Assurant Inc. said Tuesday it will either sell or shut down its health insurance business by 2016, following projected 2015 first quarter losses for its health segment of between $80 million and $90 million.
Approximately half of that loss is attributable to a reduction in 2014 estimated recoveries from the Affordable Care Act risk mitigation programs, the company says. The remainder reflects elevated claims on 2015 ACA policies.
With a focus on individuals and small employers, Assurant Health was hit hard by changes made by the ACA, particularly the requirement carriers offer coverage regardless of pre-existing conditions and the requirements that health plans cover a package of essential benefits and spend at least 80% of every premium dollar on medical care or quality initiatives.
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In 2013 the business laid off more than 100 employees, a cut then-president and CEO Robert Pollock attributed directly to the elimination of underwriting for major medical policies effective in January 2014, as required under the Affordable Care Act.
Before that, in September of 2010, Assurant Health cut 130 jobs, or 6% of its workforce, a move Pollock also attributed to impending ACA requirements. A company filing with the Securities and Exchange Commission said the layoffs were part of "efforts to reduce operating costs and to streamline its organizational structure in order to prepare for significant changes in the post-reform health insurance marketplace."
Joel Rutledge, a benefits specialist at Allstate Insurance in Wichita, Kans., says Assurant Health's recent financial woes cannot be pinned to the ACA alone, however.
"The real problem is they haven't been competitively priced for several years. Their product is nichey, too narrow of a target client, and outside that narrow spread they aren't priced where they can compete," he says.
"And they refuse to change from their pre-ACA model where they only were competitive in high-deductible situations. I had hopes for their new self-funded plans, but their underwriting department killed any chances of them making gains there, either. Too conservative, and they choked," he says.
Commission cuts
Earlier this year the Milwaukee, Wis.-headquartered insurance carrier said it would no longer pay commissions on new business in certain markets of the United States, a move the carrier called a sales approach, but some benefit advisers felt was a slight.
The insurer cut commissions on new business in Florida, Nevada, Georgia, Indiana, Michigan, Pennsylvania and Texas. A spokesperson for the insurer said at the time that the changes would impact individual major medical products, but not the supplemental, short-term medical or small group products Assurant Health offers.
Assurant Health is making adjustments to our sales approach to manage our business appropriately, the spokesperson, Mary Hinderliter, vice president of communications, said.
But Ronnell Nolan, president and CEO of Health Agents for America, said at the time she questioned what sort of sales approach removes the sales team.
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The New York-based parent company said Tuesday it is now exploring the sale of its health insurance and employee benefits businesses and that with or without a sale, it will exit the health insurance market in 2016.
The health and employee benefits business segments possess differentiated capabilities in their respective markets, but we do not believe they can meet our return targets at the pace we require, says Assurant President and CEO Alan B. Colberg. While this is a difficult decision, we believe they would be strong assets for new owners that are focused more exclusively on health care and employee benefits.
Instead, Assurant Inc. will focus on selling coverage for housing and personal items, including offerings such as mobile and other extended service contracts, lender-placed insurance, multi-family housing, mortgage solutions, vehicle service contracts and pre-funded funeral plans.
We have established significant momentum in our specialty housing and lifestyle protection businesses where we have developed strong competitive positions in the U.S. and select international markets. Recognizing the wide array of additional growth opportunities in these areas, we will concentrate resources where we can generate sustainable specialty returns as we pursue our aspirations of outperformance, says Colberg.
Meanwhile, Anthem Inc., the second-biggest U.S. health insurer by market value, said today its earnings have topped estimates. Net income was $865 million, or $3.09 a share, up from $701 million, or $2.40 a share, a year earlier, the Indianapolis, Indiana-based company said Wednesday in a statement.
