HHS Secretary Kathleen Sebelius (AP Photo/Carolyn Kaster)

Officials at the Center for Consumer Information & Insurance Oversight (CCIIO) says the U.S. Department of Health and Human Services (HHS) will be gentle when it’s reviewing applications from states that want to run, or help run, health insurance exchange programs.

CCIIO, an arm of the Centers for Medicare & Medicaid Services (CMS), which, in turn, is an arm of HHS, talks about the exchange application process in a set of answers to frequently asked questions posted on its section of the HHS website.

HHS, meanwhile, has posted the final version of the exchange application blueprint, or approval process description. HHS applied for Office of Management and Budget clearance for the blueprint in May.

The Patient Protection and Affordable Care Act of 2010 (PPACA) calls for federal and state agencies to set up state-based health insurance exchanges, or Web-based insurance supermarkets, that will sell coverage to individuals and small businesses.

States can choose whether to run their own exchanges, participate in multi-state exchange consortiums, or let the federal government provide exchange services for their residents. States and consortia also can decide whether to oversee all exchange functions or share some responsibility with the federal government. 

The first application deadline was Aug. 1, and the last will be Nov. 3, 2014.

One question that CCIIO officials answer is what will happen if a state applies to oversee an exchange and cannot show that it meets all PPACA exchange activity requirements.

“HHS may conditionally approve an exchange if the state can demonstrate that significant progress is being made on exchange activities (listed in the Blueprint) at a pace that ensures that the state will have an operational exchange by” Oct. 1, 2013, officials say.

If a state receives a conditional approval of its exchange, that state “will be expected to sign an agreement that outlines the terms and conditions of its conditional approval determination,” officials say.

The state will have to agree to extra HHS monitoring of the exchange,to ensure that the exchange is progressing quickly enough to handle the initial open enrollment period, officials say.

HHS also will give extra technical assistance and perform extra systems testing for states that receive conditional approval, officials say.