This is an archived article that was published on in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Utah Gov. Gary Herbert wants all state employees — an estimated 22,000 workers, plus their dependents — to shop for health coverage on Avenue H, the state's online health insurance marketplace.

He also plans in the next three to four years to expand the insurance portal to cover large companies, those with up to 100 employees and possibly larger, he said Wednesday in an address to the conservative American Enterprise Institute.

"[It] ought to be available to all employers," he said.

But it won't be open to individuals, as envisioned by the Affordable Care Act, and as the Republican governor had previously hoped. Negotiations with federal regulators over how to accomplish that were "a lost cause," Herbert said after his talk.

He didn't want to offer tax subsidies or enforce the individual mandate, and officials at the Department of Health and Human Services were unwilling to let the state ignore some of the core reforms in the new health care law.

As a result, Herbert is arguing for Utah to forge its own path, running Avenue H as a "shop" exchange for small businesses with 50 employees or less — and later, larger ones — and relinquishing to federal officials the task of building a separate marketplace for individuals.

Herbert acknowledged, however, it is likely that some business owners will direct their employees to the federal exchange, where they may be eligible for tax subsidies and possibly Medicaid.

"There's no question that when you offer people subsidies that there's a tendency to gravitate in that direction," he said. "Businesses will end up saying 'You know what? Why have the hassle? Just let these folks go to the individual marketplace and I'll save money.'"

If the feds sign off on the deal, Utah benefits by salvaging its three-year-old insurance portal. And the Obama administration benefits by being able to show it's willing to partner with "red states" to implement the health law, said Jason Stevenson, a spokesman for the Utah Health Policy Project.

But perhaps the bigger question is whether there's a market for Avenue H.

"That's one of the big unknowns, and not just for Utah, but the Affordable Care Act in general," said Lincoln Nehring, a health policy analyst at Voices for Utah Children. "How will employers respond? Will they let employees figure out their [health] coverage on their own, or will they continue to feel a need to offer that benefit?"

Avenue H is unique from other so-called "shop" exchanges in that it lets employees buy coverage with set contributions from their employer. This gives them greater choice, and helps employers predict and control their costs.

Herbert said it will also keep prices lower as consumers shop for the best deals.

"I believe in free markets. If you want the most benefit, and the highest quality for the most people at the lowest cost, that happens [with] free market competition," he said. "I don't understand how the exception to the rule would be health care."

But Avenue H has the same handicap as all small business exchanges: It doesn't dangle subsidies to employees to draw them in, as marketplaces that sell policies to individuals will.

The competition would really kick up if the feds reject Herbert's proposal and launch their own competing business exchange.

Herbert expects that decision in the next month and said, regardless, Avenue H will go on and he thinks it can survive.

He's hoping market forces will prevail — that "people will like what they're buying, and buy more," he said. "It will be more private sector oriented. I think it will have better products and better service."