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Assurant dishes on PPACA effects

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Assurant Inc. (NYSE:AIZ) has been more open than some other insurers over the past year about its experiences in the major medical market.

Health insurance accounts for only about one-fifth of Assurant’s revenue, and the company is not a player in the Medicare or Medicaid markets. Assurant has no need to go out of its way to keep procurement officials at the Centers for Medicare & Medicaid Services (CMS) or state health program agencies happy.

This quarter, Assurant executives have pulled away from the industry pattern of painting PPACA World as a land of rainbows.

The company as a whole is reporting $50 million in net income for the fourth quarter of 2014 on $2.6 billion in revenue, compared with $109 million in net income on $2.4 billion in revenue for the fourth quarter of 2013.

The company’s health insurance unit posted a net operating loss of $37 million for the latest quarter on $503 million in net earned premiums, fees and other revenue, compared with $600,000 in net income on $417 million in revenue for the year-earlier quarter.

The company ended the quarter insuring 967,000 people, up from 907,000 people a year earlier.

The company stayed off the PPACA exchange system in 2014. For 2015, it’s been selling exchange qualified health plans (QHPs) in 16 states.

For a look at some of what Assurant executives said about the health insurance market during a conference call with securities analysts, read on.

Blank stare

1. The company has tried to deal with unexpectedly high 2014 claims by increasing 2015 rates about 20 percent, pruning benefits, and moderating sales by reducing sales commissions.

The health unit lost money even though it cut spending on expenses other than claims sharply, executives said.

Colberg said the biggest problem was last-minute moves the Obama administration made to let consumers hang on to “grandmothered policies,” or policies purchased between the time PPACA became law and Jan. 1, 2014.

Health insurers had priced 2014 major medical coverage based on the assumption that most people who had coverage purchased before major new PPACA commercial health insurance requirements took effect in 2014 would have to replace the coverage.

The decision to allow grandmothering “dramatically altered the risk pool in 2014 and made the market much sicker than expected,” Colberg said.

For 2015, “we were able to raise our prices aggressively and appropriately to reflect what we expect will happen this year,” Colberg said.

See also: MLR rebate costs pinch Assurant Health earnings.

Murky water

2. The company has found that using the PPACA risk-adjustment program is a lot more complicated than using the temporary PPACA reinsurance program.

PPACA drafters created a reinsurance program that uses a flat fee on all commercial health plan enrollees to reimburse issuers of individual health coverage for enrollees with very high claims. That plan is supposed to help insurers for 2014, 2015 and 2016 claims, and then expire.

PPACA also created a permanent risk-adjustment program. That program is supposed to shift cash from carriers with relatively low-risk enrollees to carriers with relatively high-risk enrollees.

Assurant is expecting to get about $133 million from the reinsurance program for the fourth quarter and about $400 million for all of 2014. The company estimated it might get $9 million in risk-adjustment money for the fourth quarter.

Assurant has found that it can estimate how much reinsurance money it might get by simply feeding data on enrollees with big claims into the reinsurance program payment formula, according to Chris Pagano, Assurant’s chief financial officer.

To calculate the risk-adjuster accrual, the company has to use market-wide data from an actuarial firm to estimate how much healthier or sicker its enrollees are than other enrollees. The accrual went down in the fourth quarter because it seems as if the overall level of market risk increased that quarter, executives said.

See also: Assurant hopes to get $140 million in PPACA ’3 R’s’ money.

Open highway

3. The company has choices.

Colberg said Assurant is in the specialty insurance business and intends to generate a specialty insurance level of return.

“We’re constantly looking at health and whether we can achieve it under the new reality of the ACA World,” he said. “We’re going to take action. You’ve seen us take action. We’ll take the appropriate action if [health is] not a specialty business over time.”

See also: Assurant to Write Off Health, Benefits Goodwill.