Owatonna-based Federated to exit health insurance business

Owatonna-based Federated Insurance said it won't return to the group health insurance market in 2018, a move that means employers in Minnesota and 22 other states will lose an option next year for group coverage.

Federated is best known for selling commercial property and casualty insurance, and hasn't been a huge player in Minnesota's health insurance market.

Even so, Federated said Wednesday that the company sells group coverage to more than 600 employers in Minnesota that collectively cover more than 10,000 people. Overall, Federated's group health insurance business includes more than 4,000 employer groups nationally with more than 57,000 covered lives.

The insurer said it was leaving the health insurance business due to uncertainty with the federal Affordable Care Act (ACA), which has brought a number of changes to the market for small employers that represent the majority of Federated's health insurance customers.

"Under ACA, the deadlines for filing future year premium rates occurs prior to insurance providers learning the results from the prior year's risk adjustment, which along with uncertainty surrounding the ACA's applicable taxes and fees on insurance providers made it virtually impossible to accurately predict and set future rates," Federated said Wednesday in a statement to the Star Tribune.

In a news release, the company said: "Federated does not see an end to the uncertainty surrounding the ACA."

Federated notified customers and regulators of its decision in June. The move explains why the company's name wasn't among the 2018 health insurance options for small employers listed in a July 31 release by the state Commerce Department.

The "small group" market in Minnesota serves employers with two to 50 employees. Currently, more than 275,000 state residents are covered through small group plans.

Federated Insurance has about 2,400 employees nationwide, including 1,352 in Owatonna. About 88 workers in Owatonna handle the group health insurance business; most are expected to find other positions within the company, which is otherwise growing.

"Over these last five years we have successfully doubled our property and casualty business from under $600 million to now nearly $1.2 billion," said Jeff Fetters, the chairman, president and chief executive at Federated, in a news release.

The ACA changed rules for how insurers set prices in the small group market, which caused some small employers to see big premium increases — and others to see big premium declines — in 2014. The law regulates the share of premium revenue that must be put toward medical costs vs. profit and administration. It also calls for "risk adjustment" payments that compensate small group insurers that happen to cover a disproportionate number of people with costly health problems.

During the last three years, rate increases in the small group market have been smaller than in the individual market, where bigger ACA changes have led to more instability.

Many health insurers across the country have hiked premiums and exited markets in the individual insurance business, which primarily reaches customers under age 65 who are self-employed or don't get job-based coverage. Republicans in the U.S. Congress have cited the market's instability as evidence the ACA should be repealed and replaced, although a legislative effort to do so failed to pass this summer.

Compared with the individual market, the group health insurance market has been much more stable in recent years in terms of participation by insurance companies, said Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck