Assurant Inc. (NYSE:AIZ) sat out of the Patient Protection and Affordable Care Act (PPACA) health insurance exchange system this year, and Cigna Corp. (NYSE:CI) dipped a toe in.

Even though the companies tried to stay out of the way of the exchange program, executives at both had to spend much of the time during their companies’ third-quarter earnings calls talking about the effects of PPACA on major medical operations.

Assurant executives talked about how last-imine Obama administration changes in major medical market rules threw off projections about the riskiness of new off-exchange individual business.

Assurant will be trying to rebound in 2015 by selling individual qualified health plan (QHP) coverage through up to 16 public exchanges, and by increasing premiums on all of the PPACA-compliant individual business it sold off exchange.

Cigna executives were making optimistic predictions about their ability to narrow losses on individual policies over the next three years, and their hopes for getting new business from small employers with a strong interest in improving the health of their employees.

Earlier this month, WellPoint Inc. (NYSE:WLP) express confidence in and optimism about its public exchange program. Aetna Inc. (NYSE:AET) seemed to like the idea of seeing off-exchange individual and small group business migrating toward the public exchange system.

Here’s a look at three insights gleaned from the companies’ earnings reports and earnings calls. 

Ice-covered window.

 

1. The temperature outside that public exchange system was c-o-l-d!

Cigna as a whole reported $534 million in net income for the third quarter on $8.8 billion in revenue, compared with $553 million in net income on $8.1 billion in revenue for the third quarter of 2013.

The company’s global health unit ended the quarter providing or administering medical coverage for 14 million people, about as many as it was covering a year earlier. The unit increased total premiums and fees to $6.1 billion, from $5.7 billion — but the adjusted profit margin fell to 6.3 percent, from 6.7 percent.

Assurant — a company at which health insurance accounts for just a small component of revenue — is reporting $140 million in net income on $2.7 billion in revenue, up from $129 million in net income on $2.3 billion.

The health unit there, which focuses mainly on selling individual and family medical coverage, posted $17 million in operating losses on $537 million in premiums, fees and other revenue, compared with a $6.6 million net operating profit on $406 million in revenue for the comparable quarter in 2013.

During the Cigna conference call, when a securities analyst suggested that Cigna’s small exchange program seemed to be on track to lose about $100 million after tax, David Cordani, the president, said he thought the analyst’s estimate was “probably a little bearish.” Cordani said the company sees itself as being in “version 1.0 of this marketplace.”

“We’re being highly focused on where and how we’re playing in the market,” Cordani said.

Robert Pollock, Assurant’s chief executive officer, seemed to be even less happy with the state of the individual market outside the exchange system. He called the results at his company’s health unit “disappointing.”

PPACA now requires health insurers to sell all new individual major medical coverage, even outside the exchange system, without use of personal health information in decisions to issue coverage, and without use of personal health information other than age and tobacco use in decisions about coverage prices.

Originally, state regulators were going to make holders of non-PPACA coverage buy PPACA-compliant coverage starting in 2014. The Obama administration ended up “grandmothering” coverage purchased after PPACA was signed into law and before Jan. 1, 2014. In many states, grandmothering rules will let consumers keep non-PPACA policies at least until 2016.

Because of grandmothering, off-exchange PPACA business “has worse morbidity characteristics than we had assumed, and pricing of policies could not be modified,” Pollock said.

Four little guys holding up the letters that spell the word "risk."

2. Insurers are starting to think hard about how much they like the PPACA three R’s programs.

Before 2014, many health insurance executives spoke confidently about how their companies would try to avoid relying on the PPACA “three R’s” risk-management programs — a temporary reinsurance program; a temporary risk corridors program that helps buffer exchange plan issuers against poor underwriting results; and a risk-adjustment program that’s supposed to use cash from insurers with low-risk enrollees with help insurers with high-risk enrollees.

This quarter, most insurers are giving estimates of how much cash they hope to collect from the three R’s programs.

Assurant is now hoping to get $257 million from the reinsurance and risk-adjustment programs.

Thomas McCarthy, Cigna’s chief financial officer, said Cigna has accrued $130 million in three R’s receivables after tax, with most of the money coming from the reinsurance program.

Beautiful country

3. Some small groups still look beautiful to companies selling group health insurance.

Aetna talked about a move to increase small-group premiums significantly in 2015 because of higher-than-expected claims costs. 

WellPoint executives seem to be resigned to seeing many small employers send health plan enrollees to buy their coverage through the public exchange system.

Cordani said Cigna is looking forward to selling more coverage to employers with 51 to 250 employees and a strong interest in improving employee health outcomes and productivity.

“That’s not every employer of the 25 million lives that exist there, but it is a large cadre, and we’ve had great success growing that on an average compounded basis in the mid teens in terms of covered lives,” Cordani said. “And we’ll continue to do so by leveraging our broad portfolio of businesses.”

Cigna sees its own proprietary exchange and other organizations’ private exchange programs as a good way to reach that market, Cordani said.

For agents and brokers in the health market, one question may be how warm the private exchange groups serving small and midsize employers will be to agents and brokers out in the world of brick and mortar.

Image: USDA photo.