Will Obamacare's Individual Mandate Be Delayed?

Here at The Motley Fool, we don't really care for party politics getting in the way of our investments. Often, politics have little to nothing to do with our long-term investing thesis. But we also witnessed recently with the government shutdown and near debt default that lawmakers on both sides of the aisle do still have the ability to greatly affect the economy.

Another area where lawmakers have had a gigantic impact in recent years is in the health care arena -- specifically with the passage of the Patient Protection and Affordable Care Act, better known as Obamacare, which will revamp the way we pay for and receive health care. For the most part, support for and opposition to Obamacare has been right along party lines (Democrats generally in favor and Republicans opposing). In fact, I would contend that the primary reason behind the lengthy government shutdown was a stalemate between both parties over the future of the medical device excise tax. But with the rollout of the federally run health exchange, Healthcare.gov, not going as planned, those party-line distinctions could be beginning to blur a bit.

Source: White House on Flickr.

Rumblings from within
According to an ABC News report, certain members of the Democratic Party are now publicly calling for some form of delay or extension to the key component of Obamacare: the individual mandate.

The more extreme action call came from House of Representative member John Barrow (D-Ga.), who yesterday suggested that the president delay the implementation of the individual mandate, which is set to go into effect on Jan. 1, 2014. The other idea floating around comes from Senator Jeanne Shaheen (D-N.H.), who is urging Obama to extend the coverage cutoff date beyond March 31, 2014, given the innumerable glitches observed thus far with Healthcare.gov.

I try to keep my nose out of politics as much as is reasonably possible, but the calls for an individual mandate delay or extension from within the Democratic Party definitely came as a surprise to me and many other people. This leaves us with a couple of scenarios where there will be both winners and losers if Obamacare's individual mandate is delayed, or the coverage cutoff date pushed back. Let's have a closer look at how some of these scenarios might play out and highlight what could happen to your investments in the process.

What if Obamacare's individual mandate gets delayed?
So, what exactly would happen if the president and Congress decided to push back the enforcement of the individual mandate for a year? My suspicion is that we'd see more negatives than positives.

First off, it would be particularly bad news for patients with pre-existing conditions or those who are sick and in need of care. One of the primary reasons Obamacare laws are in place is to eliminate insurers' ability to deny coverage to patients with preexisting conditions. If the individual mandate is scaled back, then insurers' need to cover those with pre-existing conditions may be as well.

For the insurers themselves, it would be a bit of a mixed bag. On one hand, the big three insurers that reached into their pockets and spent a fortune in the wake of Obamacare's passing -- WellPoint (ELV 0.15%) with its purchase of Amerigroup, Cigna (CI) with its purchase of HealthSpring, and Aetna (AET) buying Coventry Health Care -- will be left waiting even longer for their membership numbers to rise. No enforceable mandate means enrollment figures will only marginally move higher in a best-case scenario.

On the flip side, no individual mandate would give insurers the ability to boost their premium pricing and keeps them in control of their own medical loss ratio (the amount they need to spend on medical care relative to how much premium is generated), which Obamacare would have capped at 80%. It also would give them the ability to turn away patients with pre-existing conditions.

A delay would also be a crushing blow to the information technology architects behind Healthcare.gov like CGI Group (GIB -0.37%). As I've discussed previously, it's not the money aspect that would become a problem for CGI since it continues to be paid for services rendered so much as its tarnished reputation could cost the company future jobs.

What if Obamacare's coverage cutoff date gets extended?
What seems like a more plausible course of action is the option suggested by Shaheen of extending the cutoff coverage date.

The downside of pushing this date out is that it removes the sense of urgency from the equation that makes consumers buy insurance. If the individual mandate coverage cutoff is pushed back even three months, you'll see potential buyers holding off even longer before making their purchase. While that may not be bad news for Obamacare over the long run, it has the potential to rub investors the wrong way -- especially investors who have  boosted the share price of WellPoint, Cigna, and Aetna, which expect hefty enrollment figures in the next couple of months.

But this scenario might be best suited for Americans living in the 36 states where the federal exchange operates as the health insurance marketplace.

As we look at the federally run health exchange now, it's pretty evident based on Obama's speech earlier this week and the rumor of Verizon's (VZ -0.53%) hiring via USA Today that the technical problems are much worse than anyone had first imagined. It's therefore looking less likely that every resident in all 36 states will have an equal opportunity to sign up for health insurance by the March cutoff date. Pushing the coverage cutoff date back may wind up deflating the pride of some of the law's biggest supporters and may inconvenience insurers a few more months, but it would almost certainly benefit the American people by giving technicians a chance to get things right and get everyone on equal footing where they do have access to insurance and proper pricing.

Where do we go from here?
To use a football analogy, right now Healthcare.gov is like an injured player. We know the system is injured; we just don't know how severely or how long it'll be out of commission. It could be a "season-ending" injury that requires surgery (or in the case of this analogy rebuilding Healthcare.gov from scratch). Or it could be out a few games, which means Verizon or potentially another outside contractor could fix the problems within weeks.

There are definitely a lot of options at the disposal of Obama and Congress, but the one constant that remains throughout this process is that interest in Obamacare, based on Healthcare.gov's 19 million visits through last Friday, remains high. Once again, it appears that the idea of Obamacare isn't failing, but the architecture behind the website certainly is in shambles. Unfortunately, until that gets fixed all bets are off.