State-based exchanges (SBEs) have emerged as an indispensable tool for helping states tailor health insurance marketplaces to their unique populations, offering flexibility in outreach, enrollment, and regulatory adaptation. While both the federally facilitated exchange (FFE) and SBEs serve as platforms for individuals to access health insurance under the Affordable Care Act (ACA), SBEs provide states with greater control over administration, consumer outreach, and regulatory adaptation. For policymakers, understanding the advantages of SBEs is critical in making informed decisions about the future of state health coverage.
Financial and Operational Control
Budgetary Autonomy and Strategic Reinvestment
One advantage is that states operating SBEs maintain control over user fees collected from insurance carriers. Unlike states using the FFE, which must remit a portion of these fees to the federal government, SBEs can allocate the balance of funds remaining after covering operational expenses toward state-specific initiatives, such as enhanced marketing, consumer assistance programs, and subsidy enhancements for low-income residents.
For example, in 2020, Pennsylvania launched Pennie®, its state-based marketplace, and projected annual savings of $50 million by eliminating reliance on the federal platform. These savings were redirected to fund state outreach efforts and provide additional subsidies to lower-income residents. Similarly, New Jersey’s transition to its own exchange allowed the State to tailor its enrollment strategy, ensuring more targeted assistance for uninsured populations.
Under the Georgia Access SBE model, Georgia collects user fees from insurance carriers to fund the exchange’s operations. Projections for Plan Year 2024 estimate that these user fees will total between $170 million and $200 million. The operational costs of Georgia Access are anticipated to be significantly lower than the total fees collected, allowing the State to allocate the surplus funds to other health initiatives. Notably, Governor Brian Kemp has directed these excess funds to bolster Georgia’s reinsurance program, which aims to reduce premiums and stabilize the individual insurance market by offsetting high-cost claims.
Cost Efficiency and Customization
Another significant advantage of SBEs is their ability to optimize administrative costs. The federal user fee for states relying on the FFE has hovered around 3% for several years, was set at 1.5% for 2025, and is expected to increase to 2.5% in 2026. State-based exchanges can determine their own fee structures, opting for a lower rate if they choose. This cost control enables states to keep premiums more affordable, fund reinsurance and/or state subsidies, and fund consumer assistance programs that might otherwise be subject to federal budget cuts.
During its transition, Virginia operated as a state-based exchange on the federal platform (SBE-FP), utilizing HealthCare.gov for enrollment while developing its own platform. Insurance carriers were assessed a total user fee of 3.0% of premiums for the 2021 plan year, aligning with the fee previously charged by the federally facilitated exchange. This fee comprised a 2.5% federal user fee and an additional 0.5% state assessment. The funds collected through the state assessment were designated to support the development and operation of Virginia’s SBE, including initiatives aimed at enhancing consumer outreach and maintaining a stable insurance market.
Enhanced Consumer Engagement and Outreach
Targeted Marketing and Assistance Programs
SBEs enable states to develop and execute marketing campaigns tailored to their specific demographics. Unlike the FFE, which employs a one-size-fits-all approach, SBEs can focus on reaching underserved communities, including non-English speakers, rural populations, and historically uninsured groups.
For instance, Pennsylvania’s Pennie marketplace has prioritized outreach to rural communities and non-English-speaking populations by investing in bilingual navigators, culturally tailored marketing campaigns, and partnerships with local organizations. Pennsylvania’s proactive approach has helped reduce uninsured rates, particularly among low-income residents and those in rural areas where access to health information and enrollment assistance can be more limited. Through targeted social media campaigns and in-person enrollment events, Pennie ensures that residents receive the support they need to make informed coverage decisions.
Extended and Special Enrollment Periods
An additional key advantage of SBEs is their ability to set enrollment periods that better align with residents’ needs. While the FFE follows federal timelines, SBEs can extend open enrollment or establish special enrollment periods (SEPs) in response to emergencies or economic shifts.
During the COVID-19 pandemic, Pennie and Get Covered NJ both leveraged their flexibility as SBEs to implement extended enrollment periods, ensuring that residents who lost employer-sponsored coverage had additional opportunities to secure health insurance. Pennsylvania extended its special enrollment period through August 2020, while New Jersey kept enrollment open for uninsured residents beyond federal deadlines. These actions helped thousands of individuals maintain access to critical healthcare coverage during a time of significant uncertainty.
Integration with State Health Programs
Seamless Medicaid and Marketplace Coordination
SBEs are uniquely positioned to align with state Medicaid programs, streamlining eligibility determinations and enrollment transitions. By integrating Medicaid and marketplace operations, states can reduce administrative barriers and improve continuity of care.
For example, Virginia, operating as a determination state, has leveraged its state-based exchange to create a more efficient Medicaid eligibility process. As a determination state, Virginia’s marketplace makes final eligibility decisions for Medicaid and the Children’s Health Insurance Program (CHIP), rather than simply assessing eligibility and referring applicants to the state Medicaid agency for a final decision. This direct determination process reduces administrative delays, simplifies enrollment, and ensures that individuals experiencing income fluctuations can transition between Medicaid and marketplace coverage with minimal disruption. As such, this integration helps maintain continuous health coverage for vulnerable populations, improving health outcomes and reducing gaps in care.
Innovative Coverage Solutions
Several states have used their SBEs to pioneer innovative coverage models tailored to local needs. Arkansas, for instance, leveraged its state exchange to implement the “private option” Medicaid expansion, using federal Medicaid funds to purchase private insurance for eligible low-income residents. This approach not only expanded coverage but also stabilized the individual insurance market by increasing enrollment.
Similarly, Pennsylvania and New Jersey have used their state-based exchanges to introduce innovative affordability measures. Pennsylvania’s Pennie marketplace partnered with the Commonwealth’s reinsurance program to help lower premiums by offsetting the costs of high-risk enrollees, making coverage more affordable for residents. Meanwhile, New Jersey’s Get Covered NJ offers state-funded premium subsidies, known as New Jersey Health Plan Savings, in addition to federal ACA subsidies. This initiative has helped reduce out-of-pocket costs for lower- and middle-income residents, increasing overall enrollment and improving coverage affordability.
These types of state-driven innovations allow SBEs to enhance coverage affordability and accessibility in ways that would be far more challenging under the constraints of the federally facilitated exchange.
Conclusion: SBEs Offer a Compelling Path Forward
For policymakers evaluating the benefits of state-based exchanges, the advantages are clear: greater financial control, enhanced consumer engagement, and better integration with state health programs. SBEs empower states to respond proactively to regulatory changes, tailor coverage options to their residents, and invest in long-term strategies to improve health outcomes.
As states continue to assess the most effective ways to administer health coverage, the flexibility and autonomy offered by SBEs make them a compelling option for ensuring accessible, affordable, and high-quality health insurance for all residents.
We compiled some resources for states looking to transition to an SBE – you can find those resources here or reach out to chat with one of our consultants.
