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Tight Deadlines, Big Challenges for Health Exchanges

Obamacare supporters and protesters gather in front of the U.S. Supreme Court to find out the ruling on the Affordable Health Act June 28, 2012 in front of the U.S. Supreme Court in Washington, DC.
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Obamacare supporters and protesters gather in front of the U.S. Supreme Court to find out the ruling on the Affordable Health Act June 28, 2012 in front of the U.S. Supreme Court in Washington, DC.

Today is the deadline for states to tell the Obama administration whether they plan to build and operate their own health insurance exchanges, or default to a federally built exchange.

More than half the states have now opted to let federal officials build the online insurance marketplaces which are central to the Affordable Care Act, known as Obamacare.

Analysts say it makes sense for those states which have not already begun the process to default to a federally-built exchange.

"It's not simply the website, or the marketplace," said Jennifer Tolbert, the director of state health reform at the Kaiser Family Foundation. The new state exchange system will also serve as the key mechanism for determining individual eligibility for federal subsidies to buy insurance.

"So, that's an extra step from what exists today and that's in large part where the infrastructure comes from," she explained.

Massachusetts has had a six year head start running its state insurance exchange, made up of an online marketplace and a call center with support to help explain plans.

But even the Bay State, which serves as the model for the exchanges under Obamacare, has to make big infrastructure changes to make its insurance portal comply with new federal standards.

"We're upgrading our website substantially. We're making a host of changes," said Glen Shor, director of the Massachusetts Health Connector exchange.

Those changes center mostly around infrastructure to determine eligibility, something the state's exchange does not have now.

"We are building tools with the federal government that will allow us to get people determined eligible instantaneously," he said.

Much of that infrastructure, including the federal hub which will serve as the central database for verification, is being built from scratch. So far, the Obama administration has paid out close to $2 billion in grants to help states with the exchange build-out and operation for the first year. Estimates are it will cost at least another $1 billion for the build-out of federal state exchanges.

(Read More: Obamacare, Host of Others Need Slashing: Simpson-Bowles.)

"Building that system to determine the eligibility for the subsidies—that is what is taking time and costing money," said Kaiser's Jennifer Tolbert.

Tight Timeline for 2013

Under the Affordable Care Act, all 50 state exchanges have to be up and running for the beginning of open enrollment season on Oct. 1, 2013. (Read More: Obamacare's Insurance Rule Is Upheld by Supreme Court.)

Seventeen states and the District of Columbia are proceeding with their own exchanges.

States that have defaulted to a federally-built exchange still have another window to decide whether they will take part in operating the exchanges once they're built. They deadline for choosing a so-called partnership exchange is February 15th. Half a dozen states have indicated they will take this route.

Given the scale and complexity of the task, analysts say states that haven't already begun the process to build their own exchanges really can't get up and running for next year's October deadline, even if they'd wanted to.

"The landscape is pretty well set and the vendors that have won the contracts to establish the state-based exchange or federal exchange or the hub are really working at capacity now," said Rick Howard, research director of government industry at Gartner.

Big tech companies like Xerox, IBM, Accenture and CGI have contracted with the states and Obama administration over the last two years for the build-out, and they have been snapping up engineers with the expertise to get the job done.

"Anybody who has the technical ability or program knowledge is pretty much at work now," Howard said.

The Big Question: Will It Work?

Glen Shor of the Massachusetts Health Connector is confident the Bay State will be up to speed next October, but that's not say they don't feel the pressure to make the transition to the new system seamless.

"We are sweating in the sense that we are driving the bus at the same time as we are changing the wheels," he said.

Gartner's Rich Howard said regardless of who builds the exchanges, the big test for Obamacare will be whether Americans logging on next fall will find that the system works as well as commercial online experiences like booking travel arrangements or shopping on Amazon.

"They really are going to have one shot at not reinforcing the idea that public sector agencies cannot operate at the level of efficiency and quality that private enterprise can."

—By Bertha Coombs; Follow her on Twitter: @coombscnbc

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