— Steve Sisko (@ShimCode) August 20, 2016
Going to be a mass adverse selection event for anyone that offers OOP credits https://t.co/iLmtt9dufm
— Richard Mayhew (@bjdickmayhew) August 20, 2016
What is the situation and why am I thinking it is an adverse selection event if anyone offers to write credits for the Land of Lincoln members.
Land of Lincoln was a Co-Op. It was placed under state oversight in July. It’s reserves had gotten too low due to a higher than expected risk adjustment bill and no compensating risk corridor asset. Coverage for people on the individual market will terminate on 9/30/16. That means people will be running without coverage from October 1 to December 31.
New York had a similar experience in 2015 when Health Republic was liquidated in the fall of 2015.
Normally regulators would prefer to allow an insurer under oversight to run until the next open enrollment period. That would allow their members to have continuous coverage with the least amount of disruption and added stress. However Land of Lincoln and Health Republic could not make it to the end of the current policy year. Instead, they ended mid-contract. This triggers a Special Enrollment Period as the members lost coverage due to no fault of their own.
In New York, there was an arrangement that people who were on Health Republic who signed up for a month of coverage would have their deductibles and out of pocket expenses credited to their new policies.
That is now not the case in Illinois. Blue Cross and Blue Shield is refusing to enter into a voluntary arrangement to credit deductible and out of pocket spending for any new policies it rights for any qualifying event. That is their right to do so. However, their refusal to do so pretty much forces every other Illinois insurer to also refuse to extend deductible credits.
Adverse selection is the cause of this race to mutually assured ugliness.