In the latest episode of Regulatory Joe, we explore the details of state-based marketplaces operating on the federal platform (SBM-FPs). These transitional models are a crucial step for states looking to gain more control over their health plan operations while leveraging federal systems for essential functions like eligibility, enrollment and billing.
What are SBM-FPs?
State-based marketplaces operating on the federal platform are a transitional phase for states moving away from federally facilitated marketplaces (FFMs). States in the SBM-FP model maintain some operational control while relying on the federal platform to handle core processes.
This approach offers states the ability to tailor policies and oversight to their populations. SBM-FPs also generate funding through administrative fees—typically 1.5-2% of effectuated members’ premiums—which are reinvested into infrastructure and member services. These fees ensure that states have the resources needed to manage the marketplace while delivering a better experience to members.
Why More States are Adopting SBMs
The shift toward state-based marketplaces, including SBM-FPs, is gaining momentum as states seek to localize control of their healthcare operations. Georgia and Michigan are among the first states to transition, using the SBM-FP model as an interim phase while they build the capacity to become fully independent SBMs.
SBM-FPs allow states to gain autonomy gradually. States can leverage the federal platform while focusing on building infrastructure, testing operations, and ensuring continuity for members during the transition. This model offers enhanced member experiences, localized oversight and sustainable marketplace funding, making it an attractive option for many states.
What This Means for Health Plans
For health plans, the transition to SBM-FPs brings a mix of challenges and opportunities. Carriers operating in SBM-FP states must adapt to:
- New operational systems: Enrollment, billing, and eligibility determination shift to state oversight, requiring changes in processes and technology.
- State-specific regulations: Filing requirements, rates, and forms may differ significantly from those in FFMs.
- Member communication needs: Clear messaging is essential to reassure members and address any concerns about how these transitions impact their coverage.
Regulatory Joe Recommendations
To navigate the transition to state-based marketplaces operating on the federal platform (SBM-FPs), health plans must approach the changes strategically. Here’s how your organization can stay ahead:
- Engage with state regulators: Build strong relationships with insurance divisions to align compliance strategies with state-specific requirements. Use your government affairs or legal teams to stay updated on developments and advocate effectively for your plan’s role in the SBM-FP marketplace.
- Tailor your product strategy: Ensure your plan offerings align with the priorities and needs of transitioning states. By customizing your approach, you can stay competitive and demonstrate value to both regulators and members.
- Prepare for financial implications: Factor administrative fees (1.5-2% of effectuated members’ premiums) into your operational budgets and adjust financial strategies accordingly. Gain leadership buy-in to support the investments required for a smooth transition.
- Communicate with your members: Work closely with your marketing team to create clear, reassuring messaging that emphasizes continuity of care. Address member concerns about the transition and highlight any improvements to the enrollment process.
- Reassess your geographic strategy: Analyze how SBM-FPs may shift market dynamics in your regions and adjust your footprint as needed. A proactive review of your market presence can help you maintain a competitive edge.
By focusing on these key areas, health plans can navigate the SBM-FP transition effectively, positioning themselves for long-term success in an evolving regulatory environment.
Be sure to watch the full episode for a more detailed run-down of SBM-FPs and Regulatory Joe’s insights.
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Welcome to Regulatory Joe. I’m Joe Boyle, the President of Regulatory Solutions here at Penstock, and today we’ll be talking about state-based marketplaces operating on the federal platform, also known as SBM-FPs.
So the first question is, what is an SBM-FPs? This is where a state retains some level of control over the operations of health plans and carriers entering the marketplace, utilizing the federal platform for enrollment, eligibility and also billing. SBM-FPs are also a transitionary period of carriers who are required to be in a federal partnership for one year or more before transitioning to become a standalone state-based marketplace without federal partnership support.
Another question is why do states choose to be a state-based marketplace or utilize the federal platform for partnership opportunities? Well, being a state-based marketplace has a lot of benefits and favorability for both the state itself, as well as the members living within that state.
Part of having more state control over your operations and delivery of policies and procedures allows each individual state to strengthen their own requirements for their members in addition to CMS’s policies and procedures. The way that they do this is SBMs and SBM-FPs do collect an administrative fee, something to the tune of 1.5-2% of all the premium dollars that flow through the state, through enrollment and billing, to actually pay for the operations and pay for the capabilities that are run and delivered to each member that they serve.
Now, when we compare SBM-FPs to federally facilitated marketplaces only, or FFMs, it’s really interesting to compare them apples-to-apples. Operating only as an FFM, ceding to CMS as a direct enforcement state to all operations, relinquishes most of, if not all the control a state has over their health plan operations, leading carriers to work directly with CMS, not directly with a division of insurance. So we are seeing an ongoing theme of states adopting this practice of becoming a state-based marketplace and a standalone entity.
One big change that CMS has proposed through the notice of benefit and payment parameters this year is to require issuers to be a state-based marketplace federal partnership exchange for at minimum one year prior to becoming a standalone state-based marketplace.
Why is this important? Number one, it is very important to understand this because it’s very expensive transitioning to become a state-based exchange for that state. That’s where the administrative fees kick in. Having a good financial outlook and codified strategy for how you want to administer your operations will be very important for a successful transition, especially dealing with member data and the member’s experience. It is also important to understand this period so that state-based exchanges have enough time to build an adequate infrastructure to support the operations that CMS is supporting today on the partnership exchange, such as enrollment and billing.
All the transactions of the 820 files and the 834 files that represent members enrolling and effectuating into plans needs to be administered by the state and paid for by the carriers. All of that together is a lot of work to stand up and would take at minimum at least a year.
For 2025, we do see two states actively engaged in transition periods to state-based marketplaces. One is Georgia and one is Michigan. And overall, while transitioning to a state-based marketplace will change the way filers file with the state, your binders, your forms, and your rates drastically, this is actually very favorable for the members in the state that you serve. Transitioning to an SBM will streamline the enrollment process and the delivery of coverage to members annually, year over year, and will allow the state to have more control overfilling gaps of coverage when and where needed for members.
And rest assured when we talk about eligibility and enrollment, transitioning from the federal partnership exchange back to the state-based marketplace should be fairly seamless for your member application, as enhanced direct enrollment has made it very easy for members to apply using the same eligibility application on healthcare.gov that can be docked into your state-based marketplace application seamlessly.
When we talk about the member experience and the user experience of actually applying and enrolling to coverage or a health plan, on a state-based marketplace exchange or a federal partnership exchange, the user, if done correctly, should actually see no difference in the eligibility application when they input their information on an SBM versus an FFM.
Using the capabilities of enhanced direct enrollment with enrollment suppliers and enrollment vendors should offer a seamless integration and a member should not know the difference.
One of the first things we recommend when we look at this process and transition to become an SBM is advocacy.
So, whether you have a government affairs representative at your organization or a legal representative or boots on the ground actually working with your state advocating for your health plan, we need to leverage those resources internally to help better understand and build those relationships with your regulators and be a part of the process.
Understanding your product and your plan strategy for your ACA business is also going to be critical when advocating with the state so that they understand how you will benefit the state’s exchange and how will you be a participant with other carriers in the marketplace.
Like we mentioned earlier, it’s important to know that SBMs are not free. They are paid for by health plans participating on the state’s exchange with user administrative fees. User administrative fees are about 1.5-2% percent of overall members premiums. So we’re talking not thousands or hundreds of thousands, but millions of dollars flowing from health plans to the state-based exchange to fund all those operations.
Understanding the implications and the finances of how an SBM operates will also be critical as well. Making sure that your senior and executive leaders are on board with this strategy because playing in the SBM is very different than an FFM. The way the carriers operate, the way the carriers compete could be very different than the strategy that you put forth today, operating only on an FFM.
We’ve seen carriers in the past also shift geographies entirely, depending on which marketplace is designated. Based on the benefits that states are seeing from converting to become an SBM standalone exchange, we do see this becoming a common theme year over year for states to transition from an FFM to an SBM.
So if you are currently only operating in an FFM exchange marketplace, you can expect to transition to become an SBM-FP before you can become an SBM standalone exchange entity.
Finally, communication is going to be a big recommendation that we have both to the members that you serve. And the state regulators that you work with developing messaging to ensure members comfort on how they’re going to be enrolling into the exchange with the state and the support of your organization will be critical. Partner with your marketing team, develop a marketing strategy to wrap around your product and ensure that your members understand fully the transition and that they’ll still be able to get the care that they need quickly and compliantly.
Thank you all for listening to today’s episode. Give us a like, give us a share and we’ll see you next time.
