A couple of valued commenters pointed out this article from Wisconsin regarding an insurer leaving the health insurance industry:
The parent company of Assurant Health said Tuesday that it will sell or shut down the Milwaukee health insurer — which employs 1,200 people in the area — by the end of next year.
Assurant Health has struggled to adjust to changes in the health insurance market imposed by the Affordable Care Act and is expected to report an operating loss of $80 million to $90 million in its first quarter. That comes after it lost $64 million last year….
Assurant Health does not have the size in any one market to negotiate contracts directly with hospitals and doctors. It instead typically pays a monthly fee to other insurers to access their networks, potentially increasing its costs.
Assurant Health’s losses suggest that any buyer would have to raise the cost of its health plans next year. At the same time, the online marketplaces set up under the Affordable Care Act have made it easier for people to compare prices and move to different health plans each year.
This is not surprising. Assurant Health was a symptom of the extremely dysfunctional nature of the individual insurance market before PPACA. It was a vampire that drank blood in quarts and very rarely paid benefits as it specialized in very high deductible policies with significant coverage limitations and short term contracts. The old business model was based on churn, it was based on cherry picking, and it was based on very low medical expense ratios as Assurant would seldom pay out.
When I was between jobs as an idealistic, young college graduate, I had an Assurant Health policy for $41 a month. It had a $20,000 deductible, it did not cover prescriptions, it did not cover mental health, it did not cover maternity. It was hit by a bus insurance. As a twenty three year old, out of control buses were one of my primary health concerns. The policy was re-underwritten every six months. Thankfully I found a new job with benefits three months into the policy term. That type of coverage can no longer be sold to new members since PPACA passed. It fails the out of pocket maximum, it fails the minimum essential health benefits requirements, it fails the no cost sharing services, it fails community rating. It basically fails every new test that PPACA instituted to determine what constitutes “adequate insurance”.
Assurant had been trying to be a lean, low cost company with the ability to manage a national network but it failed. It attempted to go on the Exchanges last year, and it failed miserably. Below is a chart of four cities with the best Assurant Silver pricing compared to the 2nd lowest Silver plan on the market for a 40 year old non-smoker. These are non-subsidized, non-cost sharing assistance prices:
Assurant’s Silver product is not directly comparable in terms of features to the 2nd Silver in these markets. The 2nd Silvers are narrow or super narrow networks with PCP gatekeepers while Assurant is offering a broad national network without PCP gatekeepers. But we have seen that people are not valuing big broad networks all that much. And for those who do, they have plenty of options at lower prices from the Blues or the major national commercial carriers.
Assurant was offering a product that is overpriced and non-unique. It is not surprising that they were losing lots of money. Competition should drive out insurers who can’t offer reasonably priced products with good value. That is the entire point of managed competition — provide buyers with reasonably useful side by side comparisons to reduce information aysmetries, and then let the atomistic nature of the market determine what is to be offered and by whom. Assurant Health leaving the health insurance industry is a minor, predictable and net positive public policy win.