Patient Protection and Affordable Care Act (PPACA) market changes pumped up individual health sales at Assurant Inc. (NYSE:AIZ) during the second quarter but hurt profits.
Company executives say their new insureds turned out to be somewhat less healthy than they had assumed when they priced the coverage. The company estimates it should get a total of $140 million in payments from the new PPACA reinsurance and risk-adjustment programs.
Assurant is a multi-line insurer with a unit, Assurant Health, that sells a substantial amount of individual and family major medical coverage.
- Assurant as a whole is reporting $144 million in net income for the second quarter on $2.6 billion in revenue, up from $134 million in net income on $2.2 billion in revenue for the second quarter of 2013.
- The Assurant Health unit is reporting a $2.5 million net operating loss for the quarter on $525 million in revenue, compared with $4.1 million in operating income on $403 million in revenue for the comparable quarter a year earlier.
- The company ended the second quarter covering 46,781 workers at small employers, up from 40,076 small-group lives a year earlier. Individual and family enrollment jumped to 155,534, from 106,707.
- The unit estimates PPACA-compliant business now accounts for about one-third of its individual medical net earned premiums.
- The total amount of health claims paid increased to $395 million, from $297 million.
- Assurant Health expects to get $80 million from the PPACA reinsurance program and about $60 million from the PPACA risk-adjustment program.
PPACA now requires many individuals to own a minimum level of health coverage or face the possibility that they may have to pay a tax penalty. The law also requires insurers to sell individual and family coverage without using personal health information in application decisions, and without using personal health information other than age in pricing decisions.
The PPACA reinsurance program -- one of the PPACA "three R's" risk-management programs -- is supposed to protect insurers against the overall cost of insuring people with catastrophic claims, and a PPACA risk-adjustment program is supposed to help an insurer compensate for the cost of high-risk enrollees during the plan year.
Assurant executives said during a conference call with securities analysts that the U.S. Department of Health and Human Services (HHS) has blocked the sale of stand-alone fixed indemnity plans starting in January 2015. Assurant intends to sell major medical coverage through "several public exchanges" during the 2015 individual major medical enrollment period, which is set to start Nov. 15,
Robert Pollock, Assurant's president, said that, in spite of the increase in claims, the company feels more confident that it can earn good profit margins in the traditional major medical market. He said he thinks the company has proven it can sell coverage in the PPACA system.
"We think profitability will improve over time," Pollock said. "And, over the long-term, we think we can earn attractive returns in the business."
Pollock said that insurers are funding the three R's, and that he's confident that the programs will make the expected payments.