Illinois’ late payments to medical providers mean profits for financial firms
Illinois’ financial problems are so big that they’ve created an entirely new financial market — and tens of millions of dollars that were meant to go to medical providers have instead become profit for financial services firms.
The problem has to do with a health insurance program for state employees, called the State Employee Group Insurance Program (SEGIP). As part of the state’s failure to pass a full budget, it has delayed paying medical providers who are supposed to be reimbursed for care. How big is the backlog? As of the end of August, about $3.53 billion, according to the Commission on Government Forecasting and Accountability, or COGFA.
This is where financial services firms come in. Recognizing that many of the organizations holding Illinois IOUs need cash to cover expenses they’ve already incurred, several firms have stepped into what’s called the “Vendor Support Initiative” (VSI) program. In the VSI program, private companies with names like “Vendor Capital Finance LLC” or “Illinois Financing Partners LLC” buy Illinois IOUs from medical providers — 90 percent of the cash up front, with the last 10 percent when the state finally makes its payment.
What’s in it for the financial services firms? By law, when the state makes a late payment, it must pay a late fee as well. Those fees add up: about $244 million in total on the $3.53 billion in SEGIP debt. And that makes sense, since significantly late payments can create hardship for medical providers that have to pay their own bills.
But when those providers sell their IOUs to financial services firms, they agree that those firms will get to keep all of the late fees — even though they’re only giving the providers 90 percent of what they’re owed initially.
How much money have these private financial firms made off of this program? According to COGFA, firms have bought $970 million in SEGIP debt. If we assume the same ratio of late fees to total debt in the VSI program as in SEGIP overall, that means that financial services firms stand to make almost $67 million dollars — so far.
The lesson? As anyone who’s put off paying credit card debt knows, not paying your bills is expensive. And while the failure by Governor Bruce Rauner and the General Assembly to pass a real budget has been devastating for human service providers, state university students and employees, and others, but it’s become a multi-million-dollar boon for these private financial firms.