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Ill. insurance regulators seek compromise over Land of Lincoln's risk adjustment payment

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Ill. insurance regulators seek compromise over Land of Lincoln's risk adjustment payment

Illinoisinsurance regulators are working on a deal that would allow to make its risk adjustment payment without immediatelycollapsing, sources familiar with the discussions said.

Thetentative proposal would offset the consumer operated and oriented plan's $31.8million risk adjustment chargeagainst future subsidies that it is scheduled to receive from the federalgovernment, reducing the amount that Land of Lincoln must pay up front. Thatwould ease the insurer's financial burden and potentially leave it with enoughcapital to avoid an immediate shutdown.

Thenegotiations between Illinois' insurance department and federal healthofficials are ongoing, and the Centers for Medicare and Medicaid Services couldstill reject the deal or change its terms, said one source familiar with thediscussions, who requested anonymity because the talks are private.

Evenif finalized, the plan might still not be enough to save Land of Lincoln; itcould be ordered to halt sales and wind down its operations if state andfederal regulators decide the subsidies would not offset enough of thecompany's risk adjustment obligation.

TheIllinois Insurance Department is set to meet with Land of Lincoln officials onJuly 11 to discuss the co-op's fate, a source familiar with the agenda said,and the state agency has indicated only that it is cautiously confident thatCMS will agree to its proposal.

TheIllinois Insurance Department did not respond to specific questions for thisarticle. In a statement, Public Information Officer Michael Batkins said thedepartment is using all available regulatory tools to protect Land of Lincoln'spolicyholders "but also recognizes that certain aspects of [Land ofLincoln]'s situation are out of the DOI's control. This includes whetheranticipated payments from Federal CMS to [Land of Lincoln] under the AffordableCare Act will be made in 2016 and further deterioration in [Land of Lincoln]'sfinancial results."

Batkinsadded that the department has remained in contact with CMS, but is not aware ofany final decisions regarding scheduled federal payments to Land of Lincoln.

CMSspokesman Aaron Albright said in an email that he did not have any informationon the agency's discussions with state regulators.

Landof Lincoln spokesman Dennis O'Sullivan said the co-op is working with its stateregulator and CMS to "ensure its continued viability," but that itsday-to-day operations are otherwise unchanged.

Stateand federal agencies have been engaged in a standoff over the risk adjustmentpayment. Illinois Acting Insurance Director Anne Melissa Dowling on June 30ordered the co-op notto pay its risk adjustment obligation, warning in a to CMS that making the paymentwould force an immediate liquidation of the insurer. At the time, she said Landof Lincoln would not pay its risk adjustment charge until it either fulfilledall of its policyholder claims or received the full amount it is owed from thefederal government through a separate Affordable Care Act program called riskcorridors.

Landof Lincoln is suingthe U.S. over the risk corridors, claiming that it is owed $72.9 million thatCMS will not pay due to a budget-neutral provision preventing it fromdistributing more money through the risk corridors than it takes in.

Butthe Illinois insurance department's plan represents a quicker compromise builton adjusting how regulators account for Land of Lincoln's various obligationsand subsidies.

Normally,Land of Lincoln's payment of its risk adjustment charge would take placeseparately from its receipt of federal money through various programs. Thecompany is owed $18.1 million from the ACA's reinsurance program, and alsoreceives money periodically to fund subsidies that it grants to low-incomeinsurance buyers.

Theproposed deal would instead consider those payments and obligations as if theywere all being made simultaneously, according to sources briefed on the plan'stentative mechanics. The net amount is what Land of Lincoln would then pay asits risk adjustment charge. Basically, rather than receiving Land of Lincoln'sfull $31.8 million payment and then distributing some of that back to thecompany later in the form of subsidies, CMS would repurpose the subsidy fundsby holding on to them and considering them part of Land of Lincoln's riskadjustment payment.

Landof Lincoln would benefit from that change because it reduces the amount of itsone-time payment, and therefore some of the damage to its capital cushion. CMSwould still technically receive the co-op's full risk adjustment payment,allowing it to redistribute the funds to other insurers in the state that areowed money through the risk adjustment program.

Landof Lincoln has about 49,000 policyholders across its individual and grouphealth plans, Dowling said in her letter to CMS. The company lost $90.8 millionin 2015 and another $17 million through May 31, and has already announced plansto halt sales of its group plans.

Theco-op did file to sell individual policies during the next open enrollmentperiod, but the Illinois Insurance Department has yet to sign off thatsubmission.