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Were Obamacare's Health Exchanges Doomed From the Start? This CEO Thinks So

We're officially halfway through the first month of the launch of state and federally run health care exchanges under the Patient Protection and Affordable Care Act, better known as Obamacare, and the reviews and experiences couldn't be more mixed.

Putting aside the politics behind the law for a moment, the sheer difference between the functionality of the state versus federally run exchanges has been painfully obvious. While the 14 state-run exchanges haven't been without flaws, these individually architected systems have largely been working well in providing an online marketplace for insurance plans.

The Guardian reports that Kentucky, Nevada, New York, and Washington state (my home state) have been among the top of the list in early enrollments. As I've noted previously, that's good news for the visible architects behind these exchanges such as Xerox (NYSE: XRX  ) which helped design and implement the Nevada health exchange. Visible successes like this can translate into multiyear contracts for Xerox down the road.

The federally run exchanges, though, have seen sign-ups move as slow as molasses. The problem has boiled down to, the Department of Health and Human Services' landing page for the 36 states running off the federal government's health exchange. A mixture of poor website design and overloaded servers has led to what you might call around-the-clock glitches since the Oct. 1 kickoff. With no concrete enrollment figures from HHS and no end in sight for the glitches, consumers and investors in Obamacare-related companies are beginning to question when it'll all end. As for Aetna (NYSE: AET  ) CEO Mark Bertolini, he questions why it began at all in the first place.

Bertolini's harsh criticism of Obamacare's federally run health exchanges
In an interview with CNBC's Squawk Box yesterday, Bertolini laid out multiple harsh criticisms against Obamacare's federally run health exchanges. "There's so much wrong, you just don't know what's broken until you get a lot more of it fixed," he said.

Mark Bertolini, Source: Aetna.

Bertolini said was put together "on the fly," with Aetna not even being involved in functionality testing of the site until about one month prior to its live launch. While there's no context to the length of time this system should have been tested based on the enormity of this overhaul, I can say with some certainty that it should be a lot longer than one month.

Furthermore, Aetna's CEO offered plenty of skepticism as to whether enough young adults would sign up to help offset the costs of enrolling older adults with more health problems. If that doesn't happen, Obamacare wouldn't be a profitable venture for insurers, and premiums would inevitably move much higher.

Bertolini also alluded to an idea that we've touched on previously -- that younger adults have grown up in an era in which they're accustomed to technology. If the system doesn't work the first time they try it, those young adults may be less willing to give it a second chance. With that population being the key to success for Obamacare, this clearly isn't a good sign to this major health insurance CEO.

The reality of the rollout
The "big question," as Bertolini alluded to in his interview with CNBC, is when the exchanges will be fixed and fully operational. The actual answer to that question probably lies somewhere in between the HHS estimate of a few weeks and Bertolini's prognostication that it could be up to three years before everything meshes.

Although there is really have no precedence for a cloud-based system rollout of this magnitude that accesses so many different branches of the government, we can look back to the 2006 implementation of Medicare Part D to see that glitches were common then as well. For Medicare Part D, enrollment verification, incorrect premiums, and even credited rather than charged premiums were common occurrences up to 10 months after the start of the program on Jan. 1, 2006. Everything clearly worked out for this prescription drug plan, but it took time and patience on enrollees' part for that to happen.

What does this mean for your portfolio?
The big thing investors will want to realize is that these early stage problems are fixable, but that they need to remain patient. In other words, short-term traders are in for a rude awakening if they hoped to see an Obamacare boost from health-care companies while short-sellers may wind up seeing some very near-term gains.

The insurers are really a mixed bag when it comes to how's malfunctions could affect their membership. WellPoint (NYSE: ANTM  ) , the company behind Blue Cross Blue Shield, could see an even distribution of benefits and weaknesses. WellPoint has a huge presence in California and New York, where enrollments are moving along strongly, while it struggles in some of its other states operating on the federally run health exchanges like Missouri and Indiana.

For Aetna and Cigna  (NYSE: CI  ) , there could be a little more near-term pain than gain.

Aetna actually pulled out of five of its originally proposed 14 state exchanges as the deadline for the kickoff drew closer; interestingly enough, many of those states are among the state-run group that's doing just fine. To put it mildly, Bertolini should be just as miffed at himself as the inauspicious start of Obamacare's health exchanges.

Cigna, likewise, is going to struggle with moderate exposure to south and southeastern states, which are almost exclusively part of the federally run program. This isn't to say that neither Cigna nor Aetna will be successful in signing up young adults and other new members, but the initial wave that many investors had expected is likely going to be pushed further down the road.

As I've said before, your best bet is to stick to your long-term thesis (whether it be bullish or bearish), accept that a glitch-filled start to the health exchanges was fully expected, and ignore the political rhetoric that's unlikely to have much, if any, material impact on your investing thesis in the health insurance sector.

Big changes -- even glitches -- could mean big opportunities for investors
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 impact your taxes, health insurance, and investments. Click here for your free copy today.


Read/Post Comments (7) | Recommend This Article (2)

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 October 16, 2013, at 8:58 AM, cnc31us2002 wrote:

    how much of the jamming of the website is done by tea party.

  • Report this Comment On October 16, 2013, at 10:08 AM, earnestbunbury1 wrote:

    He's clearly lying. He knows full well that it wasn't three years to get ready, it was just months because of states dropping out of government subsidies to expand Medicare (Our state will make people suffer rather than side with Obama- that'll show him!) or states dropping out altogether, leaving the burden on the Federal exchanges.

    The reason that Obamacare was employed even though it wasn't ready was because if it works out as well as it has in Massachusetts since 2006 then people will vote out tea partiers in the midterms next year. Just about the time politicians are going campaigning people will realize that Obamacare is not going to 'destroy our country'. this is also why businesses were given a year pass- they won't vote as the masses do.

    It was funny watching Sibelius squirm on 'The Daily Show' trying NOT to say that.

    The Tea Party is a violent reaction to the recession.

    They are out of control and need to be voted out.

  • Report this Comment On October 16, 2013, at 10:11 AM, earnestbunbury1 wrote:

    They are NOT (question above) JAMMING this comments. This is a business site so everyone has a tendency to think more conservatively. K Street lobbyists DO flood comments sections of web stories, to make people feel they must be wrong about whatever the stories are about, but the business sites like these are just full of greedy money grubber's like me. Just not very smart ones. (I'm rich)

  • Report this Comment On October 16, 2013, at 10:52 AM, YouDonotSay wrote:

    What the health care law should have been is a single pair program with everyone entered into the program including Congress. As it is the many people in the Tea Party part of Congress speak out against Government health care as the scream to have their Government funded health care given to them. The leaders of industry don't care for the American work only for the millions they can get before and when removed from office.

  • Report this Comment On October 16, 2013, at 1:05 PM, Vincelane wrote:

    What do you expect Aetna to say, that it's a great success? The insurance companies are the very ones Affordable Healthcare will hurt because if they want to survive it they will have to make their prices competitive and that means less profits.

  • Report this Comment On October 21, 2013, at 3:16 PM, Notorium wrote:

    Bertolini should not be so quick to throw stones: his own companies foray into healthcare IT, the Healthagen accountable care solutions group, has been plagued by delays and failures in software deliverables and significant problems of overpromising and underdelivering. The only people who will benefit from Bertolini's healthcare IT expertise will be those who short the stock once strategic failures (and associated losses) become material.

  • Report this Comment On October 25, 2013, at 11:22 PM, merleyb4 wrote:

    Really, Really Scared of this Traitor. The Woman behind all his decisions is Valerie Jarrett, Radical Leftist born in Saudi Arabia and all her Muslim beliefs. But, yet all the sheep just look the other way. When are people going to stand up to this Dictator??? When?

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