Executives at Assurant Inc. (NYSE:AIZ) said Patient Protection and Affordable Care Act (PPACA) rules bit into earnings in the fourth quarter of 2012.
Assurant as a whole is reporting $25 million in net income for the latest quarter on $2.2 billion in revenue, compared with $159 million in net income on $2.1 billion in revenue for the fourth quarter of 2011.
The Assurant Health unit, which focuses on serving individuals and small employers, earned $200,000 on $389 million in net earned premiums, down from $23 million in net operating income on $446 million in net earned premiums.
Health insurance sales were flat, in part because of lower employer group sales, the company said.
The groups that Assurant Health continued to insure were smaller, and good underwriting experience on some blocks of business backfired, by increasing the amount the company will have to pay to meet the PPACA minimum medical loss ratio (MLR) standards, the company said.
PPACA now requires insurers to spend at least 80 percent of individual and small group revenue on health care and quality improvement efforts.
Rob Pollock, Assurant's president, said during a conference call the company held to discuss results that the company set aside $9.7 million for MLR rebate payments for the quarter.
Assurant Health has tried to price business with the MLR targets in mind, Pollock said.
Other executives noted that the process for meeting the MLR target is complicated, because a company must meet separate targets for many market "cells" throughout the country and may not have much claims experience in any one cell.
PPACA rules on the deductibility of compensation and other payments may increase Assurant's effective tax rate this year, Pollock added.
"We'll continue to look for opportunities to further reduce our cost structure to offset these pressures," Pollock said. "But the rate of reductions will be slower."
But Assurant remains optimistic that it will be able to "take advantage of the potentially large market opportunity created by health care reform," Pollock said.