Principal Financial Group will exit the medical insurance business (both insured and self-insured), the firm announced Sept. 30. The firm has entered into an agreement with UnitedHealthcare to renew medical insurance coverage for The Principal's customers over the next 36 months.
The decision does not impact The Principal's other businesses, including the firm's retirement, asset management, life insurance, wellness, disability, dental and vision products.
"While a difficult decision, this is the right strategic decision for The Principal," said Larry D. Zimpleman, chairman, president and CEO, in a prepared statement. "While performing well financially, our medical business has been declining in relative size for a number of years, thanks to strong growth from our retirement and asset management businesses. The medical business continues to be one that undergoes rapid change, which would mean investing additional capital into the business to be able to offer competitive products. For us, that just does not make sense."
The Principal currently has about 840,000 covered members. Including the firm's fee-for-service and fully insured products, total premium in calendar year 2009 stood at $1.6 billion.
According to Dan Houston, president of The Principal's retirement, insurance & financial services, the anticipated impact of health care reform was a factor in the decision, but not a major one.
The Principal's business model in the medical space was not broad enough to allow them to be successful when the state health care exchanges start up in 2014, Houston notes. With no individual, Medicare or Medicaid business, he anticipates that the exchanges will win a significant portion of the small-to-medium-sized employer market The Principal has always focused on.
But the biggest driver, said Houston, was that The Principal's medical insurance business had become a minor part of its overall portfolio - representing only about 3% of The Principal's total operating expenses.
In addition, he believes, they were spread too thin: "With 840,000 members spread across 30 or so states, we lacked the critical mass in any one state you need to succeed in a market that has come to be all about having a strong local and regional network."
According to Houston, sales activities have ceased, and the process of transitioning renewals to United will begin immediately, subject to applicable requirements of federal and state law. It is expected to be completed over a three-year period.
Some job losses
There are currently about 1,500 employees in The Principal's medical insurance area. Initially, about 150 positions are being eliminated involving sales, proposal writing and other aspects of writing new business. As business transfers to United, more positions will be eliminated.
According to Houston, the company will try to place qualified employees in open positions that become available through attrition and growth in other businesses. Employees who are unable to find a position within the company will be given severance and outplacement assistance. Those whose jobs are eliminated will get at least 30 days' notice.
Focus is on transition to United
At a phone conference Sept. 30 with representatives from United and about 1,000 brokers that The Principal does business with, the focus was on the nuts and bolts of the transition to United, says Houston.
"When I got off that call, my first thought was that, in choosing United, we made the right choice. They have critical mass. They are a national provider. They are in it for the long haul. They're thoughtful, and they care about the people. And they are very professional about this migration process. I think the brokers on the call would have said, 'We're disappointed Principal is leaving, but they've chosen a good replacement and for that, we're thankful,'" Houston adds.
"I'm sure our clients are disappointed [about the decision.]But businesses evolve; things change, and we've left them in good hands. I don't think we've created a void for anyone. As a matter of fact, my guess is that for easily the last 10 years, a lot of advisers have thought of us as a specialty benefits, retirement and asset management company, more than they have for medical."
Child-only policies get dropped
Many major insurance companies - including Anthem Blue Cross, Aetna, Cigna and Humana - have stopped selling child-only health insurance plans in several states, saying the policies could saddle them with enormous expenses.
The policies appeal mainly to parents whose employers don't contribute to dependent health insurance, parents who can't afford to insure themselves and parents who can't buy their own coverage because of their own health conditions but want to cover their children.
A new health care reform mandate, which kicked in on September 23, prevents health insurance companies from rejecting children under age 19 with pre-existing medical conditions.
The insurance companies maintain this provision removes any incentive on the part of parents to buy health insurance coverage for their children before any serious illnesses are diagnosed.
This deprives insurance companies of income from premiums that might help them cover high medical costs for later children who become seriously ill, and would force them to raise premiums for their other policyholders.
The decision affects only certain states and doesn't apply to existing child-only health insurance coverage, family policies or group health insurance coverage provided to children through their parents' employers.
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