* As many as 24 states working on exchanges behind the scenes due to pressure
* Republican health officials face criticism of party disloyalty
* State insurance directors, commissioners prefer not to cede control to feds
By Anna Yukhananov
WASHINGTON, Sept 16 (Reuters) - Mississippi insurance commissioner Mike Chaney is in a tight spot.
By law, he is required to implement Democratic President Barack Obama's healthcare overhaul. But as a Republican from deeply conservative Mississippi -- one of 26 states that sued Washington over Obama's Affordable Care Act -- Chaney is a target of critics who say he is betraying his party.
Chaney and health officials in as many as 24 Republican-controlled states are working behind the scenes to set up insurance exchanges that provide a market for individuals and small businesses to shop for affordable health coverage. The states face a Nov. 16 deadline to show they can do it, or the federal government steps in and takes on the job itself.
But these officials face significant political opposition from their Republican governors and legislators who want the states to do nothing until the national election on Nov. 6, hoping the party wins enough votes to repeal the law.
Conservatives argue that enacting any part of the ACA would give it legitimacy. They also believe that if the federal government is forced to set up many of the exchanges, the system would likely fail -- making the law easier to repeal if Republican nominee Mitt Romney defeats President Barak Obama in the election.
Insurance officials like Chaney, however, want a better contingency plan in case the Republicans lose, as the 10-day window between the election and the exchange deadline will not give them enough time to prepare an exchange.
"They can't just leave this to the will of the wind," Chaney said in an interview.
"This isn't about politics. It's about following the law," he added. "And I think I'm better equipped to operate an exchange in my state than the federal government."
A bill to create a state-based exchange failed to pass the Republican-led Mississippi legislature in 2011, but Chaney, a former lawmaker and businessman, was able to create an exchange anyway under the auspices of an older state law.
Chaney said he worked "under the radar" to set up the exchange until July 12, when he attended a talk at the Mississippi Center for Public Policy, a think-tank and lobbying group. The speaker was Michael Cannon, health policy director of the libertarian Cato Institute, who described the damage posed by federal meddling into healthcare and urged the dozens of state lawmakers in attendance to refuse to set up Mississippi's exchange.
Pressure piled on Chaney, and a day later he released a statement to say that he would not implement an exchange until after the elections. Though he continues planning efforts, he has not signed any permanent contracts.
"If you'd ever been to a picnic, and found out you were the main course, that's what happened," Chaney said about the experience later.
WORKING BEHIND THE SCENES
The healthcare reform law passed in 2010 calls for health insurance exchanges to be in full operation by January 2014, helping to extend care to up to 16 million uninsured Americans.
So far, only 13 mostly Democratic states have formally committed to establishing their own insurance exchanges, while a handful of others have said they would probably do it or agreed to form a partnership with the federal government. Seven states have outright refused.
In the remaining 24 states with Republican governors or Republican majorities in either legislative house, heated opposition means work on exchanges occurs haphazardly, behind the scenes and with fewer funds.
Half a dozen Republican state health officials interviewed by Reuters said they prefer to plan for exchanges now, rather than accept blame down the road for a federally-run exchange that leaves voters worse off than their neighbors.
At least 15 others are also preparing for some kind of exchange, according to state planning documents, news articles and the Kaiser Family Foundation, which tracks states' actions.
Even without political obstacles, setting up health exchanges is not easy: many states need new laws to create and fund an exchange; they have to study local needs through dozens of meetings, hire staff and find contractors to set up the technology.
Arizona, another Republican state that was part of the ACA lawsuit, has not formally committed to a state exchange. Still, its director of healthcare policy, Don Hughes, is planning one just in case.
"We're a very conservative state that does not like the federal government dictating to us what we should be doing on pretty much anything," Hughes said. "If we have to have one, I think our preference would be to have a state-based exchange rather than defer to a federal exchange."
Many insurers, such as Wellpoint Inc, UnitedHealth Group or Aetna, would also prefer the states to control local insurance markets rather than submit to federal regulation, consultants and consumer groups say.
Republicans working on exchanges have been accused of party disloyalty, and that opposition has intensified after the Supreme Court upheld the Affordable Care Act in late June.
In Colorado, Tea Party members tried to expunge Republican Amy Stephens for co-sponsoring exchange legislation. In Michigan, the conservative advocacy group Americans for Prosperity circulated petitions to kill proposed exchange legislation. In Ohio, Republican governor John Kasich has stepped back from initial support for a state exchange.
"Even the conservatives, given the option from having some control to no control, they'd prefer to have some control. But until this election is behind us, they're not willing to do anything that would show they're supporting Obamacare. And that's the same situation a lot of states are in," said Sandy Praeger, Kansas's insurance commissioner.
Joel Ario, who until last year ran the federal government's office of insurance exchanges, said he was once asked how many states had refused to discuss the program as their leaders battled the healthcare law.
"The answer was zero," said Ario, now managing director at Manatt Health Solutions. "Every state insurance department is engaged. (Though) if you called all of them, some of them might deny it."
Some states manage to find alternative outlets. New York's Democratic governor Andrew Cuomo created an exchange via executive order, bypassing the Republican-controlled Senate.
Many of the people interviewed for this article said Romney is unlikely to repeal exchanges if he is elected, even if he gets rid of other parts of the health law, since the system would be too complicated to dismantle, or he may not have enough votes in Congress.
"Even if Romney is elected, there's no guarantee that the Affordable Care Act will be repealed," said Jameson Taylor, vice president for policy at the Mississippi Center for Public Policy, the conservative think-tank that hosted Cannon.
Romney suggested as much during a recent interview with NBC's "Meet the Press," saying he would keep some parts of Obamacare if he becomes president - though he did not mention exchanges specifically.
So far, only Colorado -- which has a Democratic governor and state senate and a Republican-led house of representatives -- has managed to pass exchange legislation last year, by a slim margin. State officials credited that to a move five years earlier, when Republican Governor Bill Owens created a bipartisan commission on health reform.
It also helped that the state's five major business groups backed the legislation, including the local branch of the National Federation of Independent Business (NFIB), which was simultaneously opposing the ACA in court.
Tony Gagliardi, the head of the local branch, said small businesses preferred to have state control over exchanges.
"We had to do something," he said. "The other argument was just refuse to do anything. We thought it was too risky."