Obamacare Enrollment: Quantity OK, Quality Questionable?

Quantity versus quality?

The age-old question appears to have raised its head again with the latest information about enrollment in the Affordable Care Act, commonly referred to as Obamacare. According to the White House, over 7.5 million Americans are expected to enroll in health plans through Obamacare. Since the stated goal was to sign up 7 million individuals by March 31, Obamacare seems to be in decent shape in the quantity department -- although the exact number of fully paid enrollees is still unknown and could alter that assessment when announced.

Two reports published this week, however, raise some doubts about the quality of Obamacare enrollment thus far. The non-profit, non-partisan RAND Corporation released its Health Reform Opinion Study on April 8. The next day, giant pharmacy benefits manager Express Scripts (NASDAQ: ESRX  ) published its 2013 Drug Trend Report. Both studies generated qualms about the demographic makeup of the Obamacare enrollees. 

Source: WhiteHouse.gov

Where are the uninsured?
RAND reported some good news: Around 9.3 million Americans gained health insurance between September 2013 and mid-March 2014. This increase received some corroboration from a recent Gallup poll that found the percentage of Americans without health insurance dropped from 18% in late 2013 to 15.6% in the first quarter of 2014.

The bad news, though, was that RAND discovered that only around one-third of individuals signing up on the Obamacare marketplaces were previously uninsured. That's problematic because President Obama declared in 2009 that addressing the problem of nearly 46 million Americans without insurance was one of the most important goals of health reform.

Those higher numbers of individuals with health insurance stemmed primarily from enrollment in employer-sponsored insurance, or ESI, and Medicaid. RAND stated that 8.2 million people gained insurance through employers with another 5.9 million enrolling in Medicaid. However, the jump was offset somewhat by 5.2 million previously insured Americans losing coverage.

Could Obamacare be behind the increase in Medicaid enrollment? Yes, but only in part. As The Washington Post's Sarah Kliff pointed out earlier this year, we just don't know yet how much of the rise is due to Obamacare. Over 1 million individuals signed up for Medicaid in states that opted out of the Obamacare expansion of the program. Even if every Medicaid enrollee in the other states signed up because of Obamacare (which is highly improbable), that leaves most uninsured Americans still uninsured.    

Sicker than others?
Express Scripts fanned the flames of another question about Obamacare enrollment. The company sampled more than 650,000 de-identified pharmacy claims of Obamacare health exchange enrollees during the first couple of months of 2014. Initial findings from Express Scripts could bolster the argument that Obamacare enrollees are less healthy than members of commercial health plans.

In particular, Express Scripts found that specialty drug use was greater among members of Obamacare plans than those participating in commercial plans. Six of the top 10 drugs in terms of cost were specialty medications for Obamacare plans versus four for commercial plans. While specialty drugs make up less than 1% of all prescriptions filled in the U.S., they account for over 25% of total prescription drug spending. 

Gilead Sciences (NASDAQ: GILD  ) looks to be a beneficiary of this trend associated with Obamacare plans. The biotech's HIV drugs Atripla and Truvada both rank in the top 10 costliest therapies for the plans, with Atripla taking the top spot. Gilead's hepatitis-C drug Sovaldi snagged the No. 2 position. 

Source: Gilead Sciences 

Obamacare enrollees received nearly four times more HIV drug prescriptions than members of commercial plans. The proportion of pain medications used by Americans who signed up on the exchanges was 35% higher than for other insured individuals, while the proportion of anti-seizure drugs was 27% higher. 

However, Obamacare plan drug utilization was lower than that of commercial plans for some conditions. The proportion of contraceptives used by Obamacare enrollees was 31% less than others in the Express Scripts study, while the proportion of ulcer disease medications was nearly 15% lower. 

If there are higher numbers of less healthy Obamacare enrollees, it could mean problems ahead for health insurers participating in the exchanges. This very concern led the nation's largest insurer, UnitedHealth Group (NYSE: UNH  ) , to take a decidedly cautious approach. UnitedHealth CEO Stephen Hemsley last year stated that he expected initial enrollees to have a "pent-up appetite" for medical spending that warranted a "watch and see" stance. 

So far, though, health insurers are actually paying 35% less per member on prescription drugs for Obamacare enrollees than they have for commercial plan members. Express Scripts said that is because patients are paying more money out of their own pockets.

Still early
Investors hoping to capitalize on Obamacare's wins or woes should remember that it's still early in the game. There's a lot of information yet to be learned about the health reform legislation's effectiveness and impact.

We should also note that neither RAND's survey nor Express Scripts' report included the surge of enrollees from late March. Express Scripts' research focused on utilization, which gives more weight to individuals signing up early in fourth quarter 2013. These enrollees are more likely to be less healthy than people signing up later.

Some stocks should do well as the story unfolds, though. Gilead Sciences, for example, continues to dominate the HIV/AIDS market and sits in the catbird seat for hepatitis-C. Even without the positive impact from Obamacare and despite concerns about the high costs of hep-C drug Sovaldi, Gilead seems poised for more success over the long run.

Speaking of high drug costs, pharmacy benefits managers, or PBMs, should also reap the rewards as companies and government programs seek to control those escalating prescription drug expenses. Express Scripts' economies of scale as the nation's biggest PBM puts it in a good position to take advantage of this trend. Likewise, UnitedHealth's OptumRx PBM business unit should continue to help power growth for the big insurer.

Of these three stocks, only UnitedHealth has enjoyed a solid start in 2014. Express Scripts shares moved up only a little, while Gilead's stock dropped as part of a general pullback among biotechs. Pay more attention to each company's solid business model and savvy management team than short-term stock movements, though. Regardless of whether it's applicable to health reform, quality trumps quantity for long-term investors.

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Read/Post Comments (13) | 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 April 14, 2014, at 11:21 PM, cy8675309 wrote:

    "Around 9.3 million Americans gained health insurance" - That's incorrect. RAND showed that most already had health coverage. As few as 2 million actually GAINED coverage.

  • Report this Comment On April 15, 2014, at 4:36 PM, mperiod wrote:

    cy8675309,

    No the number is around 9 million, however many gained insurance through other means not counting "buying insurance on the exchange" (which is what your 2 million, is the low estimate of). The problem with this article, is what is the problem with your comment. The data is so incomplete (Rand openly says the final numbers could vary widely from what their report says) Yet everyone, including Speights, and whoever you're quoting (probably Avik Roy) seem to be in a rush to draw conclusions based on little to no data. Even quoting Express scripts, of course sicker people were the first to sign up for insurance and use their plan. To try to reach a conclusion about the entire risk pool based on who needed to go to the doctor more urgently is stupid. TO try to jump to conclusions based on a study with such a wide margin of error as Rand's admits to having is also dumb. Let the numbers come out and then we'll see. There's no right or wrong, just a bunch of people jumping to conclusions (that all seem to fit their pre-conceived notions) while quoting incomplete data.

  • Report this Comment On April 15, 2014, at 4:38 PM, SnarfJabroni wrote:

    You lost me at "According to the White House........"

  • Report this Comment On April 15, 2014, at 9:39 PM, MaxSlugger123 wrote:

    Obamacare was passed at a time when 80% of American indicated in polls that they were satisfied with their health care. It was the Presidents and democrats plan all along to blown up the individual insurance market, deliberately so, so they could put people in the exchanges.

    So what do we have now, Over 5 Millions of Americans who lost their insurance. And countless others that are finding out that their doctors and hospitals are not included in the obamacare insurance offerings. We all have to participate in this mess except for the President, his staff, congress, their staff, and those union friends of the president.

    The president says that we should welcome the new mandate. It will bring better healthcare, lower premiums. But how could that be?

    There is noway these plans could be cheaper. Why?

    Because they have to include stuff we don't need.

    Do senior citizens need pediatric Dental care?

    Does a gay man need labor room and delivery benefits?

    Does a Post menopausal woman need maternity benefits?

    The depths this president went through to perpetuate this lie is only outdone by the ineptitude of his administration to even make good on his signature legislation.

  • Report this Comment On April 15, 2014, at 9:57 PM, jerryguru69 wrote:

    "Gaining" insurance or "signing up" or clicking junk on a website means nothing. Unless you give them money, you do NOT have health insurance.

  • Report this Comment On April 15, 2014, at 11:33 PM, Acttorneyatliar wrote:

    Let's see; the number of HIV, Hepatitis C, and pain killer drug recipients have grown significantly higher since Obamacare among its liberal (medicaid) recipients, and the number of those subsidized folks taking advantage of the Obamacare birth control gift is way below the numbers of those folks among us who actually work and pay to support themselves and all of those liberal voters, er freeloaders, I mean, good citizens (they are American citizens, aren't they?). Wow! That's a real head-scratcher there, boy oh boy. Gee, you'd think that liberal government entitlements have made drug abuse, reckless sexual behavior and having babies with abandon easy and profitable!

  • Report this Comment On April 16, 2014, at 7:56 AM, cricket23 wrote:

    Obama lied 36 times about his Obamacare

    https://www.youtube.com/watch?v=2vteeLkdE5w

  • Report this Comment On April 16, 2014, at 9:25 AM, sogole wrote:

    We started with 30M uninsured that needed insurance,according to the article 7.5M were insured. If all figures are correct what happened to the 22.5?

  • Report this Comment On April 16, 2014, at 9:28 AM, Mathman6577 wrote:

    Anything that comes out of the White House (and the government in general) regarding health insurance and care is suspect.

  • Report this Comment On April 16, 2014, at 9:28 AM, poorman1mil wrote:

    plans are affordable if you are really poor or really rich. With all my current bills I can not afford to waste $500.00 a month on something I will never use. Since I never get a income tax return check, they are going to have to wait for the fine money.

  • Report this Comment On April 16, 2014, at 10:02 AM, richard976 wrote:

    I am pre-existing so get treated. However, it's "not" the same meds and treatment I once got. My Doctor no longer can prescribe for me. He's told what I'm to get by a person in Washington, who is not a Doctor. He decides my treatment by my age and cost. Also, even pre-existing has a life that stops at a certain age. Cancer, as an example, stops treatment at age 76. A friend of mine was told to call hospice and prepare to die. And, there are "alternative" ways you can choose to die. If you need a operation, good luck getting approved. If approved, you wait your turn which, in my case, was 4 months for cataract suyrgery and 6 months for a pain shot.

  • Report this Comment On April 16, 2014, at 10:59 AM, kenrm wrote:

    If others had the same problems I did with the website, it took me 3 times of signing up to get the correct provider and coverage.

    A bit of history first: I have Kaiser in the Cleveland, OH area. Kaiser informed me last year they are phasing out of the area and Health Span (based out of Cincy) will be taking over.

    1st time: I signed up for Health Span and they issued a bronze when I specifically wanted a silver plan. So they cancelled it.

    I then resigned and after making the 1st payment, I found out, the Health Span I signed up for was the Health Span in the Cincy area (yes, they were one of the choices on the website for my zip code area), as Kaiser was still under the Kaiser name on the website. So they cancelled it, again.

    The 3rd try I got the Kaiser Silver, and when I got the membership card, it had my old membership number (good), but the provider name on the card said Health Span (the transition period).

    So I'll bet the I was counted 3 times on the Obamacare website.

    My real question is: Of the signees, how many actually made the 1st, or more than one, premium payment?

    The providers know the numbers and Congress just needs to get those numbers from the providers instead of being stonewalled by this administration with bogus numbers.

  • Report this Comment On April 16, 2014, at 11:12 AM, Mathman6577 wrote:

    The WH pumped up the enrollee #'s and assumed that all never had insurance before (which is not accurate).

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