Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



2 Ferns Controversy = Obamacare Success?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

The administration reported 800,000 more people signed up for coverage through health-care exchanges so far this month, bringing the total of newly enrolled to 5 million. Despite the surge heading into the final two weeks, the administration is unlikely to hit its pre-launch target of signing up 7 million uninsured Americans in the program's first year.

However, the spike in enrollees this month could prove welcome news for insurers including United Healthcare (NYSE: UNH  ) and Aetna (NYSE: AET  ) that are participating in the public exchanges. So far, those insurers have likely been unimpressed by the number of young people signing up for coverage. But that may have changed this month following the President's wide-ranging marketing push that included a visit with Zach Galifianakis on his web show Between Two Ferns.

Winning the younger demographic's attention
President Obama's Between Two Ferns visit clogged Facebook and Twitter feeds, making it one of the most successful pitches to young people so far. The administration reports that in the first 24 hours after airing, the show was the biggest source of new visits to the website, causing web traffic to the site jump 40% on the first day it aired.

As a result, it may not be a stretch to assume that a good portion of those signing up for coverage last week were in those younger age cohorts. United and Aetna would like that to be the case. Exiting February, only about 10% of the approximately 11 million potential enrollees between 18 and 34 years old have signed up for coverage.

If plans offered by United and Aetna through the exchanges are to be as profitable as intended, they'll need that number to be higher. After all, a larger percentage of healthy, young patients would go a long way to offsetting costs tied to caring for older patients, some of whom had previously been denied coverage due to pre-existing conditions.

Assuming that the surge heading into the deadline for coverage is skewed toward younger people, United and Aetna could see the benefit of their enrollment show up in future medical loss ratios, or MLRs. Those MLRs reflect how much of the premiums insurers collect are paid back out in the form of patient care.

Stalling profit this year?
Diversified large insurers like United and WellPoint (NYSE: ANTM  ) have approached 2014 cautiously. Both companies have been guiding investors to expect profit to stall this year.

United is guiding for earnings of $5.40 to $5.60 per share in 2014, about even with the $5.50 it made in 2013, and WellPoint expects earnings to be above $8, but that would mean it could end up shy of the $8.20 it earned last year. 

A major source of their concern is likely centered on their inability to accurately model for the composition of enrollees in the Obamacare plans. If the average age of the newly insured is higher than initially modeled, MLRs may be high. If the average age is lower than predicted, the MLR may come in below plan. For investors, the latter would be more welcome given that a lower MLR would provide insurers with a better shot at over-delivering on their tepid profit forecast.

Fool-worthy final thoughts
The most recently released data didn't provide a break out of enrollment by age. So investors will have to wait to see whether new members tilted away from boomers to millennials.

Coming out of February, the trend was clearly improving. The percentage of enrollees aged less than 35 was shy of 25% through early December. That put it substantially below the 38% to 40% hoped for by the administration early on. But that percentage improved to 27% by the end of February.

Since the percentage of young enrollees may have an important impact on United's and Aetna's earnings this year, investors should keep an eye out for the final enrollment numbers. Investors may have been modeling for young enrollees accounting for 25% of the total based on the first few months. If so, a final reading above those levels could be welcome news. Regardless, investors will need to keep an eye on MLR over the next few quarters to see just how big an impact Obamacare is having on their bottom line.

What two ferns didn't tell you about Obamacare
Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called "Everything You Need to Know About Obamacare." This FREE guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.

Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2880753, ~/Articles/ArticleHandler.aspx, 9/3/2015 12:55:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Todd Campbell

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

Today's Market

updated 3 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:00 PM
AET $113.56 Up +2.01 +1.80%
Aetna, Inc. CAPS Rating: ****
ANTM $140.47 Up +2.41 +1.75%
Anthem CAPS Rating: ****
UNH $114.23 Up +1.60 +1.42%
UnitedHealth Group CAPS Rating: ****