* Bumpy launch could pose problems for Obama's legacy
* Challenges also face exchanges for businesses -GAO
* Republicans pounce; administration still confident
By David Morgan and Caroline Humer
June 19 (Reuters) - New health insurance exchanges being set up by the federal government in more than 30 states under President Barack Obama's 2010 healthcare overhaul could miss an Oct. 1 deadline for open enrollment, a government report said on Wednesday.
The launch of the exchanges, or marketplaces, which are expected to provide federally subsidized health coverage for 7 million people in 2014 and 22 million by 2016, could determine whether Obama's signature domestic policy achievement succeeds. The administration will operate exchanges in 34 states, while the remainder operate their own markets.
The report by the nonpartisan Government Accountability Office (GAO) said U.S. officials have missed deadlines and remain behind schedule on key parts including those that involve consumer eligibility for federal subsidies, the certification of health plans to be sold on the exchanges and the hiring and training of special "navigators" to guide people through the enrollment process.
GAO found that states have also failed to complete many of the tasks assigned for implementation and that the administration has conducted only initial testing of the computerized system that will link the exchanges with states and federal agencies including the Internal Revenue Service.
A separate GAO report found that the exchanges for small businesses that are also being created under the Patient Protection and Affordable Care Act are behind schedule, with about 44 percent of the key activities targeted for completion by March 31.
But in both cases, the government watchdog agency said much progress had been made in completing major tasks necessary for implementation, including establishing the regulatory framework for reform.
The Department of Health and Human Services (HHS) has also completed contingency plans and is prepared to carry out additional exchange functions that individual states may prove unable to assume, according to GAO.
"Whether these efforts will assure the timely and smooth implementation of the exchanges by October 2013 cannot yet be determined," the GAO report concluded.
While interim deadlines that have been missed up to now may not affect implementation, the agency added, "additional missed deadlines closer to the start of enrollment could do so."
'NOT READY FOR PRIME TIME'
Federal officials, led by U.S. Health and Human Services Secretary Kathleen Sebelius, have vowed repeatedly that the federal exchanges set up under the healthcare law, also known as "Obamacare," will be ready on time in states that have chosen not to implement their own marketplaces, often because of political opposition from Republican governors and legislators.
The administration reiterated that stance in response to the report, telling the GAO authors that "HHS is extremely confident that on Oct. 1 the (federal) marketplace will open on schedule and millions of Americans will have access to affordable quality health insurance."
Republicans, who want the law repealed and have blocked new federal funding for the implementation effort, said the GAO report confirmed a picture of an administration ill-prepared for implementation more than three years after Obama signed healthcare reform into law.
"This law isn't ready for prime time, and come October, millions of Americans and small businesses are going to be the ones suffering the consequences," said Senator Orrin Hatch, top Republican on the Senate Finance Committee.
The GAO report underscores the changing complexities that confront the federal government and individual states as the Patient Protection and Affordable Care Act edges toward full implementation on Jan. 1.
In addition to the federal exchanges addressed by GAO, several states that had planned to operate their own exchanges have turned to Washington for support in the past two months.
After HHS allowed states to split responsibility for the individual and small business exchanges, Utah decided that it would hand the individual exchange to the federal government. Idaho and New Mexico, whose efforts had been stalled until earlier this spring by their state legislatures, have also decided to use federal technology to get their exchanges going.