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In this photo taken April 4, 2017, the Supreme Court Building is seen in Washington.
J. Scott Applewhite / AP
In this photo taken April 4, 2017, the Supreme Court Building is seen in Washington.
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The U.S. Supreme Court has agreed to weigh in on whether the federal government was wrong not to make certain payments to Land of Lincoln health insurance, which collapsed in 2016, leaving nearly 50,000 Illinois residents scrambling for coverage.

The insurer blamed its midyear downfall partly on the federal government, saying it was owed risk corridor payments under the Affordable Care Act, also known as Obamacare. Risk corridor payments were meant to help offset insurers’ financial losses in the early, uncertain years of Obamacare, so they would be able to keep their rates stable. But Congress passed spending bills that limited the amount of those payments.

Land of Lincoln sued the federal government in 2016 for more than $70 million of that money, saying it had relied on receiving its full share of risk corridor dollars when it opened. Land of Lincoln said it set its prices lower than it otherwise would have in anticipation of getting that money.

Two lower courts have ruled in the federal government’s favor.

The U.S. Supreme Court, however, decided Monday that it will hear the case, consolidated with two others involving similar issues related to health care plans in Maine, North Carolina and Oregon.

“As a result of the Government’s breach of its obligations, Land of Lincoln was ultimately driven into liquidation in 2016,” lawyers for Land of Lincoln wrote in the petition for its case to be heard by the Supreme Court. “More than 50,000 policyholders were left without health insurance in October of the coverage year, and many forced to endure additional healthcare expenses.”

In addition to having to find new health insurance midyear, a number of Land of Lincoln customers also had to start paying toward new deductibles. They didn’t get credit, from their new insurers for money they had already paid toward their deductibles for most of 2016 under Land of Lincoln.

Land of Lincoln’s demise, due to the government’s failure to make the full payments, also forced the Illinois Life and Health Insurance Guaranty Association, health care providers and other Illinois insurers to absorb additional costs, according to the petition. The guaranty association, funded by insurers across the state, had to pay remaining provider and other claims after Land of Lincoln went under.

The federal government, however, argued in a brief that Congress intentionally, and legally, limited risk corridor payments. The government argued that the Affordable Care Act did not appropriate funds for risk corridor payments, leaving the ultimate decision up to Congress.

Given that, health insurers should not have decided to sell insurance on the Obamacare exchange based on an expectation that they would receive the payments, the federal government alleges.

“It is more probable that insurers like petitioners elected to sell plans on the Exchanges as a result of the powerful business incentives they had to do so,” the government said in its brief. “Neither Congress nor (the U.S. Department of Health and Human Services) made any contractual commitment to make subsidy payments to petitioners in excess of funds Congress appropriated.”

U.S. Sen. Marco Rubio, R-Fla., famously derided the risk corridor payments as Obamacare “bailouts” for insurance companies and worked to limit them.

Illinois Department of Insurance Director Robert Muriel cheered the Supreme Court’s decision to take up the case. Any money recovered through the case would be used to reimburse the state guaranty association as as well as pay any consumer claims that may have exceeded the association’s coverage limits, the department said.

Land of Lincoln was one of a couple of dozen co-ops — nonprofit insurers created under the Affordable Care Act to increase competition on the individual insurance exchange. Co-ops across the country, however, shuttered under financial strain that some say was caused by the lack of full risk corridor payments.

The consolidated cases have broad implications for health insurers across the country who say, they too, were shorted money. The Blue Cross Blue Shield Association also urged the Supreme Court to take up the cases, saying Blue Cross plans across the country are owed nearly $5 billion in risk corridor payments.

In its petition, the association says that had insurers known they wouldn’t get full risk corridor payments, they might have charged consumers more money or not offered plans on the Obamacare exchanges at all.

Tim Jost, a professor emeritus at Washington and Lee University law school and an expert on the Affordable Care Act, called the limiting of the risk corridor payments one of the first major acts to undermine the health care law.

Since those payments were limited several years ago, the Trump administration has taken other steps it says are meant to promote choice and affordability, but that others say weaken the law, such as no longer penalizing people who don’t buy health insurance and allowing people to buy short-term health insurance plans.

lschencker@chicagotribune.com