As a sports fan, sometimes great calls from sporting events stick in my mind. Al Michaels in 1980, “ Do you believe in miracles?… Yes! Or, in 1973, the great Howard Cosell call “Down goes Frazier!, Down goes Frazier!”
Yesterday, another health insurance company went down. Milwaukee based Assurant Health, announced it will be sold off or shut down operations in the individual health insurance market. Assurant joins another dozen carriers that have left the Health Insurance business, since the passage of the Patient Protections and Affordable Care Act passed. Assurant lost over $60 million dollars in 2014 and announced its first quarter loss will be between $80 and $90 million.
One of the clauses in the Affordable Care Act that has been tough on insurers is the Medical Loss Ratio. Insurers now must spend 80 cents of every dollar in premium on medical care or quality initiatives. According to the Kaiser Family Foundation at the time the law passed only 43% of the companies operating in the individual market we able to operate at a MLR of 80%. In the Small Group market (under 100 employees), about 70% were operating at that level. Many of the smaller carriers, who often times provided the best rates could not comply with this mandate and left the market. Some, like Unicare out of Bolingbrook, Illinois and American Community out of Livonia, Michigan sold their blocks of business to another carrier. Those clients were put in a similar policy to what they had with the new carrier. Others like Glenview, Illinois based Guarantee Trust Life (GTL), did not have a buyer and many policies were just cancelled.
There are a great number of other carriers who have reduced the number of states they are in. Medical Mutual has withdrawn from all of its states with the exception of its home state of Ohio. Celtic Insurance, which is based in Chicago, is still in business but has greatly reduced the number of states they are doing business. They are not currently writing in Illinois.
We are also seeing trouble with some new companies. Under the Affordable Care Act, while the Democratic party was looking for a Single payer or Government run health care system, what they settled for was what is known as Consumer Oriented and Operated Plans or “Co-Ops.” The “co-ops” differ from traditional insurance by their non-profit stature. They are governed by boards controlled by policyholders. Not a socialized program, but perhaps a step in that direction. Sadly, for the program according to Standard and Poor’s rating system of the 23 state co-ops all, but one are struggling financially and Iowa’s CoOportunity Health has now been liquidated. CoOportunity was formed with $146 million in Federal loans and grants under the Affordable Care Act. In February, everyone who had a CoOportunity plan had to find a new insurance carrier. In my opinion, the co-ops were formed with the intend to remove profits from the insurers, and if the model worked well great, the politicians who came up with the idea could say “well, we showed you!”. The problem with the Co-op model is probably the most important part of any start up business. They lack cash. In a capitalistic society cash is king. If there is not enough “capital”, when you need more of it where to you go to get it?
Now what does all this mean going forward? The law was partially created to create competition, but we are now seeing lack of competition. Some exchanges in parts of the country have only 1 or 2 carriers to begin with, what if they fall? Would another company step in? What if in 2 years there are only like three companies left nationwide? Would that create more competition?
I guess time will tell. One thing I am sure of before it is said and done, another carrier will go down!