Politics wasn't only reason why some GOP-led states didn't set up own exchanges

Supporters of President Barack Obama’s health-care law have this response to the rocky rollout of the federal exchanges: It would have been smoother had states with mostly Republican governors set up their own state-based marketplaces.

Indeed, some of the early success stories in the implementation of the law have taken place in states – like California, Kentucky and Washington – that established their own exchanges.

By comparison, the federal exchange is responsible for a whopping 36 states, all but two (Missouri and Montana) of which are controlled by Republican governors. And Democrats allege that these Republicans – who typically go out of their way to tout states’ rights – opted out solely because of politics.

But politics isn’t the only reason why some of these states declined to set up their own exchanges.

They point to a delay in the finalization of rules and regulations, as well as wariness over the readiness of federal services needed for the exchanges.

“I could understand a state looking at it and saying, ‘We don’t want to get involved with it,’” said Henry Aaron, a senior fellow at the Brookings Institution.

“The federal government has failed in its responsibilities to implement this thing,” Aaron added.

States had until Dec. 14, 2012, to opt into running their own exchange.

“For us, there were just too many operational hurdles and issues and uncertainty to move forward with a state-based exchange. We just felt it was too risky, given what we knew at the time and where things stood,” said Don Hughes, the health-care policy adviser to Arizona Gov. Jan Brewer (R).

Hughes, who said the state was prepared to launch its own exchange, testified to the Senate Finance Committee in February, “We could not guarantee [services from the federal government] would be ready on time, and it just seemed too risky for us to move forward.”

As Hughes feared, the federal data services hub crashed as late as the end of October, creating an outage to the system relied on by states to determine whether people are eligible for a health-insurance plan.

Tennessee Gov. Bill Haslam (R) waited until December -- days before the administration’s deadline -- to opt for his state to enter the federal exchange.

He released a statement at the time, saying, “The Obama administration has set an aggressive timeline to implement exchanges, while there is still a lot of uncertainty about how the process will actually work.”

The U.S. Department of Health and Human Services delayed the release of its proposed rules and regulations for the exchanges, waiting until after last November’s elections. The rules were not finalized until the end of March.

“[The states] were limited because some of the details necessary for developing everything depended on federal guidelines and regulations, which they were slow to issue,” Aaron said.

States were left with restricted time to work with insurance companies on developing plans, reviewing those proposals and then designing and testing them in the exchange system.

Hughes said that Arizona originally planned to open the application process for insurers to submit potential health plans by Jan. 2.

Every state but Alaska and Florida spent federal funds on the planning of a state-based exchange, and many used millions more to design and develop their rollout. Arizona and Tennessee spent about $10 million and $2.5 million in federal funds, respectively.

“This decision comes after months of consideration and analysis,” Haslam said in his statement at the time. “It is a business decision based on what is best for Tennesseans with the information we have…”

Out of the 30 states run by Republican governors, only one of them -- Nevada -- is running its own exchange this year.

Republican Gov. Brian Sandoval told the Las Vegas Review-Journal last month that Nevada’s decision to run its own exchange -- and take as much control of the insurance system as possible under the law -- was the right one.

“I felt it was prudent and in Nevada’s best interest to have a state-run exchange, and I think that, at least over the course of a month and a half, I think that has proven out to be the more prudent choice,” Sandoval said.

Brookings Institution’s Aaron said Nevada could bring “very considerable credit” to the Republican Party in the state if they make the system work.

“I could well imagine that a state said, ‘This is our domain. We want to be responsible for how things operate in our state, and we’ll take this on,’” Aaron said. “If you think you can do a better job inside the state than the feds were going to do and you want it to work, you take it on.”

The office of Kentucky Gov. Steve Beshear (D) told NBC News in an email last month that, “Anytime a large scale program of this nature kicks off there are concerns along the way, but we feel that our state-centered process allowed us to address those.”

Kentucky, noted for the early success of its state-based exchange, officially opted to set up its own in July 2012 and --despite the lack of final rules -- worked closely with the insurers in the state this spring and summer on developing plans and reviewing rates.

“While some timelines may have been tight, we never had any doubt that [qualified health plans] would be approved and ready for shopping by Oct. 1,” the governor’s office added in its email.

The question is now whether states, like Arizona and Tennessee, will re-evaluate after watching other states weave through this first year. New Mexico and Idaho, both led by Republican governors, will launch state exchanges in 2014.