There are few, if any, pieces of American legislation that have been as polarizing as the Patient Protection and Affordable Care Act.
Known in its shorthand as Obamacare, this transformative new law was created to drive long-term health-care costs lower while simultaneously decreasing the number of uninsured citizens in this country. By requiring all citizens to purchase health insurance or face a penalty, the idea would be that younger, healthier adults' premiums would help offset the higher costs associated with treating people that have preexisting conditions.
Like Medicare Part D, the implementation of the PPACA was scripted perfectly on paper, but as happens during all major health reforms, glitches arose. For Obamacare, those glitches manifested primarily in its health exchange networks -- specifically the federally run health exchange, Healthcare.gov. For the first two months following its first day of open enrollment the site was practically unusable for the 36 states it serviced. All told, fewer than 365,000 people were able to complete their Obamacare enrollment over the first two months.
The past two months, however, have represented something of a rebirth for Obamacare. Enrollment has jumped by more than 2.6 million members since the end of November to 3 million as of late January thanks to the Dec. 24 coverage cutoff for Jan. 1 coverage that has come and gone, and the Centers for Medicare and Medicaid Services announcement that Accenture (NYSE: ACN ) would be replacing CGI Group (NYSE: GIB ) as the primary architect behind Healthcare.gov as of Feb. 28 when CGI's contract expires.
Here we go again
Earlier this week, however, things took a very unexpected turn once again.
On Monday, the Obama administration announced a second delay of the implementation of the employer mandate for midsized and large companies (those with 50 or more full-time employees). The employer mandate is the actionable part of the PPACA for businesses of 50 or more full-time employees, which requires them to provide health-insurance plans and subsidize those employees when needed to ensure that their health-care premiums do not exceed 9.5% of their income. If premiums do exceed 9.5% of income, those employers will face a penalty ranging from $2,000 to $3,000 per employee who is in violation. The employer mandate was originally expected to be implemented on Jan. 1 along with the individual mandate, but was pushed back to a start date of Jan. 1, 2015, in early July.
This new delay now allows midsized and large businesses, which make up about 4% of all businesses in the U.S. but employ a huge chunk of our nation's workforce, until Jan. 1, 2016, to comply with the regulations of the employer mandate. In other words, big business is getting two extra years to comply with Obamacare than originally expected prior to July. The delay does not, however, affect small businesses or individuals under the individual mandate, meaning individuals are still required by law to purchase health insurance and small businesses will be able to utilize Healthcare.gov when open enrollment for 2015 begins on Nov. 15, 2014.
Do these delays destroy Obamacare's credibility?
With Obamacare's unfavorable sentiment at or near a record high, depending on your poll of choice, one can only assume that this delay will be viewed with a discerning eye by Obamacare's opponents, and possibly even by its supporters. The real question we need to ask here is whether or not Obamacare's credibility is shot after this most recent delay.
In order to answer this, I think we have to weigh both the positives and negatives associated with this delay.
Let's first look at why this delay is bad news for Obamacare.
Perhaps less damaging than not requiring employers to take care of their full-time workers until 2016 is the sheer fact that we have another key date delayed. Recapping here since July, we've had the employer mandate delayed twice; the December coverage cutoff date was moved back twice; 2014's open enrollment period was moved back six weeks until after the November elections; the Spanish health-exchange portal was delayed in its launch; citizens who had their policies cancelled because of beefed-up health benefits and couldn't reasonably afford insurance on Obamacare's health exchange received a one-year individual mandate exemption; and small businesses got a reprieve until the next open enrollment period. With the exception of the individual mandate, none of the above deadlines has stuck, making it very difficult for the Department of Health and Human Services to instill a sense of urgency to get uninsured individuals to sign up.
The delay is also bad news in the context that Obamacare is already viewed unfavorably by a majority of citizens in a number of polls. Further delays threaten to push that figure higher, which could threaten the ability of the HHS and insurers to convince young adults - who are crucial to Obamacare's success -- to sign up.
But this delay could also be good news
It might be hard to believe, but this delay could also represent good news for Obamacare and enrollees.
For one, it's quite conceivable, following the initial health-exchange rollout in October, that the HHS simply doesn't believe CGI and Accenture had the tools necessary to incorporate small business and larger business into Healthcare.gov in less than a year. Considering that it took more than two months to figure out how to fix Healthcare.gov's glitches -- and they're still working out kinks, such as adding a baby to a family plan -- the general idea is that it's better to be safe than sorry when it comes to the software behind the exchanges. While this will delay the implementation of the employer mandate, it should make for a smoother transition with the ability to adequately test the software prior to the Jan. 1, 2016 implementation date.
Perhaps most importantly, it will allow insurers more time to transition and adjust to the uncertainties associated with Obamacare. The lack of young adults that have signed up through Dec. 28 (just 24% of total enrollees) is well below the established goal of 38% by the HHS. This shortfall could necessitate premium increases in 2015 by insurers, but no one is exactly sure how that'll work because there's no precedence for any sweeping reform like Obamacare before.
In speaking with CNBC's Squawk Box recently, Aetna (NYSE: AET ) CEO Mark Bertolini threw around a guestimate whereby he could see premiums rise 15% next year. Without having to worry about the synergy of enterprise accounts, which is big business for companies like Aetna and CIGNA, these insurers can instead focus on studying their individual enrollment data in order to submit well thought out premium rates to the government by the beginning of May.
Here's my take
In my personal opinion the delay certainly isn't a death knell by any means to Obamacare or the employer mandate, but I have to admit that the delays themselves are getting a bit old and ruining the credibility behind any of Obamacare's deadlines.
At the moment, the most crucial deadline is the rapidly approaching March 31 coverage cutoff date to obtain health insurance in 2014 without violating the individual mandate. This is when I truly expect enrolment to surge as those who oppose the law, but don't want to violate the individual mandate, will sign up.
For insurers and medical device makers, the delay is a mixed bag. As I mentioned above, delaying the employer mandate will allow more time for insurers to analyze their enrollment data in order to make smart premium pricing decisions for the individual market. But what it may not do is help out medical-device makers that develop high-priced equipment, such as Intuitive Surgical (NASDAQ: ISRG ) with its $1.5 million da Vinci surgical system. Because the employer mandate delays create their own uncertainty, and both hospitals and insurers dislike uncertainty, you could see pocketbooks tighten industrywide, making it more difficult for Intuitive Surgical to sell its soft tissue surgical systems.
I do feel pretty confident about one thing, however: The HHS and CMS need to stick to their guns on the remaining deadlines or there is a serious chance that the enforceability of the laws behind Obamacare or the urgency to enroll could be lost.
Let me know what your take is of this latest delay in the comments section below.
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