4 Million Enrollees Later, Has Obamacare Succeeded?

Obamacare has made real progress since its stumbles in the opening days of October. Since its much-maligned launch, the Affordable Care Act has picked up millions of sign-ups for private health care insurance to this point, and President Obama's signature act racked up another milestone this week. Tuesday, the administration announced that Obamacare sign-ups have surpassed the four million mark, no mean feat considering how slowly the program grew during the first two months of its life.

For UnitedHealth Group (UNH -1.03%), Humana (HUM 0.82%), and other major health insurers, however, it's hard to say whether Obamacare is a big success. Between cuts to Medicare Advantage still on the way for next year and ongoing sluggish numbers of young people signing up, can America's leading medical insurance firms thrive behind the ACA's performance in the coming months?

Is Obamacare's 2014 as good as it looks?
First, it's important to look at that four million sign-ups mark in context. 

Source: White House on Flickr.

The ACA is still far behind the White House's initial goal of seven million enrollees during its first six-month launch window, which closes with the end of March, and while the administration still has a little more than a month to reach that goal, it will be a challenge to gain 3 million new sign-ups. While there's still a week left in the month, February's numbers actually trail January's sign-ups so far: The administration announced more than 1.1 million new Obamacare enrollees in January to bring the grand total to 3.3 million, so this week's 4 million-strong mark represents growth of just 700,000 through February thus far. It will be challenging for Obamacare to round up another three million in the next five weeks.

More significantly for leading insurers like UnitedHealth, young adult enrollment remains far weaker than necessary to keep costs down. The Obama administration aimed for a goal of around 40% of total sign-ups to come from the youth pool; that mark stood around just 25% as of Feb. 1. While some analysts have pointed out that a gulf between 25% and 40% might only result in limited premium hikes for enrollees, other companies around the industry have been less bullish.

Aetna's (AET) CEO took a particularly hard stance earlier this month, pointing out that the new law's lean toward older, less-healthy patients likely will mean Aetna will lose money on Obamacare sign-ups in 2014. Aetna reportedly signing up 135,000 new enrollees through the exchanges by the end of January, but the company hasn't indicated whether future years under Obamacare could lead to gains. Still, with only around 3% of Aetna's business coming from the individual market, the company has limited exposure to the exchanges and Obamacare isn't exactly killing the company's outlook.

Questions remain for 2014 and beyond
While Aetna and other companies may feel the pressure in 2014 from Obamacare, these early warnings make one thing all the more clear: The Affordable Care Act's ultimate fate as a success or failure will require far more than one year to decide for leading health insurers, despite the increased enrollment numbers the administration has touted lately.

Take the Medicare Advantage cuts scheduled to arrive in 2015. UnitedHealth and Humana, both large players in the Medicare arena, face 3.5% to 4% cuts to Medicare Advantage payments in 2015, although those numbers aren't final. Both companies have a lot on the line: UnitedHealth's Medicare Advantage segment was its fastest-growing member pool in 2013, with 17% subscriber growth, and cuts will increase the company's medical cost ratio, which is the percentage of premiums paid out for medical costs.

While rival Humana's management sighed in relief that cuts didn't come in as high as the 6% to 7% previously feared, Medicare Advantage revenue still makes up the majority of the company's total sales, according to its latest 10-K filing. Cuts, even less than expected, will hurt.

Then there's the question of Obamacare's technical foundation. Tech glitches plagued the Affordable Care Act's federal exchanges early on, and smoothing over some of the worst no doubt has helped the law's progress in the last two months. With Accenture (ACN -0.19%) now stepping in to operate Obamacare's web site operations, will further technical issues be ironed out by the time 2015 rolls around? If so, that will help promote better sign-up figures the for law's second year -- and in turn, help insurance companies succeed through Obamacare in the long run. Accenture is well-liked in the corporate world, but it will take time to see whether or not the firm can keep technical problems on the exchanges to a minimum.

Despite these lingering questions, however, Obamacare has certainly outpaced its early sluggishness, even if it is still behind the pace to meet the administration's initial guidance. Keep a close eye on March's growth, even as the initial launch window comes to a close.

Will March bring new momentum?
Obamacare has implemented huge changes to the health insurance landscape for sure, and it's understandable for many health insurance giants to experience some frustration with the rocky start the new law has experienced. For investors, however, 2014 is only a stepping stone toward the ACA's ultimate impact on the insurance landscape. If Obamacare can post respectable growth through March and end its first six-month enrollment period on a high note, the law will be poised to carry momentum forward for what could be a big year ahead for both customers and investors -- even if it doesn't meet that 7 million sign-up figure.