claire O’Brien*
The medical insurance provisions of the reconciliation invoice handed by the U.S. Home of Representatives would remove a lot of the pliability granted to states over the operations of State-Primarily based Marketplaces (SBMs), impose expensive new mandates, and cut back their income base. These modifications might undermine states’ worth proposition for establishing or sustaining an SBM. On the identical time, the invoice would infringe on states’ long-standing primacy over the regulation of personal medical insurance by imposing arbitrary new federal guidelines.
The Invoice Eliminates SBM Flexibility and Imposes New Operational Mandates
The Inexpensive Care Act (ACA) provides SBMs flexibility over quite a few operational choices. For instance, the laws governing Market eligibility determinations allow SBMs to conduct annual redeterminations utilizing both the procedures supplied within the CMS rule, various procedures specified by CMS for the relevant plan 12 months, or various procedures proposed by the SBM and permitted by CMS. The ACA additionally delegates to SBMs authority to determine particular enrollment durations (SEPs), depend on their very own alternate model of the only streamlined software, and in any other case tailor the SBM to the wants of the state. SBMs have used this flexibility to implement revolutionary measures to reduce burdens on eligible enrollees, usually with the assistance of digital information sources and different IT options. Doing so has allowed them to develop enrollment and maintain premiums low with out the prevalence of agent and dealer fraud skilled on the federal Market (known as the Federally Facilitated Market, or FFM).
The reconciliation invoice would remove this long-standing flexibility throughout a variety of SBM design points, whereas additionally imposing a number of new and expensive operational mandates:
- Eliminates state flexibility to find out open enrollment durations. Present regulation permits SBMs to lengthen their open enrollment durations previous the federal open enrollment finish date of January 15. The invoice would require all Marketplaces to shorten their open enrollment durations to simply 44 days, from November 1 to December 15. Many SBMs have maintained constant open enrollment interval begin and finish dates during the last decade that insurers and shoppers have come to depend on; requiring SBMs to vary these dates might undermine native market stability.
- Eliminates state authority to supply a standard particular enrollment interval. Present regulation offers SBMs with discretion to determine particular enrollment durations (SEPs), which permit enrollment outdoors the year-end open enrollment interval. Utilizing this authority, each the federal Market and all however two SBMs present a SEP for low-income people. The invoice would prohibit this SEP and others based mostly on revenue.
- Requires states to impose further paperwork burdens on shoppers and confirm eligibility manually. Present regulation provides SBMs broad discretion over when, how, and in what format they request further info to confirm eligibility for Market protection, for a SEP, or to obtain advance premium tax credit (APTC). For instance, SBMs can usually depend on candidates’ attestations as to their eligibility for SEPs fairly than requiring them to manually submit paperwork, comparable to documentation that they’ve misplaced earlier protection. The invoice would require SBMs to confirm SEP eligibility with paperwork from candidates for not less than 75 % of SEP enrollments. The invoice would additionally require Marketplaces to demand further paperwork from thousands and thousands of further candidates when the IRS doesn’t return tax information or when tax information signifies very low revenue.
- Eliminates state flexibility to shift shoppers by default into plans that make the most of accessible subsidies. For people who’re eligible for cost-sharing reductions (CSRs) however enrolled in a bronze plan, present guidelines allow SBMs to re-enroll them by default in a silver plan for the next 12 months in order that they’ll obtain CSRs, so long as the silver plan is analogous and no extra expensive. A number of states have taken benefit of this flexibility to make sure eligible shoppers profit from the ACA’s cost-sharing protections and cut back monetary boundaries to vital well being care companies. The invoice eliminates this flexibility for SBMs.
- Eliminates passive re-enrollment and state flexibility to depend on trusted information sources. Present guidelines present for SBMs to robotically re-enroll present enrollees who don’t return to the Market to actively re-enroll, with APTCs adjusted based mostly on digital information sources. SBMs presently have flexibility over the info sources used to make these determinations, which can embody not simply federal tax information but additionally state tax information and state wage filings. The invoice would prohibit SBMs from performing re-enrollment with APTC with out new info supplied by the buyer, successfully eliminating computerized re-enrollment. This runs counter to straightforward re-enrollment practices for each different type of insurance coverage, together with employer-based insurance coverage. We’re conscious of no precedent for the federal authorities prohibiting computerized reenrollment for a line of insurance coverage. SBMs have disproportionately leveraged auto-renewal to create steady and aggressive markets, with a mean of 73% auto-renewal fee for returning prospects in comparison with 46% within the FFM. As well as, for one 12 months earlier than the prohibition on passive re-enrollment takes impact, a separate part of the invoice would prohibit computerized re-enrollment with a zero-dollar web premium, by requiring SBMs to cut back APTC in such instances to cost a $5 web premium.
- Prohibits SBMs from offering APTC after asking shoppers for extra documentation. Present statute directs Marketplaces to present APTC once they ask for extra paperwork to confirm sure eligibility standards, if they’ve decided that the person is in any other case eligible. The invoice would remove this “provisional eligibility,” successfully requiring a ready interval of a number of months for a lot of candidates. Once more, we’re conscious of no precedent for a federal requirement for a months-long ready interval for a line of business insurance coverage.
- Requires states to determine a brand new “pre-enrollment verification” system working from August by October every year. Present guidelines allow SBMs to depend on comparable eligibility and enrollment procedures year-round for lively re-enrollment. Eligibility determinations are usually made shortly, so protection can start a month or much less after the applying is submitted. The invoice would require SBMs to face up a brand new and separate equipment for “pre-enrollment verification,” underneath which shoppers might submit eligibility info for the next 12 months beginning in August, however protection would nonetheless not start till January. This new system must be in place by August 1, 2027.
Decreasing flexibility in these methods would make establishing or sustaining an SBM much less enticing for states. Flexibility is a key motive cited for curiosity amongst states which have just lately adopted or thought-about transitions, together with Georgia, Illinois, Texas, Oklahoma, and Oregon, and a key profit cited by current SBMs.
Additionally it is notable {that a} main justification supplied for the invoice’s elimination of SBM flexibility is to cut back “fraud.”a In actual fact there isn’t a proof that the agent and dealer fraud skilled by the Federal Market is an issue for SBMs. Eradicating their capability to take care of present finest practices will lead to thousands and thousands of eligible people dropping protection. The brand new necessities serve solely to power states to stick to one-size-fits-all federal requirements that forestall SBMs from responding to native market circumstances and offering an optimum buyer expertise.
The Invoice Would Impose New One-Time and Ongoing Prices on SBMs
The brand new mandates described above create intensive and expensive new work for SBMs. There could be fast implementation work to vary methods, retrain employees, and educate shoppers and companions about impending modifications, in addition to ongoing work to hold out extra burdensome enrollment procedures with much less capability to depend on digital information. Switching from computerized checks towards third-party information sources to guide processes will increase prices and burdens for each SBMs and shoppers and reduces the effectivity of the system. These prices will must be coated by greater person charges, which in flip will increase premiums for all shoppers within the particular person market, no matter whether or not they buy on or off the Market. These price embody:
- Rebuilding IT structure. The a number of modifications described above would require SBMs to rebuild many elements of each consumer-facing and back-end eligibility methods. CMS estimated an IT price of $158.3 million for implementing the Market rule, which the invoice would codify.b That doesn’t embody eliminating passive reenrollment and provisional eligibility and the creation of recent methods for pre-enrollment verification starting in August, that are three of probably the most far-reaching modifications within the invoice. Some provisions make conflicting modifications that may require rebuilding the identical structure twice. For instance, SBMs would wish to vary their methods to impose a $5 premium for computerized re-enrollees beginning within the fall of 2026. After which they would wish to vary their methods once more to remove computerized re-enrollment beginning within the fall of 2027.
- Retraining name heart employees, caseworkers, and assisters. SBMs would wish to develop and supply new coaching supplies for consumer-facing employees and companions, together with name heart operators, caseworkers, Navigators, brokers and brokers, and licensed software counselors.
- Dealing with further buyer interactions. Eliminating computerized re-enrollment–which accounted for 10.8 million enrollments in 2025–would imply that each applicant would wish to work together with the Market every year. The pre-enrollment verification system may also create thousands and thousands of further buyer interactions. And these interactions won’t substitute these in the course of the open enrollment interval. People will nonetheless want to return in then to enroll and select a plan. And there’ll nonetheless be modifications in circumstances after August, which would require reporting these modifications and resolving any additional inconsistencies that come up. In consequence, SBMs received’t simply do extra verifications, they may do verification a number of instances for a similar client.
- Processing further paperwork. The brand new paperwork required from candidates underneath the invoice would additionally necessitate an incredible new effort from SBMs to course of the paperwork. For instance, CMS estimated that the brand new revenue verification guidelines would require 2.7 million candidates to submit further paperwork, all of which might must be processed. The SEP verification requirement would imply 473,000 extra candidates offering paperwork to confirm their eligibility for an enrollment alternative. SBMs would wish to rent and prepare new consumer-facing assist employees and/or contractors to manually assessment and make sure eligibility verification paperwork submitted by shoppers. On prime of the prices of IT modifications, CMS estimated that SBMs might want to spend $60.3 million yearly or $603.4 million over 10 years to implement the modifications within the rule alone.
- Extra buyer assist employees to deal with questions and adversarial determinations. The extra interactions and paperwork necessities would result in many extra shoppers needing assist to resolve questions. The elimination of provisional eligibility would increase the stakes for resolving eligibility points shortly, probably rising the amount and urgency of those calls.
- Preserving extra employees and contractors for extra of the 12 months. At the moment Market can cut back their operations outdoors of the open enrollment interval. However a number of components of the invoice will improve prices at different instances of the 12 months, together with pre-enrollment verification starting in August and extra eligibility verification for SEPs and APTC eligibility year-round.
- Extra communications necessities. SBMs might want to spend money on new outreach and communications efforts to teach shoppers and companions about their new obligations underneath the invoice and the shortened time durations that buyers should meet these obligations.
The Invoice Would Scale back SBMs’ Income Base
The Inexpensive Care Act requires the Marketplaces to be financially self-sustaining. Most SBMs depend on premium assessments or per member person charges to generate the income to fund their operations. The reconciliation invoice would cut back Market enrollment by thousands and thousands of individuals, thus lowering SBM income. To be financially sustainable, SBMs might want to improve their person charges. This can lead to a rise in premiums, which might, in flip, result in additional enrollment losses.
The Invoice Might Alter States’ Calculus about Establishing (or Sustaining) an SBM
As mentioned above, the invoice would cut back the pliability afforded to SBMs, improve their working prices, and cut back their income. Taken collectively, these modifications might undermine the worth proposition of states transitioning to or sustaining an SBM. Over the course of the final decade, the variety of states with an SBM has grown from 15 within the first 12 months of implementation to 20 states as we speak (Illinois and Oregon will make it 22 in 2026 and Oklahoma’s legislature licensed that state to turn into the twenty third SBM in a invoice enacted in Might 2025). State lawmakers have proven rising curiosity in transitioning to an SBM to make the most of the flexibilities that allow them to tailor their Market to fulfill the wants of state residents. Nonetheless, underneath H.R. 1 states will lose that flexibility and are confronted with greater prices and a smaller enrollment base from which to finance operations. This makes it much less probably that states will select to transition to a SBM sooner or later and will lead to some present SBMs changing into unsustainable, requiring the federal authorities to take over their operations. As well as, the invoice’s implementation timeline would forestall a state not prepared to run an SBM from transitioning to the FFM earlier than being required to implement modifications.
The Invoice Would Infringe on State Regulation of the Particular person Well being Insurance coverage Market
For many years, states have had main authority for regulating medical insurance markets. Some federal requirements have been codified within the Public Well being Service Act (PHSA) by the Well being Insurance coverage Portability and Accountability Act of 1996 (HIPAA) and the ACA. Nonetheless, the PHSA necessities handle solely a comparatively small variety of points and customarily defer to states on particular implementation decisions and on enforcement. The reconciliation invoice comprises a number of provisions that infringe on this long-settled vesting of authority, together with modifications affecting plans outdoors the Well being Insurance coverage Marketplaces.
- Infringes on state authority to outline important well being advantages. At the moment, every state has authority to determine the important well being advantages (EHB) bundle, which is relevant to all non-public medical insurance. States have authority to designate as EHBs any service that’s included inside 10 broad classes enumerated within the ACA. The invoice offers that EHBs might not embody particular companies associated to “gender transition”–even these companies that fall squarely inside the ACA’s EHB definitions. This may be the primary time states are prohibited from together with particular companies as EHBs.
- Eliminates state flexibility to allow insurers to supply aid for non-payments of de minimis premiums. Present guidelines give state insurance coverage regulators flexibility to allow insurers to maintain enrollees coated even once they owe small past-due premium balances. The invoice would cut back states’ authority to supply such flexibility.
- Denies cost-sharing subsidies funds to insurers that present sure abortion companies–however in a means that rewards states with abortion mandates. The invoice offers that issuers that present sure abortion companies might not obtain reimbursement for the ACA’s CSRs. As CBO famous in a latest evaluation of the invoice’s protection results, this could unintuitively improve PTC funds in states that require Market plans to cowl abortion, and better PTC would enhance the person market danger pool total in such states. It might additionally lead to much less abortion protection in Market plans in states that allow however don’t require abortion protection, since insurers that cowl abortion would wish to extend premiums to account for the shortage of CSR funds, which might probably not be a viable choice. However these complicated repercussions, this abortion language is clearly an effort to infringe on state coverage decisions concerning the advantages supplied by non-public medical insurance.
- Limits enrollment alternatives market-wide. As famous above, the invoice limits state flexibility to determine open and particular enrollment durations of their SBMs. Crucially, this additionally impacts state regulation of well being plans of their complete particular person insurance coverage market, as a result of plans bought by the Market are a part of a single danger pool with non-Market plans, which suggests it is very important set up the identical enrollment home windows on and off Market. Thus, state insurance coverage regulators are constrained of their capability to determine enrollment home windows that meet state wants.
- Loosens actuarial worth guidelines market-wide: The invoice modifies requirements for the actuarial worth of all particular person market well being plans to permit much less beneficiant plans, relevant on and off Market pursuant to ACA Part 1311 and PHS Act Part 2707. States might restrict the attain of this provision by defining standardized profit packages. However in lots of states such guidelines don’t apply outdoors the Market, so much less beneficiant plans will turn into accessible in these market segments.
As well as, the invoice would make an extra change to the PHSA. Particularly, it will exempt insurers from the assured availability requirement in instances of past-due premiums, until state regulation specified in any other case.
* Jason Levitis is a Senior Fellow, and Claire O’Brien a Analysis Affiliate, within the City Institute’s Well being Coverage Division; Christen Linke Younger is a Visiting Fellow on the Brookings’ Heart on Well being Coverage; Sabrina Corlette is a analysis professor and co-director of the Heart on Well being Insurance coverage Reforms (CHIR) at Georgetown College; Ellen Montz is a Managing Director at Manatt Well being. The views expressed on this piece are these of the authors and don’t essentially signify these of their organizations or their boards or funders.
a In actual fact, these Market proposals within the invoice fall underneath headers entitled “Addressing waste, fraud, and abuse within the ACA Exchanges” and “Stopping Fraud, Waste, and Abuse.”
b CMS didn’t embody an estimate for prices to SBMs underneath the prohibition of SEPs for low-income people as a result of it incorrectly claims that no SBMs presently have a SEP of this type. The $158 million price consists of $7 million for this provision, which is calculated by taking the estimate for the price of these IT modifications to the FFM ($390,000) and multiplying it by the variety of SBMs with this SEP (18).
