Gov. Dennis Daugaard announced Wednesday that South Dakota will opt for a federally run health insurance exchange under the Patient Protection and Affordable Care Act.

The Affordable Care Act, signed into law by President Obama in March 2010, requires all states to have a health insurance exchange — an online marketplace where individuals and small businesses can buy health insurance — by January 2014.

The state/federal partnership is one of the options under the Affordable Care Act.

South Dakota received a $1 million planning grant from the federal government to explore the development of a state-run exchange. In May, it received another $5.8 million to be used for technology upgrades needed to implement an exchange.

Tony Venhuizen, director of policy and communication with the governor's office, said the state used the planning grant to hire Navigant, a national firm, to evaluate the cost of a state health insurance exchange.

The analysis by Navigant estimates that between 97,070 and 166,767 individuals in South Dakota will take advantage of a health insurance exchange. According to Henry J. Kaiser Family Foundation, 104,800 people in South Dakota — 13 percent of the population — are currently uninsured.

With those numbers in mind, Navigant calculated that a state exchange would cost South Dakota between $6.3 million and $7.7 million annually to operate, Venhuizen said. 

Under the Affordable Care Act, federal grants will fund the development of exchanges, both federal and state, as well as the operation until the year 2015. After 2015, exchanges must become self-sustaining. 

States choosing state-run insurance exchanges are required to submit a funding plan in November for beyond 2015 to the federal government. For states such as South Dakota that choose a state/federal partnership exchange, the federal government will develop the funding plan for beyond 2015, according to a spokesman from the United States Department of Health and Human Services. HHS plans to take public input as to what those funding sources should be, according to the spokesman.

By choosing a state/federal partnership, Daugaard hopes that the state can maintain control of regulations through the South Dakota Division of Insurance, Venhuizen said. The Division of Insurance regulates insurance companies in South Dakota currently and could continue under a state/federal partnership exchange plan.

"We're hoping the federal government would leave this to us, the regulatory side," he said. "The governor believes that South Dakota is better served to regulate insurance ourselves."

A state/federal partnership would allow the state to maintain some of the regulatory control but could also take away its ability to set rules for the exchanges governing board, appoint people to the board and play a role in decisions made regarding the exchanges, according to the Center for Consumer Information and Insurance Oversight.

Venhuizen said the $5.8 million received in May to help with technology upgrades can be used in the regulation division.

Kirk Zimmer, chief executive officer of DAKOTACARE, an insurance company operated by the South Dakota Medical Association, said the availability of insurance will not be affected by whether the exchange is run by the state or federal government.

House Democratic Leader Bernie Hunhoff of Yankton said he believes state lawmakers should have been allowed to decide whether the state sets up its own exchange or choses a state/federal partnership.

"I think that should be a decision made not just by the governor but by the Legislature, with the public at large weighing in," he said.

Hunhoff said he doesn't know if a state-run exchange would be better than one operated by the federal government, mostly because no one knows what the federal exchange will include. But a federal exchange may not take into account issues important in South Dakota and other rural states, he said.

"I'd be worried that the Washington answer might not be the right answer for South Dakota," Hunhoff said.

Daugaard said Wednesday he still hopes the federal law is repealed. Hunhoff said the governor and other South Dakota officials should accept that the health care overhaul will be implemented.

"It's going to be the law of the land. We can't just bury our heads in the sand and pretend it's not happening," he said.


AP contributed to this story. Contact Lynn Taylor Rick at 394-8414 or

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