WASHINGTON Sept. 2 (Reuters) — South Carolina does not want any more federal money to set up an insurance exchange, the state's health regulator said on Thursday, citing fears about the strings attached to the funds.

South Carolina joins a handful of other Republican states rejecting millions of dollars in federal grants tied to insurance exchanges that are a key aspect of the Affordable Care Act, the Obama administration's health care overhaul.

The exchanges are envisioned as open marketplaces for competing insurance plans where uninsured people and small businesses can band together to negotiate cheaper rates.

"State agencies have a very bad habit of chasing any money that comes to them ... pursuing the money instead of pursuing their visions and their goals," said Tony Keck, who heads South Carolina's Health and Human Services Department.

"We're not planning on taking any further money for the exchanges," he told Reuters. "We are worried that the federal government seems to be saying that states should become the back office managers for the private insurance market and we're not sure that's a good use for the state resources."

States face a Jan. 1, 2013, deadline to submit detailed plans for the exchanges or the U.S. Health and Human Services Department will come in and build them itself.

Whether run by states, HHS or a combination of the two, the exchanges have to be up and running by 2014, according to the law passed last year.

With deadlines looming there is concern about a smooth and timely roll-out of the health care reform, especially as many Republican governors want to block the new law supported largely by Democratic lawmakers.

The HHS has awarded states $1 million planning grants to research exchange options and the administration is now sending out applications for establishment grants, which South Carolina plans to skip.

Seven states received much larger amounts of federal funding to establish prototype exchanges other governments could use as a model. Two of those states, Oklahoma and Kansas, have since returned the money.

But even though Republican Governor Nikki Haley "remains an equal opportunity opponent of ObamaCare," according to her spokesman, South Carolina officials say it is too soon to tell what the state will do about the exchange plan. But like other states whose executive branches adamantly oppose Obama's reforms, the work on an exchange quietly continues in South Carolina

The state has created a planning committee that is holding a meeting on Thursday and, using the $1 million federal grant, will continue to analyze various structures South Carolina can adopt before or after 2014.

The committee is getting background briefings from industry consultants and is working on a final report to be sent to Haley and state lawmakers by the end of October, said Gary Thibault, program manager for the exchange planning grant.

Among the options being weighed by South Carolina is a plan to seek help from the private sector to create a separate — and perhaps cheaper — exchange that would satisfy the state's public health goals.

"Our question is ... why does the federal government have to bankroll all of this, especially when there are private solutions ... that are already out there running millions of employees' insurance in exchanges?" Keck said.

He says the state is taking a "wait-and-see approach" and is eager for more details from HHS on how the government expects the exchanges to work.

"The (federal) dollars really bother me," Keck said. "It comes with strings attached and then, all of a sudden, their agenda is your agenda."

Local newspaper The State first reported Governor Haley's plan to refuse more federal funding. Neither Haley's office nor the state's health department have issued any official statements on the decision.

(Editing by Andre Grenon)

© 2010 Thomson Reuters. Click for Restrictions.

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