Thursday, June 30, 2016

Land o'Lincoln Lawsuit

InHealth may be the most recent Co-Op casualty, but it's not the one most recently in the news:

"A struggling Illinois health insurance co-op is suing the federal government, claiming it is being shortchanged $72.8 million in promised payments under the Affordable Care Act."

Land of Lincoln Health, headquartered out of The Windy City, is hoping to get the Feds to part with the cash in order to avoid InHealth's fate. My initial thought was "rotsa ruck with that," but it turns out that they may actually prevail.

Richard Mayhew works for an insurance carrier himself, and told me that "it [should] be a fairly easy win by spring 2018 as there is a permanent judgment fund appropriation to pay out fed court losses." As this was news to me, I reached out to him for some background and predictions, and he pointed me to a post he wrote at the end of last year:

"If I am understanding the argument correctly, PPACA tells HHS to pay, money is not appropriated, but the money is still owed, so the full faith and credit of the United States government comes into question if the government does not pay. Therefore, once insurers start suing when it is obvious that they will not be made whole for 2014 risk corridor payments, they’ll win easily in court and the government will pay."

Based on the history of this train-wreck, it's hard to disagree with this assessment, and I suspect that this will indeed come to pass. And he further notes that, while this is likely good news for large insurers, it's not necessarily so for smaller ones:

"Well capitalized insurers can wait years to get $100 million dollar payments while using other cash reserves to cover the degradation of the risk corridor account receivable on the balance sheet. However, waiting several years and using other reserves is not feasible for co-ops and other smaller start-ups and new entries to the insurance market."

There are at least 15 newer small/regional carriers that are primarily focused on the individual or small group health insurance market. They'll probably be fine in the short run, because 2014 was a surprise, but now there's a track record. So they've survived the initial shock, and are likely positioned to hang on for at least a few more years.

He also agrees with me that there'll likely be more co-ops down the tubes in the near future, with perhaps a handful or so left standing a year from now.

So, Thank You to Richard, and we'll leave you with a line from his December post that I believe is the best precis of the ObamaTax yet:

"In the long run, the insurers will be made whole, or at least the creditors of the insurers that folded will be made whole."

Think about that.
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