Who Benefits the Most With Obamacare's Enrollment Surpassing 7 Million?

For all intents and purposes, with the exception of a select few people who were forced to file an extension due to their inability to meet the March 31 coverage cutoff deadline, enrollment in Obamacare for 2014 is now closed.

Source: White House on Flickr.

In spite of a calamitous start that was plagued by information technology-based issues and overloaded servers which put enrollments and insurers behind from the start, Obamacare enrollment still managed to eclipse the CBO target of 7 million enrollees. This is important because the Congressional Budget Office had recently lowered its own projections down to 6 million enrollees, and pegged this enrollment level as something of an "Obamacare sustainability" point. With that six million figure well in the rearview mirror, it's evident that we're probably well beyond just sustaining Obamacare, and that there could be notably positive effects (which we'll know more about when the full figures are in by mid-April) that become apparent from the health reform law hitting its original enrollment targets.

The other factor that's clear is that select health-related companies likely saw big benefits in these waning days. Let's have a closer look at which companies might have seen some of the biggest benefits from this at least 2.8 million-person enrollment surge in March.

The obvious beneficiaries
No surprise here, because we've been talking about this for months, but insurers and hospital stocks are likely to let out some of the biggest sighs of relief after enrollment surged in the latter-half of March.

For insurers, although Medicaid-based insurers had seen nice gains, I believe insurers focused on younger adults in the individual market likely saw the strongest enrollment increases. Young adults were a crucial component to Obamacare's success with regard to negating the higher costs of treating elderly and terminally ill patients, and although we don't yet have the final figures on how many young adults enrolled, the sheer surge in enrollment at the last moment is very reminiscent off the surge I expected from a group of people aged 18-34 that are known for procrastination and avoiding bills until the last possible moment.

This scenario would continue to favor an insurer like WellPoint (ELV 0.52%) which was more exposed to the individual market than its peers to begin with heading into the year. With its broadened expansion into government-sponsored members through its purchase of Amerigroup in 2012, WellPoint will probably be one of the very few profitable insurers from Obamacare in its first year.

Within the hospital sector, companies that have higher exposure to bad debt provisions are likely to see the most immediate boost. Here I'm thinking of Community Health Systems (CYH) which agreed to buy Health Management last year. In 2013, Community Health wrote off nearly $2.1 billion, or 13.8%, of its total revenue as uncollectable due to treated patients being either uninsured or underinsured. Although Obamacare makes no guarantee that patients will pay their end of the bargain, simply having millions of people now insured through Medicaid or via Obamacare should help reduce this provision for bad debt enough that it should allow for higher margins and better returns for investors. In addition, these extra profits could translate into newer equipment in hospitals leading to better quality patient care.

But these beneficiaries may surprise you
Admittedly we're not going to know the full story until we get a chance to view the full breakdown of Obamacare enrollments in about a week, but there are a number of not-so-readily apparent companies that could be big winners as well.

da Vinci Xi, Source: Intuitive Surgical.

One key victor of this late enrollment surge is high-priced medical device makers such as Intuitive Surgical (ISRG -1.93%). Intuitive Surgical just this past week introduced its latest robotic soft tissue surgical system, the da Vinci Xi, which comes in at close to $2 million per unit. Comparatively speaking, hospitals have been holding off on making large purchases due to the uncertainty created by weak Obamacare enrollment. This latest surge could give hospitals the gumption to make larger purchases of newer equipment in order to attract new patients. Intuitive Surgical's new device, the da Vinci Xi, could be debuting at the perfect time.

Accenture (ACN -0.68%), which oversees the federally run Obamacare website, Healthcare.gov, is also going to get a lot of credit. Whether this credit is ultimately deserved or not, Accenture helped orchestrate this surge in enrollments, if anything simply because the network worked as it should have in March. Accenture succeeded where previous website architect CGI Group had failed on numerous occasions, and has given hope to consumers and investors that 2015's open enrollment period will run smoothly.

Lower-priced branded drug developers could also see a surprising boost in sales simply given that more people are now presumably insured. Take a company like VIVUS (VVUS), for example, which makes weight control management therapy Qsymia. What VIVUS has been lacking (and why sales of Qsymia have lagged) is the combination of more doctors visits and greater insurance acceptance of its drug. Obamacare's late enrollment surge should help boost preventative care visits since a greater percentage of the population is insured, which could lead to a greater number of Qsymia prescriptions being written. Keep in mind that more than one-third of the U.S. population is considered obese according to the Centers for Disease Control and Prevention, meaning weight control could become a common reason for patients to seek preventative care. Adjuvants to diet and exercise, such as Qsymia, could become a commonly written prescription in the coming quarters which would be a big benefit to VIVUS.

One final possible winner throughout this process could be the majority of American citizens when it comes to future premium hikes. Prior to these final two weeks it looked fairly certain that we were going to fall about 1 million enrollees short of the pre-Obamacare website launch goal of 7 million enrollees which likely would have brought about sizable premium hikes from insurers. Because this latest surge hit the enrollment target, I can only surmise that the rate at which insurers plan to boost rates in 2015 won't be nearly as bad as what many had expected. A lot of this will depend on the overall rate of young adult enrollment, but I have a suspicion that mid-single-digit premium hikes may be in order rather than the previous talk of double-digit premium rate increases.