(Adds insurance commissioner's comment)
By Emily Le Coz
JACKSON, Miss., Feb 8 (Reuters) - Mississippi on Friday became the first state to have its proposal for a health insurance exchange rejected by the U.S. government, and federal officials said Republican Governor Phil Bryant's opposition to the plan was to blame.
"With a lack of support from your governor and no formal commitment to coordinate from other state agencies, we do not see a feasible pathway to conditionally approving a state-based exchange in Mississippi for 2014," the U.S. Department of Health and Human Services said in a letter to the state.
Mississippi Insurance Commissioner Mike Chaney, a Republican, had waged a bitter battle with Bryant and other fellow party leaders in his state over implementing a state-run health insurance exchange.
The exchanges are a central provision of Democratic President Barack Obama's Patient Protection and Affordable Care Act. Under the law, all states must have fully operational health insurance exchanges by Jan. 1, 2014.
Bryant opposes a state-run system, saying it opens the door to the Affordable Care Act, commonly referred to by critics as "Obamacare." The governor has said it will shackle the state with debt related to inflated Medicaid rolls.
Chaney also opposes the federal healthcare reform law. But he has argued that a state-based system would let Mississippi control its own insurance market, saving thousands of jobs and millions of dollars in the long run.
Chaney said he felt "betrayed" upon getting first word of the rejection on Thursday and blamed the decision on politics versus the merits of his proposal, according to local media.
After receiving the denial letter on Friday, the insurance commissioner said he would continue to work with the federal government to build a state-operated exchange independent of any federal program.
"This would be a free-market approach to solving some of the state's insurance problems faced by small businesses," Chaney said in a statement.
The commissioner has been working on the exchange for more than a year and became a resource for other states trying to devise their own plans. Mississippi submitted its proposal to the federal government in November.
An exchange allows consumers to compare plans provided by healthcare providers in an effort to make them more transparent and get more people enrolled. If states fail to implement their own exchanges, the federal government will do it for them.
Seventeen states and the District of Columbia have received conditional approval to establish their own state exchanges.
The federal government is likely to end up operating exchanges in the states that have not applied to run their own.
States that don't run their own exchanges would opt for one of two alternatives: a federally facilitated exchange that requires minimal state participation, or a federal partnership exchange in which states help by performing certain duties.
The deadline for states to declare their intentions to run federal partnership exchanges is Feb. 15. The Health and Human Services Department said on Friday that it considered Mississippi "an excellent candidate" for that model. (Editing by Colleen Jenkins, Alden Bentley and Eric Beech)