Broker: Doomed business model, politics fueled Land of Lincoln failure
There is unquestionably a hefty amount of blame that should be laid on the role Illinois politicians played in the demise of Land of Lincoln Mutual Health Insurance Co., the Illinois Obamacare co-op that was in the Healthcare.gov marketplace, C. Steven Tucker, founder and principal broker at Health Insurance Mentors, said.
“The state has a tremendous responsibility,” Tucker said. "It’s not like they weren’t warned. It’s not like they didn’t know. A lot of this is ideological and political. People turned the other way because this was a co-op; and everybody wanted it to work because in their false ideas, they thought this was creating competition."
Land of Lincoln is a 3-year-old nonprofit cooperative created under the Patient Protection and Affordable Care Act (PPACA), known colloquially as Obamacare, during Democratic Gov. Pat Quinn's last term in office.
U.S. Rep. Randy Hultgren (R-IL) said the failure of Land of Lincoln and other co-ops like it, and Obamacare as a whole, has left health care consumers in worse shape than before the bill's passage.
“The end of Land of Lincoln means the end of affordable health coverage for tens of thousands of people in my home state," Hultgren said. "The ACA-mandated insurance exchange will now be left with even fewer, more expensive options as the law cripples under its own weight. States can't take this anymore."
The co-ops were created to spark competition in state insurance marketplaces. Land of Lincoln has some 10,000 policyholders who received coverage through their employers and roughly 39,000 enrollees who bought insurance on HealthCare.gov or through a broker, like Tucker.
The only nonprofit health insurer formed in Illinois under Obamacare went operational in 2013, after being passed by a Democrat-controlled General Assembly and signed into law by Quinn, with a $160 million loan from the U.S. government. Since then, financial issues had been strangling Land of Lincoln for months. The failed insurer had seen a loss of more than $90 million last year, and it owes $31.8 million to other insurers as part of the risk-balancing stipulations of the PPACA.
Prior to the Illinois Department of Insurance takeover on July 14, Land of Lincoln sued the federal government for an estimated $80 million the company said it is owed because the federal government allegedly violated federal law and cut funding for a federally authorized program.
Now the Illinois Department of Insurance has taken control of Land of Lincoln’s operations to ensure its claims are paid, debts are collected and assets are liquidated, and the department is working with the federal government to institute a “special enrollment” period in the marketplace.
This special enrollment period would give Land of Lincoln policyholders 60 days to obtain new coverage from another plan on the Illinois exchange.
So in the end, Tucker said, competition hasn’t been created.
“When you wipe out 17 health insurance companies since the passage of the PPACA, that’s where your competition went," Tucker said. "The creation of taxpayer-funded entities to create so-called competition is not creating competition, and the evidence of that is the death of 17 of the 23 co-ops thus far."
Furthermore, Tucker said, the remaining co-ops will go under by the end of the year because their formation has been based on a bad business model that has set them up for failure, i.e., extremely low-interest-rate loans from the federal government, governing boards and CEOs inexperienced in the health insurance industry and no reserves to pay claims.
“But the Illinois Department of Insurance looked the other way because it’s Obamacare; it’s the president’s signature law," Tucker said. "But when you look the other way, and you don’t do your job as a regulator, these are the consequences, and innocent people suffer."
In addition, four of the state’s major teaching hospitals - the University of Chicago Medical Center, Northwestern Memorial Hospital, the Ann and Robert H. Lurie Children’s Hospital and Rush University Medical Center, all in Chicago — should carry some of the burden, Tucker said.
“Most shamefully, besides the Department of Insurance not taking action when they should have, are these hospitals that promoted replacing Blue Cross Blue Shield of Illinois policies with Land of Lincoln health policies,” Tucker said.
Tucker said all four hospitals were recommending such policy replacements with Land of Lincoln health policies when the co-op was $90.8 million under water.
“So they recommended enrolling these people into a co-op that was already upside down," Tucker said. "That is just reprehensible, and that’s why thousands of these consumers are now in this situation."