Assurant Health will shut down its financially troubled individual insurance business by the end of 2016 after it was unable to find a willing buyer, its parent company said Wednesday. The move could cost Assurant up to $250 million.
The fact that no company stepped up to acquire Assurant Health indicates many health insurers believed it was not worth the risk, said Stuart Gunn, a healthcare managing director at investment bank Houlihan Lokey. Consumers with exchange plans have the option of going with a new insurer every year during open enrollment. Blue Cross and Blue Shield plans and other large commercial carriers with sizable exchange presences might have figured, “We can just pick up most of those members on our own,” Gunn said.
Assurant Health will sell its self-funded small-group business and supplemental health plans to National General Holdings Corp., a publicly traded insurance company based in New York City, for an undisclosed sum. However, the individual market represented a vast majority of the insurer's revenue.
The decision to shutter operations means Assurant Health will not sell plans during the Affordable Care Act's next open-enrollment period, which begins Nov. 1 and ends Jan. 31, 2016. Federal law requires health insurers to give at least 180 days notice if they want to stop selling individual plans. Assurant Health's 1 million policyholders will be notified of the situation by letter next week.
Assurant Health offered health plans on 16 exchanges this year, the first and only ACA enrollment for the insurer. Similar to other insurers, Assurant Health looked to capitalize on the new, evolving individual marketplaces in which consumers are encouraged to shop for health plans as they would for other commodities.
But in the past 15 months, Assurant Health lost $148 million on the individual policies, which executives said was “significantly worse than we anticipated.” Underpriced premiums and higher-than-expected medical claims from its sick membership drove the losses and forced Assurant—better known for its home and life policies—to consider selling the health insurance operations in April.
Assurant Health's reputation going into the exchanges also needed a heavy lift. Several state insurance departments, including Connecticut and Missouri, fined the company millions of dollars during the past several years. Regulators routinely found that Assurant Health failed to pay or unreasonably denied medical claims.
To counter the large deficit, Assurant Health pitched lofty premium rate hikes to the federal government for 2016 plans, some higher than 70%. That may prompt members to jump to other plans in the fall.
The demise of Assurant Health signals hurdles for new entrants in the individual market, particularly when an insurer doesn't have the same size or provider negotiation leverage as a larger carrier. “This is becoming more and more of a scale game,” Gunn said. “If you're an undersized player like an Assurant, it's going to be very difficult to make the math work.”
Exiting the market will cost Assurant anywhere from $175 million to $250 million, the company said. Up to $110 million of that total comes from the expectation that premiums will not cover future medical claims and other expenses. That estimated reserve loss already includes the hundreds of millions of dollars Assurant Health expects to receive from the ACA's risk-mitigation programs, known as the 3 Rs. The ACA created the risk programs to offset large losses and prevent adverse risk selection as insurers took on a sicker and more costly patient base.
Severance-related costs will total up to $95 million, Assurant predicted. About 1,700 Assurant Health jobs will be cut, and a first phase will come this summer with 300 job reductions. Assurant said employees will have a chance to apply for other open positions within the company.