On July 11, 2011, the U.S. Department of Health and Human Services (HHS) issued proposed rules on the American Health Benefit Exchange ("Exchange") implementation: Establishment of Exchanges and Qualified Health Plans (CMS-9989-P).

The regulations largely codify Affordable Care Act (ACA) requirements, with some notable exceptions. Embedded in the proposed regulations, and even more so in the accompanying commentary, are several significant policy shifts that will impact state planning and implementation of Exchanges. For example, the preamble introduces the new concept of a "State partnership model" in which states may choose to combine state -designed and - operated business functions with federally designed and operated functions. Whereas Exchanges previously had been articulated by HHS as either distinctly state-run or federally run, the state partnership model offers a hybrid approach to establishing and operating Exchanges. Relative to the other substantive areas, the proposed rule provides significantly more detail on the Small Business Health Options Program (SHOP), enrollment periods and effective dates in the individual market, and the Exchange establishment process and criteria.

The purpose of this memo is to highlight the provisions of the regulations and accompanying commentary that clarify or amplify the ACA, or provide new insight into federal guidance or the collective thinking that has dominated the national discussion on Exchanges to date.