Will This One State Destroy Obamacare's Chance of Success?

With just three days left to go before state-run and federally run health exchanges open for business, praise and criticism regarding the merits of the Patient Protection and Affordable Care Act, perhaps known better as Obamacare, are beginning to heat up.

On one hand, Obamacare supporters can revel in average premium prices across the U.S. for the mid-tier silver plan coming in lower than the Congressional Budget Office had forecast at $328 per month. In addition, while there are still millions of people left to educate on the law, the number of Americans who "aren't in the know" is shrinking.

Then again, opponents of the law will point to the Department of Health and Human Services, which has dropped three bombshells on us in a little less than three months, including the delay of the employer mandate until Jan 1, 2015, and the news earlier this week that Spanish-language and small-business health exchanges will be delayed by three to four weeks and a month, respectively. Opponents would cite this classic disorganization and the expected premium sticker shock some young adults may feel as all the more reason this law won't succeed.

Ultimately, though, the success or failure of Obamacare may come down to state participation. Even more so, it may come down to the participation of just one state in general.

The "Leave Me A-Lone Star" state
According to the most recent analysis conducted by research firm The Advisory Board in mid-September, 15 states were absolutely not going to expand their states' Medicaid program, while another seven were leaning in the direction of not expanding.

Why is this important? Under the PPACA, qualifying income levels under Medicaid will be expanded to include more low-income individuals. Because of the way the PPACA was set up (and how's this for a ridiculous loophole?), if a state chooses not to expand Medicaid coverage, very low-income individuals will not have any subsidies whatsoever on the health exchanges and will most likely not be able to afford health insurance. In other words, the PPACA was drafted with the assumption that all states would opt in, which clearly hasn't been the case.

By now you're probably wondering why on Earth a state would deny expanding its Medicaid program when the federal government has agreed to pick up the tab for the next three years. The answer to that question is based on two factors.

One, there are some political motivations in there. Many staunch Republican supporters truly believe Obamacare will not work, and they, as governors, refuse to allow their state to participate in the expansion.

Primarily, though, their refusal to expand lies with the expectation that it'll cost their state more in the long run. You see, beginning after 2016 and running through 2022, the federal government will scale back its portion of Medicaid cost-covering in participating states from 100% to 90%. I'm sure covering 10% of costs doesn't sound like a lot, but it's enough to make up to 22 governors completely opt out of what's essentially money being left on the table. 

Not surprisingly, the one state at the center of it all is Texas (that's right, Floridians and Californians -- breathe a sigh of relief that it's not you for once!). According to HHS Secretary Kathleen Sebelius, who has been championing the law from the get-go, Texas' refusal to participate in Obamacare's Medicaid expansion will leave $79 billion in federal money on the table through 2022 and keep up to 2.5 million people from gaining access to reasonably priced insurance.

If that wasn't enough of an issue, Texas is also the state that carries the highest rate of uninsured people in the country! On one end of the spectrum is Massachusetts, which has been running its own health exchange for years now with an uninsured rate of just 4%. Then we have Texas at the other end, with an uninsured rate of a whopping 24%, as of 2010-2011's data from the Kaiser Family Foundation. Only eight of the 50 states are even at 20% or above, and Texas is by far the highest. With such a large uninsured population, in addition to California and New York, Texas is often looked as a state that sets examples for other states to follow. The example it's currently setting could negatively affect Obamacare's success and definitely has the ability to hurt insurers and hospital providers.

Texas plays Whac-a-Mole with your investments
The immediate concern I would have from an investment perspective is for insurers. The entire reason we saw three large buyouts in the insurance space since 2011 -- WellPoint buying Amerigroup, CIGNA (NYSE: CI  ) buying Healthspring, and Aetna (NYSE: AET  ) purchasing Coventry Health Care -- was so these insurers could take advantage of what was supposed to be the influx of 16 million newly qualified Medicaid members. Some of the most recent estimates I've seen from Forbes now show that this figure will approach only 10 million by 2017 and could be as low as 5 million within the first year. That's certainly not what these insurers thought they were buying into when they ponied up big money for these insurers that catered to government-sponsored enrollees. With specific respect to Texas, Aetna and CIGNA would feel the most potential loss, as WellPoint is not a participant in the state.

And don't think Texas' lack of participation harms only the aforementioned insurers that purchased their way into government-sponsored health care. Molina Healthcare (NYSE: MOH  ) and Centene (NYSE: CNC  ) will also feel the pain from Texas' decision. Molina and Centene have already been struggling with higher medical costs in Texas, but at least Molina has California and its some 1.4 million soon-to-be eligible Medicaid enrollees to fall back on. For Centene, it's pulled out of Kentucky because of high medical costs, and it now relies on Texas for about one-quarter of its revenue. If this move really slams any particular company, it's Centene.

Hospital operators aren't going to be thrilled about this decision, either. Perhaps none is more exposed from states opting out of Medicaid expansion than Tenet Healthcare (NYSE: THC  ) . Tenet operates acute-care hospitals and surgery centers in 10 states, of which nine of those states are not participating, considering not participating, or considering an alternative plan altogether. The lone participant on Tenet's list is California. This is bad news for Tenet, because it's relying on expanded coverage for lower-income individuals to help cover the doubtful revenue it incurs every year from providing treatment to uninsured patients. With few of these currently uninsured people gaining access to insurance under the PPACA, it doesn't look like Tenet's doubtful revenue will be falling anytime soon.

Can Texas really topple Obamacare?
According to Kathleen Sebelius, Texas' non-participation will limit the impact of the PPACA. While I do somewhat agree with Sebelius' opinion that very low-income individuals in these nonparticipating states aren't gaining any ground despite this transformative legislation, I also don't believe that Obamacare's success or failure will be determined by its prospects in any one state. The only thing that'll make that determination is time.

I do, however, think that Texas and what Texas stands for could have a meaningful impact on your investments, as I've laid out a case for.

As always, I'd suggest staying tuned, as the next few days are going to be the real test that determines whether the health-exchange technology is firmly in place, the Obamacare navigators are ready to assist consumers with their queries, and the American public is educated enough to purchase health insurance on its own. We'll do our best here at The Motley Fool to continue to offer you every angle possible on how this law may affect you personally, and your investments leading up to, and after, the Oct. 1 health-exchange kick-off date.

You've got questions? We've got answers!
Still in the dark about how Obamacare might affect you and your portfolio? Don't worry -- you're not alone. To help prepare investors for the massive changes coming to the American health care system, The Motley Fool created a special free report that makes this complex topic easily understandable. Download "Everything You Need to Know About Obamacare" and discover how the law may affect your taxes, health insurance, and investments. Click here for your free copy today.

Editor's note: A previous version of this article referred to the Affordable Care Act as a bill. The Fool regrets the error.


Read/Post Comments (18) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2013, at 2:35 PM, William11111 wrote:

    Hold out ALAMO! .. Texans know what this is REALLY all about.. If you allow it, this program along with all the other Federal Welfare programs will bring an influx of illegals into the state straight across the border.. Texas knows they are barely holding out as it is.. OBAMA is trying to convert texas into a MAJORITY liberal state.. If he can slick willie them into accepting this program he's all but there. IF Texas accepts this program its only a matter of time before Liberals control this VERY IMPORTANT BORDER STATE.. Once they take Texas its only a matter of time until the neighboring states are over ran as well.. Soon the United Nations Globalization / migration of Mexico , the USA and Canada will be full filled.. TEXAS YOU ARE ONE OF THE LAST STATES STANDING IN THEIR WAY! . STAND YOUR GROUND PATRIOTS or American Sovereignty will be no more.. This is NOT just about OBAMA CARE.. This is about LIBERALISM VS AMERICAN! Remember what The BILLIONARE SAID in 2008 regarding Obama . He said "BARAK OBAMA will be the FIRST PRESIDENT CAPABLE of bringing in a New World Order.. These are VERY CALCULATED MOVES against AMERICAN SOVERIGNTY and the over run / over throw of American Sovereignty and the merging of our nations.. 2040 ISNT THAT FAR AWAY.. remember what the FEDS TOLD YOU? "" By 2040 the MAJORITY of Americans will be speaking SPANISH?? How did they know? BECAUSE THEY PLANNED IT THAT WAY !..

  • Report this Comment On September 28, 2013, at 2:41 PM, trailortrashdog wrote:

    If The Great State Of TEXAS, can destroy

    The Muslim, Barrack Hussein Obama, Then we can say "Yeee" Haaaw !!!

    Best gift Texas could give the rest of the United States. With Obama gone, and Obama Care stalemated. "Yeee" Haaaw!!!

    This would be a great gift from Texas

    GET-ER-DONE

  • Report this Comment On September 28, 2013, at 3:07 PM, julio2 wrote:

    Another glitch is that is it a lot cheaper to pay the individual mandate tax penalty than it is to pay for health insurance even if you are subsidized. Healthy young adults are already calling for a boycott and planning not to sign up because they can see how Obamacare is screwing them.

  • Report this Comment On September 28, 2013, at 3:33 PM, soliberating wrote:

    @Trailortrashdog

    Rick Perry is a secret Muslim.

  • Report this Comment On September 28, 2013, at 4:10 PM, AshtonElder wrote:

    I say. If Texas were to save US. Let's move the Capitol from DC to Dallas.

  • Report this Comment On September 28, 2013, at 4:14 PM, RFTECH3000 wrote:

    we simply don't want this crap down here !

  • Report this Comment On September 28, 2013, at 4:15 PM, RFTECH3000 wrote:

    about the 24% uninsured, just how many of those are illegal aliens ?

  • Report this Comment On September 28, 2013, at 4:58 PM, Kngrthr wrote:

    Go get em Texas!

  • Report this Comment On September 28, 2013, at 5:05 PM, ce185 wrote:

    Amazing that Americans are fighting against health care--- you are a tool of the insurance industry. Try to look past your hatred of a black President just once- have you got a problem with getting Social Security or Medicare?

  • Report this Comment On September 28, 2013, at 6:25 PM, bummerischit wrote:

    Wh have ENOUGH illegals and deadbeats.The bummer is a socialist and we want NO part of him or his policies.

  • Report this Comment On September 28, 2013, at 7:22 PM, Pakirk53 wrote:

    First of all the federal government is not going to pay for the expansion of medicare the middle class taxpayer will. The states actions can not prevent 2.5 million low income people from accessing healthcare since it is available to anyone who takes the action steps to get an employer based plan

  • Report this Comment On September 28, 2013, at 8:33 PM, pmahcud wrote:

    Amazing how effective the Koch Bro tactics have been to conquer and divide by frightening Americans that the first black president has a secret agenda to infiltrate Texas with illegal aliens in order to control the country. Wow!

    This is what all countries do to appeal to patriotic fanaticism when in our case the real boogyman is the monopolisitic control of the medical insurance industry that has caused premiums and medical costs to skyrocket to the point that huge segments of society cannot afford it, including millions of Americans who are working around the clock!

  • Report this Comment On September 28, 2013, at 11:01 PM, bugmenot wrote:

    Did people read the reason why Texas is fighting? Obamacare will not only increase your Federal Taxes it will increase your state taxes. Obamacare is poorly constructed and wasn't reviewed. Pelosi, Reid, and Obama couldn't read it! Signed it anyway like any 8th grade drop-out signs contracts. The ACA is going to fall apart under the weight of Obama Administration ineptness and cost 10 times as much to fix. If that happens, the GOP should create a tax on elected Democrats- 110% on all campaign contributions!

  • Report this Comment On September 28, 2013, at 11:13 PM, punkytiki wrote:

    Yes, please read the "Everything You Need to Know About Obamacare" document provided in this article, so you can be brainwashed into thinking it could EVER be a good idea.

    To ce185: As far as "hating a black president," you know nothing about Texans. The fact that you bring up racism just proves all you think about is race, and that anyone who doesn't like Obama OR his policies is a racist. You sicken me.

    Texas doesn't want this Obamacare because it's complete and utter CRAP. Get educated, people! Don't believe everything the left-wing media tells you.

  • Report this Comment On September 29, 2013, at 8:38 AM, BeverlyT wrote:

    William11111 is right in his comments. The Medicaid program is state run. The federal government subsidizes each state to a certain amount each year. As I understand, Obama wants to states to sign up to expand the program and will pay "additional subsidies" paying for the entire additional cost FOR 3 YEARS, reducing the amount of "additional subsidies" every year after that, leaving each state stuck with the additional cost adding these hundreds of thousands of people to the state budget. The Supreme Court said that Obama law could NOT take away the basic subsidy the feds sent originally, but could only take away the "additional" subsidy, so Texas will still get their subsidies, but won't get the "additional" subsidies unless they cave and agree to expand the Medicaid program to take in all of these people and be stuck with supporting more than the state can afford. Rick Perry and Texas are smart, are financially well set, and can stand against taking the expanded Medicaid program Obama is trying to force on each state. After 3 years, the federal will subsidize the Medicaid program less and less until every state is financially bankrupt. And that's the truth!

  • Report this Comment On September 29, 2013, at 10:41 AM, liberalmoron wrote:

    Many people are attributing the attacks on Obamacare to racism against a Black President. That is wrong. Obama is a corrupt Chicago Democrat. As an Illinois legislator he helped bankrupt Illinois which has the 2nd highest unemployment rate in the nation! Chicago has tough gun laws where only drug gangs get to have guns. If they get caught, a Democrat Judge lets them out of jail. Corruption and incompetence is the norm for Chicago Democrats who control Illinois. Obamacare is being attacked because Democrats didn't bother to read and review the BILL! Screw the people!

  • Report this Comment On September 30, 2013, at 12:35 PM, clutch1958 wrote:

    Ah, Racism and the Koch Brothers-the go-to weapons of the left-too bad people are ignoring those more and more.

  • Report this Comment On September 30, 2013, at 12:42 PM, broknrekord3 wrote:

    Man, I can't wait to see when the US is fully functioning in 5 years even though Obamacare was enacted. Then we'll hear the horror stories of "wait 20 years! Then you'll see!"

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