The Affordable Care Act euthanized old school underwriting and introduced subsidies and risk sharing, too much and not enough for an insurer that succeeded in the old market.
New York-based insurer Assurant is leaving the health insurance market to double down on the profitable property and speciality protection businesses. While a buyer has emerged for Assurant's supplemental and self-funded group business, more than half-a-million individual and small business customers will have to find new health plans and more than 1,500 employees will have to find new jobs.
"Our decision to exit the health insurance market enables us to sharpen our focus on the housing and lifestyle markets, where we see the greatest opportunity for profitable growth," said Assurant President and CEO Alan Colberg. "After a thorough review of alternatives for our health business, we believe the actions announced today allow us to uphold our commitments to policyholders while freeing up resources in 2016 to support our capital management strategy. We remain strongly committed to ensuring a smooth and orderly transition for our customers, agents and employees."
The 113-year-old for-profit insurer lost at least $80 million in the first quarter of this year on its health unit, which has comprised about 20 percent of total revenue. Assurant's health business, based in Milwaukee, was never as big as other publicly-traded insurers. But it was often profitable in the pre-ACA small and individual health plan markets thanks to "world-class risk management around underwriting," as then-CEO Robert Pollack said in 2010.
The troubles with the transition--adapting to guaranteed issue, essential benefits and spending mandates--started not long after the ACA became law. In 2011, Assurant Health's net income declined almost 25 percent to $40.9 million, as the company set aside $41 million to rebate back to 700,000 consumers under the ACA's 80 percent minimum medical benefit ratio. In 2013 Assurant Health paid out $30.8 million in MBR rebates nationwide, more than any other insurer.
The company wanted to compete in the new market. It leased Aetna's national provider network and sold exchange plans in 16 states (including Pennsylvania, Florida and Texas) along with non-exchange plans in 41 states. Assurant CFO Chris Pagano said earlier this year that the company expected its health plan population to gradually include more healthy consumers. They did not expect to have a MBR last year of 104 percent for the 967,000 individual and small-group members in exchange and non-exchange plans.
Assurant hasn't released its second quarter 2015 results yet, but expects that half of its losses this year will be from the declining funding in the ACA risk mitigation trifecta and high claims. The exit from the health insurance market will cost between $175 million to $250 million over the next 18 months.
National General Holdings Corporation, a specialty personal lines insurance company, will acquire Assurant Health's supplemental and small group self-funded product lines and "certain other assets including a proprietary small group sales channel," for an undisclosed price. But it seems no buyer has emerged for the individual and fully-insured small group plans.
Assurant is going to cease sales on those major medical policies as of June 15, while still covering and paying claims through the remainder of the plan year and starting the exit process in accordance with state laws. A first phase of job reductions with take place this summer for an estimated 300 positions among 1,700 employees in Milwaukee and elsewhere. Affected employees will be considered for other open positions, the company said.