The parent company of Assurant Health said Tuesday that it will sell or shut down the Milwaukee health insurer — which employs 1,200 people in the area — by the end of next year.
Assurant Health has struggled to adjust to changes in the health insurance market imposed by the Affordable Care Act and is expected to report an operating loss of $80 million to $90 million in its first quarter. That comes after it lost $64 million last year.
The company, whose headquarters is in downtown Milwaukee, specializes in health insurance for small employers and individuals, the two market segments that have faced the most changes from the Affordable Care Act.
“They are a casualty of the ACA,” said Steven Schwartz, an analyst with Raymond James & Associates.
Assurant Inc., the parent company based in New York, said it is exploring a sale. Absent that, it will not sell health insurance policies in 2016 and will shut down the business.
The announcement leaves the fate of Assurant Health’s 1,700 employees companywide, most of them in the Milwaukee region, in doubt.
Assurant also said it is exploring the sale of its employee benefits business, which sells dental, short-term and long-term disability, and life insurance.
“While it is a difficult decision, we believe they would be strong assets for new owners that are focused more exclusively on health care and employee benefits,” Alan Colberg, the parent company’s president and chief executive officer, said in a statement.
Assurant instead plans to focus on its niche insurance products, including extended-service contracts, mobile-housing insurance, vehicle-service contracts and prepaid funeral plans.
Assurant Health’s ties to Milwaukee go back to 1900, when the La Crosse Mutual Aid Association moved to the city and changed its name to Time Insurance Co.
Analysts began speculating as far back as late 2011 that Assurant might exit the health insurance business.
The Affordable Care Act barred health insurers from turning away customers because of pre-existing health conditions. That new regulation negated one of Assurant Health’s strengths: underwriting, or determining which potential customers were the best risks.
“That went away,” said Schwartz of Raymond James.
The law also required health plans to cover a package of basic benefits and required health insurers to spend at least 80 cents of every premium dollar on medical care or quality initiatives.
The changes forced Assurant Health to move quickly to cut costs and eliminate jobs.
Assurant Health had $2 billion in revenue last year and sold health insurance to individuals in 41 states and on 16 marketplaces set up under the Affordable Care Act. It sold health plans to small employers in 34 states.
The company said it will uphold its commitments to existing policyholders.
Finding a buyer for Assurant Health could be difficult.
Unlike companies such as UnitedHealthcare or Anthem, which focus on larger employers, Assurant Health does not have the size in any one market to negotiate contracts directly with hospitals and doctors. It instead typically pays a monthly fee to other insurers to access their networks, potentially increasing its costs.
Assurant Health’s losses suggest that any buyer would have to raise the cost of its health plans next year. At the same time, the online marketplaces set up under the Affordable Care Act have made it easier for people to compare prices and move to different health plans each year.
In an interview in 2012, Adam Lamnin, president and chief executive of Assurant Health, acknowledged the challenges the company faced.
“Health care reform,” he said, “was a watershed event for us.”