By Jason Levitis, Christen Linke Young, Sabrina Corlette, Ellen Montz, and Claire O’Brien*
The health insurance provisions of the reconciliation bill passed by the U.S. House of Representatives would eliminate much of the flexibility granted to states over the operations of State-Based Marketplaces (SBMs), impose costly new mandates, and reduce their revenue base. These changes could undermine states’ value proposition for establishing or maintaining an SBM. At the same time, the bill would infringe on states’ long-standing primacy over the regulation of private health insurance by imposing arbitrary new federal rules.
The Bill Eliminates SBM Flexibility and Imposes New Operational Mandates
The Affordable Care Act (ACA) gives SBMs flexibility over numerous operational decisions. For example, the regulations governing Marketplace eligibility determinations permit SBMs to conduct annual redeterminations using either the procedures provided in the CMS rule, alternative procedures specified by CMS for the applicable plan year, or alternative procedures proposed by the SBM and approved by CMS. The ACA also delegates to SBMs authority to establish special enrollment periods (SEPs), rely on their own alternate version of the single streamlined application, and otherwise tailor the SBM to the needs of the state. SBMs have used this flexibility to implement innovative measures to minimize burdens on eligible enrollees, often with the help of electronic data sources and other IT solutions. Doing so has allowed them to expand enrollment and keep premiums low without the prevalence of agent and broker fraud experienced on the federal Marketplace (referred to as the Federally Facilitated Marketplace, or FFM).
The reconciliation bill would eliminate this long-standing flexibility across a wide range of SBM design issues, while also imposing several new and costly operational mandates:
- Eliminates state flexibility to determine open enrollment periods. Current law allows SBMs to extend their open enrollment periods past the federal open enrollment end date of January 15. The bill would require all Marketplaces to shorten their open enrollment periods to just 44 days, from November 1 to December 15. Many SBMs have maintained consistent open enrollment period start and end dates over the last decade that insurers and consumers have come to rely on; requiring SBMs to change these dates could undermine local market stability.
- Eliminates state authority to provide a common special enrollment period. Current law provides SBMs with discretion to establish special enrollment periods (SEPs), which allow enrollment outside the year-end open enrollment period. Using this authority, both the federal Marketplace and all but two SBMs provide a SEP for low-income individuals. The bill would prohibit this SEP and others based on income.
- Requires states to impose additional paperwork burdens on consumers and verify eligibility manually. Current law gives SBMs broad discretion over when, how, and in what format they request additional information to verify eligibility for Marketplace coverage, for a SEP, or to receive advance premium tax credits (APTC). For example, SBMs can generally rely on applicants’ attestations as to their eligibility for SEPs rather than requiring them to manually submit paperwork, such as documentation that they’ve lost previous coverage. The bill would require SBMs to verify SEP eligibility with paperwork from applicants for at least 75 percent of SEP enrollments. The bill would also require Marketplaces to demand additional paperwork from millions of additional applicants when the IRS does not return tax data or when tax data indicates very low income.
- Eliminates state flexibility to shift consumers by default into plans that take advantage of available subsidies. For individuals who are eligible for cost-sharing reductions (CSRs) but enrolled in a bronze plan, current rules permit SBMs to re-enroll them by default in a silver plan for the following year so that they can receive CSRs, as long as the silver plan is similar and no more costly. Several states have taken advantage of this flexibility to ensure eligible consumers benefit from the ACA’s cost-sharing protections and reduce financial barriers to critical health care services. The bill eliminates this flexibility for SBMs.
- Eliminates passive re-enrollment and state flexibility to rely on trusted data sources. Current rules provide for SBMs to automatically re-enroll current enrollees who do not return to the Marketplace to actively re-enroll, with APTCs adjusted based on electronic data sources. SBMs currently have flexibility over the data sources used to make these determinations, which may include not just federal tax data but also state tax data and state wage filings. The bill would prohibit SBMs from performing re-enrollment with APTC without new information provided by the consumer, effectively eliminating automatic re-enrollment. This runs counter to standard re-enrollment practices for every other form of insurance, including employer-based insurance. We are aware of no precedent for the federal government prohibiting automatic reenrollment for a line of insurance. SBMs have disproportionately leveraged auto-renewal to create stable and competitive markets, with an average of 73% auto-renewal rate for returning customers compared to 46% in the FFM. In addition, for one year before the prohibition on passive re-enrollment takes effect, a separate section of the bill would prohibit automatic re-enrollment with a zero-dollar net premium, by requiring SBMs to reduce APTC in such cases to charge a $5 net premium.
- Prohibits SBMs from providing APTC after asking consumers for additional documentation. Current statute directs Marketplaces to provide APTC when they ask for additional paperwork to verify certain eligibility criteria, if they have determined that the individual is otherwise eligible. The bill would eliminate this “provisional eligibility,” effectively requiring a waiting period of several months for many applicants. Again, we are aware of no precedent for a federal requirement for a months-long waiting period for a line of commercial insurance.
- Requires states to establish a new “pre-enrollment verification” system running from August through October each year. Current rules permit SBMs to rely on similar eligibility and enrollment procedures year-round for active re-enrollment. Eligibility determinations are generally made quickly, so coverage can begin a month or less after the application is submitted. The bill would require SBMs to stand up a new and separate apparatus for “pre-enrollment verification,” under which consumers could submit eligibility information for the following year starting in August, but coverage would still not begin until January. This new system would have to be in place by August 1, 2027.
Reducing flexibility in these ways would make establishing or maintaining an SBM less attractive for states. Flexibility is a key reason cited for interest among states that have recently adopted or considered transitions, including Georgia, Illinois, Texas, Oklahoma, and Oregon, and a key benefit cited by existing SBMs.
It is also notable that a primary justification offered for the bill’s elimination of SBM flexibility is to reduce “fraud.”a In fact there is no evidence that the agent and broker fraud experienced by the Federal Marketplace is a problem for SBMs. Removing their ability to maintain current best practices will result in millions of eligible individuals losing coverage. The new requirements serve only to force states to adhere to one-size-fits-all federal standards that prevent SBMs from responding to local market conditions and providing an optimal customer experience.
The Bill Would Impose New One-Time and Ongoing Costs on SBMs
The new mandates described above create intensive and costly new work for SBMs. There would be immediate implementation work to change systems, retrain staff, and educate consumers and partners about impending changes, as well as ongoing work to carry out more burdensome enrollment procedures with less ability to rely on electronic data. Switching from automatic checks against third-party data sources to manual processes increases costs and burdens for both SBMs and consumers and reduces the efficiency of the system. These costs will need to be covered by higher user fees, which in turn will raise premiums for all consumers in the individual market, regardless of whether they purchase on or off the Marketplace. These cost include:
- Rebuilding IT architecture. The multiple changes described above will require SBMs to rebuild many aspects of both consumer-facing and back-end eligibility systems. CMS estimated an IT cost of $158.3 million for implementing the Marketplace rule, which the bill would codify.b That does not include eliminating passive reenrollment and provisional eligibility and the creation of new systems for pre-enrollment verification beginning in August, which are three of the most far-reaching changes in the bill. Some provisions make conflicting changes that would require rebuilding the same architecture twice. For example, SBMs would need to change their systems to impose a $5 premium for automatic re-enrollees starting in the fall of 2026. And then they would need to change their systems again to eliminate automatic re-enrollment starting in the fall of 2027.
- Retraining call center staff, caseworkers, and assisters. SBMs would need to develop and provide new training materials for consumer-facing staff and partners, including call center operators, caseworkers, Navigators, agents and brokers, and certified application counselors.
- Handling additional customer interactions. Eliminating automatic re-enrollment–which accounted for 10.8 million enrollments in 2025–would mean that every applicant would need to interact with the Marketplace each year. The pre-enrollment verification system will also create millions of additional customer interactions. And these interactions will not replace those during the open enrollment period. Individuals will still need to come in then to enroll and choose a plan. And there will still be changes in circumstances after August, which will require reporting those changes and resolving any further inconsistencies that arise. As a result, SBMs won’t just do more verifications, they will do verification multiple times for the same consumer.
- Processing additional paperwork. The new paperwork required from applicants under the bill would also necessitate a tremendous new effort from SBMs to process the paperwork. For example, CMS estimated that the new income verification rules would require 2.7 million applicants to submit additional paperwork, all of which would need to be processed. The SEP verification requirement would mean 473,000 more applicants providing paperwork to verify their eligibility for an enrollment opportunity. SBMs would need to hire and train new consumer-facing support staff and/or contractors to manually review and confirm eligibility verification documents submitted by consumers. On top of the costs of IT changes, CMS estimated that SBMs will need to spend $60.3 million annually or $603.4 million over 10 years to implement the changes in the rule alone.
- More customer support staff to address questions and adverse determinations. The additional interactions and paperwork requirements would lead to many more consumers needing help to resolve questions. The elimination of provisional eligibility would raise the stakes for resolving eligibility issues quickly, likely increasing the volume and urgency of these calls.
- Keeping more staff and contractors for more of the year. Currently Marketplace can scale back their operations outside of the open enrollment period. But several elements of the bill will increase costs at other times of the year, including pre-enrollment verification beginning in August and more eligibility verification for SEPs and APTC eligibility year-round.
- Additional communications requirements. SBMs will need to invest in new outreach and communications efforts to educate consumers and partners about their new obligations under the bill and the shortened time periods that consumers will have to meet those obligations.
The Bill Would Reduce SBMs’ Revenue Base
The Affordable Care Act requires the Marketplaces to be financially self-sustaining. Most SBMs rely on premium assessments or per member user fees to generate the revenue to fund their operations. The reconciliation bill would reduce Marketplace enrollment by millions of people, thus reducing SBM revenue. To be financially sustainable, SBMs will need to increase their user fees. This will result in an increase in premiums, which could, in turn, lead to further enrollment losses.
The Bill May Alter States’ Calculus about Establishing (or Maintaining) an SBM
As discussed above, the bill would reduce the flexibility afforded to SBMs, increase their operating costs, and reduce their revenue. Taken together, these changes may undermine the value proposition of states transitioning to or maintaining an SBM. Over the course of the last decade, the number of states with an SBM has grown from 15 in the first year of implementation to 20 states today (Illinois and Oregon will make it 22 in 2026 and Oklahoma’s legislature authorized that state to become the 23rd SBM in a bill enacted in May 2025). State lawmakers have shown increasing interest in transitioning to an SBM to take advantage of the flexibilities that enable them to tailor their Marketplace to meet the needs of state residents. However, under H.R. 1 states will lose that flexibility and are faced with higher costs and a smaller enrollment base from which to finance operations. This makes it less likely that states will choose to transition to a SBM in the future and could result in some current SBMs becoming unsustainable, requiring the federal government to take over their operations. In addition, the bill’s implementation timeline would prevent a state no longer willing to run an SBM from transitioning to the FFM before being required to implement changes.
The Bill Would Infringe on State Regulation of the Individual Health Insurance Market
For decades, states have had primary authority for regulating health insurance markets. Some federal standards were codified in the Public Health Service Act (PHSA) by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the ACA. However, the PHSA requirements address only a relatively small number of issues and generally defer to states on specific implementation choices and on enforcement. The reconciliation bill contains several provisions that infringe on this long-settled vesting of authority, including changes affecting plans outside the Health Insurance Marketplaces.
- Infringes on state authority to define essential health benefits. Currently, each state has authority to establish the essential health benefits (EHB) package, which is applicable to all private health insurance. States have authority to designate as EHBs any service that’s included within 10 broad categories enumerated in the ACA. The bill provides that EHBs may not include specific services related to “gender transition”–even those services that fall squarely within the ACA’s EHB definitions. This would be the first time states are prohibited from including specific services as EHBs.
- Eliminates state flexibility to permit insurers to provide relief for non-payments of de minimis premiums. Current rules give state insurance regulators flexibility to permit insurers to keep enrollees covered even when they owe small past-due premium balances. The bill would scale back states’ authority to provide such flexibility.
- Denies cost-sharing subsidies payments to insurers that provide certain abortion services–but in a way that rewards states with abortion mandates. The bill provides that issuers that provide certain abortion services may not receive reimbursement for the ACA’s CSRs. As CBO noted in a recent analysis of the bill’s coverage effects, this would unintuitively increase PTC payments in states that require Marketplace plans to cover abortion, and higher PTC would improve the individual market risk pool overall in such states. It would also result in less abortion coverage in Marketplace plans in states that permit but do not require abortion coverage, since insurers that cover abortion would need to increase premiums to account for the lack of CSR payments, which would likely not be a viable option. Notwithstanding these complex repercussions, this abortion language is clearly an effort to infringe on state policy choices regarding the benefits provided by private health insurance.
- Limits enrollment opportunities market-wide. As noted above, the bill limits state flexibility to establish open and special enrollment periods in their SBMs. Crucially, this also affects state regulation of health plans in their entire individual insurance market, because plans sold through the Marketplace are part of a single risk pool with non-Marketplace plans, which means it is important to establish the same enrollment windows on and off Marketplace. Thus, state insurance regulators are constrained in their ability to establish enrollment windows that meet state needs.
- Loosens actuarial value rules market-wide: The bill modifies standards for the actuarial value of all individual market health plans to allow less generous plans, applicable on and off Marketplace pursuant to ACA Section 1311 and PHS Act Section 2707. States could limit the reach of this provision by defining standardized benefit packages. But in many states such rules do not apply outside the Marketplace, so less generous plans will become available in those market segments.
In addition, the bill would make an additional change to the PHSA. Specifically, it would exempt insurers from the guaranteed availability requirement in cases of past-due premiums, unless state law specified otherwise.
* Jason Levitis is a Senior Fellow, and Claire O’Brien a Research Associate, in the Urban Institute’s Health Policy Division; Christen Linke Young is a Visiting Fellow at the Brookings’ Center on Health Policy; Sabrina Corlette is a research professor and co-director of the Center on Health Insurance Reforms (CHIR) at Georgetown University; Ellen Montz is a Managing Director at Manatt Health. The views expressed in this piece are those of the authors and do not necessarily represent those of their organizations or their boards or funders.
a In fact, these Marketplace proposals in the bill fall under headers entitled “Addressing waste, fraud, and abuse in the ACA Exchanges” and “Preventing Fraud, Waste, and Abuse.”
b CMS did not include an estimate for costs to SBMs under the prohibition of SEPs for low-income individuals because it incorrectly claims that no SBMs currently have a SEP of this kind. The $158 million cost includes $7 million for this provision, which is calculated by taking the estimate for the cost of these IT changes to the FFM ($390,000) and multiplying it by the number of SBMs with this SEP (18).
