CHICAGO — The state of Illinois has tried an unusual maneuver to save a health insurer with 49,000 Illinois policyholders from possible financial failure by blocking it from paying a $31.8 million bill to the federal government.
Illinois Department of Insurance Acting Director Anne Melissa Dowling wrote in a June 30 letter to the federal government that she has ordered Land of Lincoln Health not to pay until it gets what it's owed by the feds — nearly $73 million — under a separate provision of President Barack Obama's Affordable Care Act.
The order "is designed to prevent an immediate liquidation" of Land of Lincoln Health, Dowling wrote. Making the payment would trigger further state action, and could legally obligate regulators to put the company under state supervision.
"This tells me this company is in really precarious financial straits," said Robert Laszewski, a health care consultant and former insurance executive who reviewed the letter. "How many more weeks can Land of Lincoln stay in business? It's weeks, not years."
Laszewski said he doubts the action will work since federal law trumps state law.
Chicago-based Land of Lincoln's financial condition has deteriorated rapidly. The 3-year-old startup lost $90 million in 2015 and more than $17 million through May 31.
A safety net provides some protection for Illinois policyholders whose health insurance companies fail. Under the state's insurance code, the Life and Health Insurance Guaranty Association would provide coverage of up to $500,000 for basic hospital medical and surgical insurance or major medical insurance. The association is a private entity made up of state-licensed life and health insurers.
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Land of Lincoln owes money in a risk adjustment program under the health care law. The program was meant to balance out the risk if some health insurers' customers were sicker that other insurers' customers. Small insurers, like Land of Lincoln, have said the program is flawed and favors larger insurers with loyal, if sicker customers.
Land of Lincoln Health filed a lawsuit last month in the U.S. Court of Federal Claims in Washington, D.C., claiming the federal government had shortchanged it of risk corridor payments, a temporary provision of the health care law meant to help unprofitable insurers. At least four other insurers have filed similar claims.
Congress stopped the Obama administration from funding that program beyond what insurers paid into it, with Sen. Marco Rubio of Florida and other Republicans calling the payments "massive bailouts."
On Wednesday, Land of Lincoln President and interim CEO Jason Montrie characterized the company's financial problems as "a timing issue."
The state insurance regulator's "action is designed to protect the consumers of Land of Lincoln and the marketplace in general," Montrie said. "Land of Lincoln will commit to do everything in our power to protect consumers and the marketplace."
Land of Lincoln is one of the Affordable Care Act's surviving nonprofit insurance co-ops. The co-ops were funded by low-interest federal loans and established to increase competition. But many co-ops — including Land of Lincoln — have been faltering financially.
Nationwide, more than a dozen of the original 23 co-ops have closed. On Tuesday, Connecticut's insurance commissioner announced that nonprofit health insurer HealthyCT must be placed under state supervision to protect the company's 40,000 policyholders.