Ken Sullivan bought health insurance for his family this year from Land of Lincoln Health, a small, nonprofit company in Chicago.
The 52-year-old Chicagoan knew the purchase was a risk because the three-year-old insurer was struggling financially. But he said he didn’t have much choice after Blue Cross and Blue Shield of Illinois eliminated his plan last year and its alternative didn’t include any of his family’s doctors and hospitals.
Now his worst fears have come true.
The Illinois Insurance Department moved Tuesday to shut down Land of Lincoln because of its unstable financial health, leaving about 49,000 policyholders in a lurch. They will lose coverage in the coming months, but neither regulators nor the company have said exactly when.
Policyholders will be able to buy insurance from a different carrier to cover them for the rest of 2016, according to the state Insurance Department. But switching plans is going to cost them.
The co-pays and deductibles enrollees have been paying since January will not transfer to new plans. A new plan will reset deductibles and out-of-pocket maximums paid by consumers.
“This could be very disruptive for people who either liked Land of Lincoln’s provider network or had met their deductible and other out-of-pocket limits,” said Stephani Becker, a health-care policy analyst at the Chicago-based Sargent Shriver National Center on Poverty Law.
Beyond the impact on consumers, the demise of Land of Lincoln is a significant setback for the Affordable Care Act in Illinois. The insurer was one of 23 nonprofit cooperatives nationwide created under the federal health law to provide cost-effective coverage and competition in state insurance markets. With Land of Lincoln’s failure, the list of co-ops has shrunk to seven.
Just last week, Connecticut took control of its health insurance co-op, but policyholders will have coverage until the end of the year, avoiding the disruption that is coming to Illinois, disruption that Illinois’ top insurance regulator warned the federal government about two weeks ago.
After a slow start in 2014, Land of Lincoln grew rapidly last year, finishing 2015 with more than 35,000 individual policyholders and about 15,000 members in small and large employer plans. The co-op captured about 6 percent of the individual market in Illinois, which was good for second place but well behind Blue Cross’ 83 percent market share.
But Land of Lincoln lost more than $90 million in 2015, as the premiums it collected fell well short of the health-care costs of its enrollees. The shortfall in premium revenue was a problem also experienced by large, established insurers like Blue Cross that also participated in the restructured individual markets.
One of the aims of the health-care law was to provide coverage to people who couldn’t afford it or were denied insurance because of pre-existing medical conditions. The newly insured were sicker than carriers had expected.
Shortfalls in anticipated levels of federal funding also put Land of Lincoln in a bind. While big insurers have the financial reserves to cushion against losses, Land of Lincoln was in a precarious condition at the end of last year. Still, Illinois insurance regulators allowed the company to sell plans for 2016 to consumers.
The company has continued to lose money this year, even after increasing rates by an average of 29.7 percent. Through May, the co-op lost more than $17 million, according to the state Insurance Department.
The final blow came a few weeks ago when the co-op received a $31.8 million bill from the federal government. The company owed that amount to other insurers under a complex formula in the Affordable Care Act, which aims to keep premiums stable by balancing risks among insurers. The company couldn’t afford to pay the bill.
Acting Insurance Director Anne Melissa Dowling tried to intercede on the company’s behalf by suspending the payment until the co-op received more than $70 million in promised federal assistance.
Dowling, in a June 30 letter to federal regulators, said the payment suspension was necessary, otherwise she would have to liquidate the company mid-year, a process that would “trigger marketplace disruption and extreme financial harm” to policyholders.
But federal regulators didn’t go along with the last-ditch effort and Dowling began an orderly wind down of company operations to protect remaining assets for policyholders and providers.
Land of Lincoln is the latest casualty in the health-care law co-op program. According to Americans for Tax Reform, the company is the 16th co-op to fail. The federal government financed co-ops with low-interest loans totaling $2.4 billion. In Illinois, the Metropolitan Chicago Healthcare Council, a hospital trade association, received $160 million in funding to start Land of Lincoln.
The company’s collapse will hit hospitals and physicians throughout Illinois. The company had nearly $49 million in unpaid claims at the end of the first quarter.
Policyholder Cheryl Mostowski said the demise of Land of Lincoln has left her feeling discouraged and frustrated. She sees specialists at the University of Chicago to treat her autoimmune disease. She has already met the $1,350 deductible on her 2016 plan and nearly reached her $3,200 out-of-pocket maximum.
“The fact that I now have to pay all deductibles and out-of-pocket costs again is truly unaffordable and unfair,” said Mostowski, who lives in Algonquin.
Becker said she and other consumer advocates in the state have reached out to the Department of Insurance to see if regulators would consider allowing policyholders to transition to new plans without resetting their deductibles and other out-of-pocket payments.
In the meantime, Becker advised policyholders to keep paying their premiums to maintain their coverage.
Michael Batkins, a department spokesman, said Dowling was unavailable for comment Wednesday. Land of Lincoln spokesman Dennis O’Sullivan referred all policyholder-related questions to the state Insurance Department.
Sullivan is waiting to hear what next steps he should take. The self-employed bond trader is worried that there will be gaps in the continuity of care when he switches to a new insurer. He’s also concerned his family’s doctors won’t be in-network with other plans.
“My family has decades-old relationships with physicians and specialists, which now may be severed,” Sullivan said. “I live about two blocks from Northwestern Memorial Hospital and it may be off limits in the near future.”
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