Health insurance reform is weeding out companies that can't make the profits they want from major medical insurance.
The Affordable Care Act, in particular, is speeding up the long-term consolidation trend in the industry by setting benefit standards, requiring companies to accept more people and limiting profits and administrative overhead spending.
States are seeing trends like these: Over the past three years, 14 insurance companies have left Iowa's major medical market, and seven will leave the Nebraska market next year. Major medical policies cover most illnesses and medical treatments, as opposed to limited policies such as dental or vision insurance.
“The pullout of real high-priced, nonstandard companies — I'd say, that's good,” said J. Robert Hunter, insurance director for the Consumer Federation of America in Arlington, Va. “Charging excessive prices for a (poor) product, those should fall by the wayside.”
Others describe the accelerated trend as a significant change and say that fewer competitors often means higher prices for consumers.
With the new law, also known as Obamacare, there's much less competition beyond price, turning insurance into a commodity like corn or gasoline with little difference from one brand to the next.
“If you can't be a lower-cost player, then it will be very difficult to succeed in a commoditized market,” said Cliff Gold, co-founder of CoOportunity Health of Des Moines.
American Family Mutual Insurance Co. of Madison, Wis., stopped selling new major medical policies in Nebraska and Iowa in 2009 — well before Obamacare was passed — but continued insuring its policyholders in 14 states, now down to 396 in Nebraska and 560 Iowa.
Recently, the company told its major medical policyholders that they must find new insurers. They can sign up with Assurant Health, which operates as Time Insurance in the two states, or seek other coverage.
“There are other products that have enhanced features and benefits that would better serve our customers,” said spokesman Steve Witmer. With a small number of policyholders, “we felt the time was right to move on.”
Altogether, the companies leaving Nebraska have less than 10 percent of the state's market, said Bruce Ramge, state insurance director, although he said he hates to see any company leave the state.
To continue selling insurance under the new federal regulations, companies had to redesign their policies, establish new premium rates, update computer systems, revise claims-paying processes and renegotiate agreements with health care providers.
“If they had a small market share to begin with, they figured it would be too difficult to recoup those costs,” Ramge said.
He said he wouldn't label the companies' past products as poor, however. “Obviously, consumers that were using them found them attractive when they made the purchase.”
In Iowa not long ago, about 20 companies offered major medical coverage, said Tom Alger, a spokesman for the Iowa Division of Insurance.
Rules limiting profits under the Affordable Care Act were a factor in some withdrawals, he said, but carriers' reasons differed. “They've been gradually stepping out of the marketplace and changing their business models,” he said.
Grant Matthies, principal in insurance brokerage Silverstone Group of Omaha, said the departure of some small companies is “a non-event” because it affects so few people.
“I don't think it's a loss for the consumers,” Matthies said. “It isn't really taking away choice because they weren't really the players in the market anyway.”
But the requirements of the law likely were a prime reason the companies decided to leave the market, he said.
With many companies leaving the market, how did CoOportunity start selling insurance in Nebraska and Iowa this year?
Gold, the co-founder, said that without a $112 million federal loan through Obamacare, CoOportunity would have difficulty growing to the size where it can spread risks and costs among enough people to succeed.
The loan gives the company the financial backing it needs to begin selling policies and paying claims, and is due to be repaid to the federal government. The Affordable Care Act contained $6 billion in loans to establish other cooperatives around the country.
Because the new law requires insurers to spend 85 percent of premiums from large-group policies on health care claims, he said, it's almost impossible for a publicly traded health insurance company to pay its administrative costs and still make a profit that appeals to investors.
“You don't see for-profit companies starting in the insurance business any more,” Gold said. “That's why the ACA seeded nonprofit cooperatives to provide competition in a market that's increasingly less competitive.”
Other industries have seen similar long-term trends, he said. There were 80-plus U.S. auto manufacturers early in the 20th century, but by the 1960s, the number was down to four. “I think that's the kind of consolidation you're seeing in health insurance.”
Major medical insurance carriers
List doesn't include Medicare Supplement, vision, dental or other types of coverage.
Blue Cross Blue Shield of Nebraska
Health Alliance Midwest
John Alden Health
Discountinued for 2014
American Family Mutual Insurance
Companion Life Insurance
Independence American Insurance
Reserve National Insurance
Standard Security Life Insurance of New York
United Security Life and Health Insurance
Avera Health Plans
Wellmark Health Plans of Iowa
National Health Insurance
Pekin Life Insurance
American National Insurance
American National Insurance of Texas
Standard Life and Accident Insurance
Principal Life Insurance
Union Security Insurance
American Community Mutual Insurance
American Republic Insurance
Guardian Life Insurance
Trustmark Life Insurance
Sources: Nebraska Department of Insurance, Iowa Division of Insurance