Obamacare Enrollment: Does This Number Doom Health Care Reform?

The Department of Health and Human Services' report Monday detailing enrollment in Obamacare through December was chock-full of data.

  • There have been 53 million visits to the state and federal websites (when they weren't down, of course).
  • Nearly 2.2 million people have selected a plan on one of the marketplaces.
  • Most people 60% selected a silver plan; only 7% shelled out for a platinum plan.
  • A vast majority -- 79% -- got subsidies.

But the most important number? 24%.

That's the percent of people that selected a plan who were 18 to 34 years old, a group assumed to be relatively healthy.

To work, the Affordable Care Act, commonly referred to as Obamacare, needs around 40% of enrollees to come from that group because they'll, on average, cost the insurers less than they pay in premiums. The difference is used to cover those who have higher-than-average medical costs.

According to the Kaiser Family Foundation, adults aged 18 to 34 make up about 40% of the total uninsured population, so they're clearly not signing up at the same rate as those in other age brackets.

Young, invincible, and procrastinating
The late enrolment for young adults isn't particularly surprising. Most are likely healthy and were uninsured because they didn't think the cost of health insurance was worth the risk of getting sick. Open enrollment continues through March, so why not avoid paying the premiums for a few more months?

In December, young adults picked up their rate of enrollment. For the month, eight times as many young adults under 35 signed up for Obamacare on the Federal exchange than did in October and November combined, which beat the seven-fold increase for the overall population.

It's possible some people are shopping on the exchanges but buying at the individual insurer's websites, much like travelers do with airline and hotel websites like Expedia and Travelocity. A single adult making above $46,000 doesn't qualify for a subsidy, so there's little incentive to buy on the site. 

Of course, most people making above $46,000 are probably covered under their employer's plan, but there are certainly some people who are self employed or working for small companies that don't have coverage.

What if they don't show up?
Insurers will have to raise rates. That's how insurance works.

Health insurers, such as UnitedHealth Group (NYSE: UNH  ) and Aetna (NYSE: AET  ) , make educated guesses about the combined medical expenses for everyone who will enroll in a given plan, add overhead and a profit margin, and divide by the number of enrollees to get the cost per person.

When they guess wrong, the profit margin gets eroded. Last week, Humana (NYSE: HUM  ) said its projected enrollment was "more adverse than previously expected," although it backed its previous 2014 earnings guidance. At this point, it isn't clear if Humana just guessed wrong, or if UnitedHealth, Aetna, and the rest of the insurers could suffer because the risk pool is truly worse than the industry expected. Presumably, insurers factored in the late enrollment by young adults, so just because we're under the 40% goal doesn't mean insurers are losing money.

Before Obamacare, insurers kept costs of individual plans down by refusing to enroll people with preexisting conditions. Now, much like employer-sponsored plans that accepted preexisting conditions, insurers are counting on the healthy to cover costs for the sick who can no longer be excluded. If young adults ignore the mandate and pay the penalty, the risk pool will end up being a lot more costly, leading to increased insurance costs in 2015 and beyond.

Interestingly, because rates are set by state, the number of young adults in each state will affect any price increase we see. Adults under 35 only made up 17% of the enrollees in Arizona and West Virginia. The District of Columbia topped the list, with 44% of enrollees coming in that age category.

Give it time
While 24% is the most important number, it isn't the final count. Enrollment in January, February, and especially March will ultimately determine whether insurers will have to raise rates next year.

Having young adults make up 40% of the enrollees is ideal, but if we don't hit that breakdown by March, it isn't the end of the world. Insurers usually don't build models based on the ideal circumstances, and the sustainability of Obamacare isn't going to be determined by a single year.

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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 January 15, 2014, at 11:41 AM, Zebra365 wrote:

    The real number that dooms Obamacare premiums is $32,108 per year. That is how much the Preexisting Condition Insurance Program (PCIP) spent on each enrollee in 2012. http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annu...

    Those people with preexisting conditions, previously not covered by insurers, who are currently spending out of pocket can be expected to be the first to enroll in the Obamacare plans.

    How many healthy people paying premiums but not costing the insurer anything must sign up to pay for these expensive sick people?

    The concept of insurance is to collectively share risk. But when you sell insurance to people whose house just caught on fire you are no longer sharing risks, you are sharing costs. The premiums will rise and the low cost people will flee the insurance pool.

    This is called the insurance death spiral, and the penalties for not buying insurance will not be enough to convince low-risk people of any age, to share in paying those rising premiums.

  • Report this Comment On January 15, 2014, at 1:06 PM, TRILLIBRO wrote:

    It's a take over, and the destruction of the world's finest medical industry, not reform.

  • Report this Comment On January 15, 2014, at 2:27 PM, bugmenot wrote:

    The real question is: Was the ACA Bill a mess because it was not read and reviewed by intelligent people? Did Obama and his Democrats create a political corruption bill to fulfill their bribes? Is Obama more corrupt than Putin? Are Pelosi and Reid fundamental criminals of a Ponzi Scheme? Should the Democrat Party be declared a Terrorist Group and members sent to Gitmo? Yeah, things are bad in Washington. Osama gave Obama the power!

  • Report this Comment On January 15, 2014, at 4:29 PM, hebo wrote:

    don't worry americai used your credit card to go to Hawaii,,,, every other week

  • Report this Comment On January 16, 2014, at 2:19 AM, LovelyAgrawal wrote:

    Interesting article. But I got an interesting article regarding "Should I enroll on obamacare"

    http://www.azadkhayal.com/should-i-enroll-for-obamacare/

  • Report this Comment On January 16, 2014, at 9:59 PM, ctyank99 wrote:

    No one wants this socialist law and no one ever did, except for the minority of socialists... some call the Democrats.

    Centralized planning is inherently undemocratic in Hayek's view, because it requires "that the will of a small minority be imposed upon the people". Hayek

  • Report this Comment On January 16, 2014, at 10:00 PM, ctyank99 wrote:

    What we need to do is get rid of the Democrats that voted for this awful law! Vote them out! Donate to a Republican, help a Republican campaign, and vote Republican! Then we can repeal Obamacare and fix health insurance with free market solutions.

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