Land of Lincoln's exit from Obamacare market mirrors a shift away from PPOs

Land of Lincoln Health's looming exit from the Obamacare exchange, announced July 12, takes Illinois a step closer to a PPO-free world. The Chicago not-for-profit offered one of the broadest so-called PPO plans on the market—part of its appeal and, potentially, a factor in its demise.

The Obamacare plans that remain will likely include fewer doctors, fewer prominent academic medical centers and fewer plans that offer the flexibility PPO users have come to expect.

The shrinkage mirrors a national trend: As insurers aim to control costs and squeeze profits out of the sicker-than-expected consumers flooding the federal marketplace, narrow HMO-style plans are outnumbering PPOs, or preferred-provider organizations, which give subscribers access to a broader array of doctors and hospitals and thus can be more expensive to operate than their more strict HMO rivals.

In Illinois, the amount of HMO plans offered since the exchange launched three years ago has increased nearly fourfold, while there are nearly a third fewer PPO plans available, according to data from HealthCare.gov and Avalere Health, a health care consultancy based in Washington, D.C.

“Health plans are trying anything they can to better manage this population,” says Avalere senior manager Chris Sloan.

Don't expect 2017 to be different, especially as national insurers that sell plans to Illinois consumers look to consolidate.

Backed by $160 million in federal loans, Land of Lincoln was one of nearly two dozen health insurance co-ops born out of the Affordable Care Act. They were created to give consumers and small businesses an alternative to insurance industry giants and to ultimately make health insurance cheaper by competing for customers.

Land of Lincoln's rivals included national players Aetna, UnitedHealthcare, and Blue Cross & Blue Shield of Illinois, which dominates the market on and off the exchange.

But co-ops nationwide quickly got into financial trouble. They couldn't use their startup loans to market their new products against well-known brands or, until recently, court private investors. Then they ended up getting far less federal money than expected for participating in the risky Obamacare experiment, not knowing how healthy or sick policyholders would be.

Land of Lincoln recently sued the federal government for about $73 million that the co-op claims it's owed from an Obamacare program, while also facing a nearly $32 million federal bill that it can't afford. The startup, which lost $90.8 million in 2015, is in the process of liquidating after three years in business. It joins more than half of the co-ops.

“We hate that the co-ops might end up being a cautionary tale,” says Jason Montrie, Land of Lincoln president and interim CEO.

The insurer's nearly 50,000 customers can choose a new plan from the exchange until enrollment begins again Nov. 1. While those customers might have racked up bills with Land of Lincoln, other insurers could actually carve out a profit on them by controlling access and cost, says Steve Riedl, Chicago-based senior consulting actuary at Willis Towers Watson. Most of these insurers' networks are smaller, with cheaper hospitals and doctors.

With its cachet and vast footprint (about 80 percent of the 2014 statewide individual market), Chicago-based Blue Cross likely will pick up a good chunk of Land of Lincoln's enrollees despite causing an uproar last fall when it ditched its broad PPO plan for one that left out many local academic hospitals.

But here's Riedl's fear: As exchange plans get more expensive and less appealing, some people just might forgo insurance altogether and pay the federal fine instead. For 2016, that's at least $695.

"Land of Lincoln's exit from Obamacare market mirrors a shift away from PPOs" originally appeared in Crain's Chicago Business.