Obamacare More Adverse Than Anticipated

The enrollment data is out, and Humana's concerns may be justified.

Jan 13, 2014 at 7:00PM
The Obama Administration just released some hotly anticipated Affordable Care Act data. Like all things Obamacare, the facts can easily be twisted by both the law's supporters and detractors.  
One of the most watched figures is the mix of customers using signing up through Obamacare's online exchanges like healthcare.gov. It's important to see younger customers balance out the older and presumably sicker ones. Otherwise, the insurers could end up with an adverse selection, which has raised concerns from higher premiums next year to actuarial death spirals that would see the law fail.
So far the earlier returns have those 34 and under making up less than a quarter of the overall pool, while the oldest demographic of 55 and higher is represents a third. Obamacare detractors will point out that at 24%, the number of young signups is too low, with the ideal mix loosely referred to as a third -- but in reality it may need to be as high as 40% to make the law work well. Proponents of the law would argue that the sickest people are the first in line and the healthiest will wait to the last minute in March to sign up, so these early returns are actually promising. However, the ones with their businesses on the line, the big insurers, are sounding the alarm.
Humana's (NYSE:HUM) regulatory filing last week noted that the customer mix on the insurance exchanges was worse than they hoped, arguing that the retrofitted ability for customers to keep existing plans would encourage young, healthy people with cheap plans to avoid signing up for the more robust, but expensive, Obamacare coverage. This, combined with potentially steeper 2015 Medicare Advantage cuts, could make the next few years challenging for managed care companies.
In the following video, Motley Fool health-care analyst David Williamson discusses the problems adverse selection poses to the big insurers. Watch and find out why Humana's strategy may have put it at bigger risk than its competitors. This video also explains why WellPoint's (NYSE:ANTM) recent sale of its 1-800-CONTACTS business is similar to having the Oakland Raiders dump QB bust JaMarcus Russell.

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David Williamson has no position in any stocks mentioned. The Motley Fool recommends and owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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