TOPEKA —If Kansas doesn't institute its own health insurance exchange, the federal government will install one that will take over major portions of the health insurance system in the state, an official said Tuesday.

"It takes huge control away from states," said Linda Sheppard, director of the health and accident division of the Kansas Department of Insurance.

Gov. Sam Brownback rejected a $31.5 million federal grant to help set up a health insurance exchange. He said there were too many strings attached to the grant, although he had earlier supported it, and some of the contentions by the Brownback administration about the exchange have been refuted.

The health insurance exchanges are required under the federal Affordable Care Act. The exchanges are to be in place by 2014 and they will provide a one-stop marketplace for hundreds of thousands of Kansans to purchase health insurance. The exchange will also determine eligibility for subsidies to buy coverage.

If a state doesn't design its own exchange, the federal government will step in and do it.

Sheppard recently attended meetings in Washington D.C. with officials from the Department of Health and Human Services to discuss what an exchange would be like if the federal government implemented it in Kansas.

On Monday, she reported on those discussions to a Kansas committee working on health insurance reform issues.

Sheppard said she was told a federally implemented exchange would determine eligibility for Medicaid, enrollment of consumers in qualified health plans, and what insurance plans would have.

"They (the federal government) would be taking over eligibility and enrollment," Sheppard said. "They would be determining who was eligible and tell states who you need to cover. It would take eligibility control over the states," she said.

Sheppard added, "We communicated with them we didn't like that." She said that the federal officials said they were open to ideas and recommendations from the states. "There was some sense they were open to talking to us," she said.