It’s a tough time to be a small insurance company.
In 2010, the year President Barack Obama signed the Affordable Care Act (ACA), better known as Obamacare, Assurant Health (AH) had a net income of approximately $54 million. Today, it may no longer have any value at all, because it is no longer a viable business. Some 1,7000 employees companywide might lose their jobs as a result.
In 2014, AH lost $63.7 million and was on track to report operating losses of $80 million to $90 million for the first quarter in 2015. AH’s parent company, Assurant Inc., says the company will be sold or shut down.
Underwriting Essentially Negated
AH must endure the disadvantage of being a fairly small company and one that once relied on prudent health underwriting before Obamacare. It primarily deals with individual and small-employer policies, says Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician.
“The guaranteed-issue aspect of the ACA essentially negates underwriting,” Stark said, referring to Obamacare rules requiring health insurers to allow anyone to enroll, even if they’re already sick. “Health insurance companies have struggled with plan pricing for the past few years because they now must sell to anyone, regardless of preexisting conditions.
“Additionally, carriers must include all 10 benefit mandates required in the ACA, all of which potentially drive up plan prices,” Stark said. “Unlike automobile or homeowners insurance, health insurance companies have no control over accepting risk and no control over their insurance product.”
Company ‘Embraced’ Obamacare
Merrill Matthews, a resident scholar with the Institute for Policy Innovation, says AH’s struggles are unfortunate but were predicted by nearly everyone—except the company’s CEO.
“Because the company focused on individual and some small-group coverage, Assurant should have led the way in fighting Obamacare,” said Matthews.
“But the company embraced it, along with the health insurance industry, with Assurant’s CEO explaining to me he thought the industry’s lobbying efforts would ensure the final legislation would be good for the health insurance industry and his company,” said Matthews. “It was clear to me at the time that while the CEO might have understood insurance, he knew nothing about politics.”
ACA Winnowing Out Smaller Businesses
The dynamics of the ACA make it impossible to remain in business as a smaller insurance company, says Greg Scandlen, the founder and director of Consumers for Health Care Choices and a senior fellow at The Heartland Institute, which publishes Health Care News.
Scandlen says Assurant supported Obamacare with the naïve belief having a law requiring everyone to buy what it sold would be good for its business, but two things about Obamacare made the hope illusory.
“The massive [ACA] regulations require the resources that only a giant company can provide,” Scandlen said. “Why? Because all of the regulations must be met regardless of the size of the company. These costs must be spread across a very large base of business.”
Insurers Must Micromanage Care
Obamacare no longer allows for the traditional “insurance” model to remain in business, says Scandlen. Collecting premiums and paying claims is not enough. The company must micromanage every aspect of the health care system in order to survive.
“There are no longer insurance companies in any meaningful sense of the term,” Scandlen said. “They are health care management companies that actively control the behavior of patients, doctors, hospitals, and every other participant in health care delivery. Assurant never had the market clout or internal expertise to do any of that.”
Scandlen says the United States is entering into an era of health care oligopoly where only four or five companies will control the entire system. These companies will have only one master: the federal government. No one else can determine a company’s success or failure.
Matthew Glans ([email protected]) is a senior policy analyst at The Heartland Institute.