Five individual insurers leaving Indiana

Five health insurers—including two of the nation’s largest—have decided to stop selling individual health insurance policies in Indiana—a trend that prompted the Indiana Department of Insurance to request a phase-in of key parts of the 2010 health reform law.

Hartford-based Aetna Inc. and Philadelphia-based Cigna Corp., which are the third- and fifth-largest health insurers respectively, have announced their departure from Indiana’s individual health insurance market.

In addition, Illinois-based Pekin Insurance, Michigan-based American Community Mutual Insurance Co. and New York-based Guardian Life Insurance Co. of America also have decided to leave the individual market. The five companies covered more than 20,000 Hoosiers, or about 10 percent of all those who have individual health insurance.

Their major complaint is about the new health law’s requirement that at least 80 percent of premiums be spent on medical bills. That new rule, known formally as a medical loss ratio or MLR, takes effect this year for all individual policies the insurers hold, not just new policies.

The insurers argue that the marketing and administrative expenses on individual policies are so high that they cannot transition so quickly to the new standard.

The Indiana insurance department worries more health insurers may follow—particularly small, local insurance plans and insurance plans operated by health care providers. One example of such a plan is Indianapolis-based Advantage Health Solutions, which is owned by four hospital systems, including St. Vincent Health and Franciscan St. Francis Health.

So Insurance Commissioner Stephen Robertson asked the Obama administration in May to grant Indiana a waiver that would delay the 80-percent rule until 2014. In late July, the insurance department disclosed the letters of withdrawal from the five insurers and a sixth from an insurer contemplating an exit.

“The imposition of the MLR requirement effective January 1, 2011, would be disastrous to many individual health insurance companies, their customers, and their employees,” Michael Abbott, CEO of Iowa-based health insurer American Enterprise Group, wrote in a Nov. 22 letter to Robertson.

He noted that, if companies such as his leave the market, customers with pre-existing conditions could be left without coverage until the health reform law requires that insurers take all applicants in 2014.

“By deferring the effective date to 2014,” Abbott recommended, “insurance companies will have the opportunity to renegotiate commission contracts, adjust pricing, modify existing products to comply with the new laws and regulations, and generally prepare to compete in the new environment.”

That is exactly what the Indiana insurance department is now trying to do.

The individual insurance market is already highly concentrated in Indiana, with Indianapolis-based Anthem, a subsidiary of WellPoint Inc., claiming about 65 percent of the market; its nearest competitor, Golden Rule Insurance Co., a subsidiary of UnitedHealth Group, covers about 10 percent.

Only 44 of the 63 health insurers operating in Indiana last year had been meeting the 80-percent threshold. The health reform law will enforce the rule by requiring insurers to refund customers’ premiums until their medical bills each year equal 80 percent of premiums.

If the refunds had been required last year, Indiana’s health insurers would have had to give back nearly $30 million, according to insurance department data.