Universal American Corp., a publicly traded health insurance company, has agreed to sell its underperforming traditional insurance businesses at a steep loss, and will invest more in its core Medicare plans.
Universal American is selling its Medicare supplemental insurance plans, also known as Medigap plans, as well as its long-term-care insurance, life insurance and other “ancillary” products to Nassau Reinsurance Group for $43 million, the company said late Thursday. Although the company could tack on an additional $37 million in “earn-out payments” by 2018, the deal is still expected to leave Universal American with a $150 million loss.
Most of insurer's business comes from Medicare Advantage, the private-sector, managed-care alternative to the federal government's traditional fee-for-service Medicare program. Universal American has also invested heavily in Medicare accountable care organizations—groups of doctors and hospitals that are paid based on quality metrics rather than volume. The company remains committed to that model, even though its Medicare ACOs so far have seen varying levels of profits and losses.
“Our core strength is our proven ability to partner with providers, especially primary care physicians, to improve health outcomes while reducing cost in the Medicare population,” Universal American CEO Richard Barasch said in a news release.
Universal American, based in White Plains, N.Y., lost $5.2 million on $823 million of revenue in the first half of this year, but still plans to expand its ACO operations with primary-care physicians.
Once the deal closes in early 2016, pending regulatory approval, Nassau will invest an additional $20 million in equity capital to keep the Universal American businesses afloat.