Will Obamacare Prove to Be a Disappointment for Those Who Need It Most?

It's been a long road coming, including two full months rife with technical glitches on the state and federal side of Obamacare's health exchanges, but the new health-care reform law is now firmly in place, and through the first week of its implementation, everything appears to be running smoothly.

Although we likely won't have firm state-by-state data until next week from the Department of Health and Human Services, I'd call it a pretty conservative estimate that more than 2 million people signed up for health insurance over the past three months, right in time for the insurance coverage cutoff date of Dec. 24, in order to be covered by Jan. 1, 2014.

Still, this figure is pacing well below projections from the HHS, which had forecast 7 million paying enrollees by March 31, the final day to enroll for health insurance coverage without violating the individual mandate in 2014.

Source: White House on Flickr.

When speculation gives way to implementation, perceptions change
Much debate over the past couple of years has been given to who Obamacare would benefit the most, and who would suffer the greatest. Let's face it, no law benefits everyone, and there's bound to be higher costs involved for some groups along the way in order to pay for the complete overhaul of our health-care system. What's interesting, though, is that speculation versus implementation can completely change your perception of who benefits and who doesn't from this controversial law.

For the past couple of years, much emphasis has been placed on the undue burden that middle-class, young adults, and upper-income earners would come to bear from Obamacare. To some extent, this has remained the case, as with young adults who are being counted on by insurers to enroll and balance out the higher medical costs associated with elderly and terminally ill patients.

However, upper-income and middle-class consumers haven't been suffering to the degree that opponents of the law would have projected. Some of that could be pinned on a recovering U.S. economy, which has left consumers with more disposable cash in their pockets. The other often overlooked factor is that while Obamacare itself may be overwhelmingly disliked -- just a 35% favorability rating compared to a 62% disapproval rating according to the latest CNN/ORC International poll -- the desire to have health insurance is overwhelming among upper-income and middle-class citizens. In other words, the ideal for reform is alive and well, and it wouldn't surprise me one bit if many of the new enrollees are middle-class Americans.

Low-income individuals and families draw the short straw
Ironically, the subgroup that I feel could be left out in the cold by Obamacare is lower-income individuals and families -- the subset I originally expected to benefit the most.

Don't get me wrong, some locales are going to work out perfectly for low-income individuals and families. Traditionally Democratic states such as California, New York, and Washington, which have welcomed the expansion of their Medicaid programs with open arms, are going to be able to use federal assistance generated through taxation (think the medical device excise tax and surtaxes on investment income for upper-income earners) to help lower-income individuals who can't afford health care on their own.

Unfortunately, around half of the nation's states didn't agree to expand their Medicaid programs, and as a result, millions of low-income citizens are left in health insurance limbo. Before you go berating the states that chose not to expand their Medicaid programs with what was essentially free federal assistance on the table, keep in mind that starting in 2016 and running through 2022, the federal government will scale back its portion of Medicaid cost-covering in participating states from 100% to 90%. In other words, nine years from now, these states contended that they would be paying a considerably higher and potentially unsustainable cost to cover lower Medicaid-eligible people and families.

Although these lower-income individuals are exempt from the individual mandate penalties, Obamacare's beefed-up benefits requirements have dramatically boosted premiums for lower-tier insurance packages, all but ensuring lower-income citizens are priced out of the market. Coupled with half the nation refusing to expand their Medicaid program, including Texas, which is home to the largest number of Medicaid-eligible citizens, lower-income individuals may have drawn the short straw once again.

How this could be bad news for your portfolio
If Obamacare proves of little help to a majority of lower-income individuals in this country, it could portend bad news for select insurers and hospital providers who had been counting on strong enrollment figures.

Aetna (AET) and CIGNA (CI), which spent $5.7 billion and $3.8 billion on the acquisitions of Coventry Health Care and HealthSpring, for example, could find that those purchase premiums were far too high in order to move into the government-sponsored health insurance market. WellPoint (ELV 0.22%), even though it ponied up $4.5 billion for Amerigroup, enjoys the privilege of operating in some of the top-performing state exchanges, such as California's. That alone should save it from poor results while Aetna and CIGNA may struggle to meet Wall Street's expectations.

Other insurers, which focused on lower-income households long before these three national insurers entered the fray, may struggle. In particular, Centene (CNC 0.43%), which operates in a number of states that chose not to expand their Medicaid program, could be leaving a lot of potential members on the table because of Obamacare's broadened minimum benefits provisions.

Finally, hospital operator Tenet Healthcare (THC 0.39%) may see minimal positive impact from Obamacare relative to its peers since many of its hospitals are operated in states that aren't expanding Medicaid. In other words, patients that didn't have health insurance because of their income previously still probably won't, and those who did have health insurance still likely do. This means the percentage of revenue that Tenet writes-off as uncollectable each year because of uninsured and underinsured people is unlikely to budge much.