The Illinois Department of Insurance is binding the hands of Land of Lincoln Health in an effort to prevent the struggling Obamacare startup from folding.
The department has ordered the Chicago-based nonprofit to stop renewing policies for small and large businesses, stop selling all new plans without permission and not to pay $31.8 million it owes as part of a federal program called risk adjustment. In that program, the federal government takes money from insurers whose enrollees on the public health exchange are considered low risk and ideally don't cost much, and gives it to insurers with higher risk enrollees.
Making the payment could force Land of Lincoln to close.
“ … A mid-year liquidation would trigger marketplace disruption and extreme financial harm” to Land of Lincoln's 49,000 enrollees if their policies were canceled mid-term and before open enrollment for 2017 begins in the fall, Anne Melissa Dowling, acting director of the Illinois Department of Insurance, wrote in a June 30 letter to Kevin Counihan. He oversees the Obamacare exchange for the federal Centers for Medicare & Medicaid Services.
Jason Montrie, president and interim CEO of Land of Lincoln, said he views the state's decision as a way to protect consumers.
“We feel good about the steps the department is taking,” Montrie said.
He added that he's “absolutely concerned” about the impact certain Obamacare programs meant to stabilize the industry are having on insurers.
A spokeswoman for the Illinois insurance department did not immediately return a message to comment.
Risk adjustment is one of three programs, known as the Three R's (risk corridor, risk adjustment and reinsurance) that intended to level the playing field among carriers that took on the risk of selling health plans on the Obamacare exchange.
Just last month, Land of Lincoln, one of nearly two dozen federally-funded co-ops born out of the Affordable Care Act, sued the federal government for nearly $73 million. That's how much the carrier claims it's owed as part of the risk corridor program.
At the time, Montrie also disclosed that Land of Lincoln would likely stop selling plans to businesses and instead focus on individual consumers.
The co-op has financially struggled to compete with national insurers on the Illinois Obamacare exchange since it launched in 2013. The bigger rivals have deeper pockets and more name recognition and branding power than start up Land of Lincoln.
According to a June 27 order signed by Dowling and Montrie, if Land of Lincoln's financial condition continued, it would be “hazardous” to the public and to its policyholders. The insurer's net income is “inadequate” to meet its existing or projected obligations.
Land of Lincoln lost $90.8 million in 2015, and reported another more than $17 million in losses through May 31.
To prevent the insurer from shuttering, Dowling mandated that Land of Lincoln not make its risk adjustment payment until the federal government pays the carrier the nearly $73 million it's owed from the risk corridor program.
Montrie called the risk adjustment program the “single biggest threat” to the exchange. The amount Land of Lincoln owes to that program is more than 20 percent of premiums the insurer generated in 2015. He disputed that the carrier's enrollees were healthier than the market average and said certain factors, such as how many medications people take, aren't part of the formula used to determine how much insurers owe or receive from the program.
A spokesman for the CMS declined to comment.
"Illinois insurance regulators try to save Obamacare co-op" originally appeared in Crain's Chicago Business.