The Principal Financial Group, Des Moines, Iowa, announced that it was exiting the insured and self-insured medical insurance business. As part of that exit, Principal has entered into an agreement with UnitedHealthcare to renew coverage for Principal customers as it transitions out of the business over the next 36 months.
The company says the departure is a strategic decision because the medical business has been declining in size for a number of years in comparison with the company’s retirement and asset management businesses. Sales will cease and the renewal process will begin immediately, according to Principal. The company says that of 1,500 employees in the medical insurance business, the jobs of 150 will be impacted. Those employees will be considered for other positions, Principal adds.
Larry Zimpleman, the company’s chairman, president and CEO, says the decision will allow Principal to better focus capital and to use resources in the asset accumulation and asset management businesses, both domestically and internationally.
The Principal estimates this action will negatively impact third quarter 2010 EPS operating results by $0.03-$0.04 and full-year 2010 EPS operating results by $0.18-$0.20 due to the exclusion of the business from operating earnings. However, the company expects to release between $100 million and $120 million of capital (which primarily reflects the capital allocated to the medical insurance business less a reduction in the diversification benefit that will result from the exit of this business) over the next 36 months as a result of this change.
Principal says that the decision was a business and strategic one and not related to current health insurance reform. “Our decision did not hinge on reform,” says Susan Houser, a Principal spokesperson. “As we indicated [in the announcement on Sept. 30,] this was predominantly a business strategy decision given 97% of our operating earnings come from our growth businesses (asset management and asset accumulation/retirement etc), while medical insurance represents less than 3% of our business. In addition to strategic fit going forward, we considered numerous additional factors (including the regulatory environment), but our strategy and ability to invest in our growing businesses was the real driver.”
Currently, state insurance regulators are working on the development of medical loss ratios under the new federal Patient Protection and Affordable Care Act. Medical loss ratios are percentages of premium that must be paid out as claims under the new law. The National Association of Insurance Commissioners, Kansas City, Mo., is working on MLRs to make sure that they comply with the new PPACA requirements.
State insurance commissioners said last week in a discussion with President Barack Obama and the administration, that there was concern that some companies would exit the market because of the new MLR requirements. The commissioners recommended a transition period. States including Iowa and Maine made formal requests in letters to the administration. Florida held a hearing to consider such a request. Iowa Insurance Commissioner and NAIC President-elect Susan Voss, noted that several companies had indicated that the new MLR requirements might make it necessary for them to leave the market.
Most recently, on a call of the NAIC’s Accident and Health Working Group, there was a discussion concerning how a small group is defined. The working group said that the law specifically states that small group is a group of insureds ranging from 2-50and that a group of 1 would need to be in the individual market, according to a strict reading of the law.