It’s hard to tell exactly what this means yet, but it’s a flashpoint to watch as the federal government works to create health care exchanges in more than half of the states— a task it foolishly didn’t think it would have to do and is now worried it can’t finish by the scheduled opening of exchanges in October.

Utah has been operating an exchange for three years for small businesses, but that marketplace allows for plans with minimal coverage and catastrophic options, and generally defies all the heavy-handed regulations Obamacare enacted. Because it existed before Obamacare, it doesn’t abide by a long-awaited rule that explains exactly what “Essential Health Benefits” exchange-worthy plans will have to cover under the federal guidelines. Those rules were released in November, more than two years after the bill passed, because it would have been politically unpopular to tell everyone their newly cumbersome health plans were going to cost a bunch more under the Affordable Care Act.

But now that the federal government is in a bit of a pickle, Utah figures it can maybe get its existing health exchange to count in the new system. After all, the feds don’t want to add another state to their build list. Today, the federal government conditionally approved Utah’s exchange, but with stipulations that it must “improve” it.

Utah is among the first Republican-led states to win conditional approval to run their own health exchanges.

But federal officials made clear the Beehive State’s existing insurance marketplace, Avenue H, still needs upgrading to become fully compliant with the Affordable Care Act — dashing Gov. Gary Herbert’s hopes that it might serve as a “bare minimum” standard for other states to follow…

“In all these states there’s more work to be done. But we believe they’ve made significant progress,” said Gary Cohen, deputy administrator of the department’s Center for Consumer Information and Insurance Oversight. “What we’ve said is, in order to be certified, [Utah’s exchange] needs to comply with our statute and regulations.”

Utah must submit by Feb. 1 a timeline for upgrading its 3-year-old insurance portal. The state must also show that it can fund it and that it has legal authority to set up a consumer-outreach program to help shoppers navigate their insurance options.

“We recognize that Utah is working under intense timelines and will work with you to establish benchmark dates that are appropriate and will allow us to jointly monitor Utah’s progress,” wrote HHS Secretary Kathleen Sebelius in a Thursday letter to Herbert.

It’s an open and interesting question what the legal status of the Utah exchange would be if it was not deemed in compliance. Because many of the rules for the health care law are still being written, the idea of in compliance may be subject to change. I wonder if it’d get more flexible as the federal government nears its deadlines, grappling with more than 20 state exchanges, and okaying an up-and-running exchange in Utah starts to look more attractive than building one for the state. Herbert will no doubt stay engaged in the process and angle to get as much flexibility as possible.

Other states got conditional approval today, too, including three others with Republican governors, which just means that those states kinda-sorta have a plan to create an exchange, which will theoretically plug into a federal data hub that doesn’t yet exist by October.