In October of 2010, just 6 months after the PPACA (Obamacare) was signed into law, we saw the first casualty when Principal Financial Group decided to exit the health insurance market. Just a little over two years later Principal has re-entered the market with a slightly different product in a move that could become more familiar as the new health care law is fully implemented. The AFLAC duck should take notice.
The PPACA regulates health insurance but it doesn’t do anything when it comes to “accident plans”. The major difference? Health insurance pays 100% of medical bills after the insured meets an agreed upon deductible or co-pay. Accident plans are the opposite, the insurance company pays a defined benefit based on the medical condition. After that money is exhausted, the insured is left with the remaining bill. Because the exposure for the insurance company is limited and more risk is taken by the insured, premiums can be lower than traditional health insurance policies. It’s important to note that these plans should only be viewed as a supplement to health insurance, not a replacement.
So, why would Principal do this? I suppose your view of that depends on how well you understand the PPACA and what you think the end result of it will be for the insurance industry. By making this move, Principal has made it clear that they don’t see a bright future for the health insurance market. We, unfortunately, tend to agree and have even predicted that many health insurance providers will move to this type of product. The new regulations will create an unstable rate environment and will likely raise premiums enough to chase insureds away and, in the worst case scenario, bankrupt the insurer.
It should also be noted that Principal has decided to focus on the business market and sell this product as an employee benefit. That could be due to several mid-size companies agreeing to either drop health insurance coverage and pay the tax or reduce their workers hours to fall under the mandated 32 hours per week to be guaranteed health insurance. It could be a great product companies can use to retain employees in a market where very few businesses will offer employee health coverage anymore.
This move by Principal seems to reinforce some people’s idea that this country is headed toward single payer health care and will need private companies to subsidize the coverage provided by the government system. Principal looks to be the first company to move in that direction. My guess is we will see more insurance providers follow in Principal’s footsteps.