Six months ago today the rollout of Obamacare looked as if it would be a complete disaster. Having witnessed the implementation of Medicare Part D in 2006 I don't think there was a government official, or a citizen in this country for that matter, who expected Obamacare, an even broader-scope health-care reform, to go off without a hitch. However, I don't think there were many people at the Department of Health and Human Services who were fully prepared for the challenges that would lie ahead stemming from the architecture issues associated with Healthcare.gov and a number of state-run exchanges.
Six months later, though, a lot has changed. With enrollments closed for 2014, the Affordable Care Act managed to enroll 8.1 million people, 1.1 million more than originally forecast by the HHS. The final month of enrollments (March) practically saw enrollees double as procrastinators simply waited to the last possible moment to enroll without violating the individual mandate and being required to pay the penalty come tax time. This is a point I'd touched on in the past as an insurance premiums are viewed by some people as nothing more than a bill. Consumers in this case simply waited until the last possible moment to pay their bill.
Source: White House on Flickr.
The "deadbeat" debate
However, enrolling in Obamacare also comes with a renewed sense of responsibility for consumers. It's one thing for a citizen to enroll for health insurance, but it's a completely different and even more important thing that they pay their premium in order to keep their coverage current. In other words, Obamacare's enrollment figures are meaningless if a good chunk of citizens aren't contributing to the system.
The possibility that we'd have a number of deadbeat payers is quite real. In February, Yahoo! Finance via a New York Times article, noted that roughly one-in-five enrollees wasn't paying their first month's premium. Now keep in mind that in mid-February Obamacare enrollment figures were significantly lagging estimates, the software needed to take payments wasn't working properly in certain instances, and overall perception of the law was near a record low, and was being exacerbated by a number of technical glitches in the preceding months. Long story short, trying to compare the environment even three-and-a-half months ago to now is like trying to compare an apple to a pineapple. They both have "apple" in the name, but are nothing alike.
I bet you didn't see this coming!
In fact, insurers recently testified before a Congressional subcommittee last month to report, perhaps to the amazement of select skeptics, that payment rates have averaged between a healthy 80% and 90%.
WellPoint (NYSE: WLP ) , one of the nation's largest health-benefits providers, and the largest enroller of government-sponsored individuals, reported that up to 90% of its enrollees had sent in payments. While no one insurer can determine the success of failure of Obamacare, WellPoint does happen to be the largest contributor in terms of enrollment for 2014. Therefore, witnessing up to a 90% pay ratio is both a positive for Obamacare as a whole, as well as for WellPoint's bottom-line which is counting on costs from health individuals to help cover its costs to treat terminally ill and elderly patients that comprise the bulk of health care expenditures.
The story was similar for Aetna (NYSE: AET ) , even in spite of the skepticism of its CEO Mark Bertolini. Out of the roughly 600,000 people who signed up with Aetna, a company spokesperson noted that 83% had made payments.
Also keep in mind that this testimony given to the Congressional subcommittee is from a few weeks ago, and it's quite possible with a number of enrollees signing up on the last day or even filing an extension that these payment figures could rise even further.
Mark Pratt, senior vice president at America's Health Insurance Plans, made a good point as well last month that system glitches required some individuals to reregister, creating the potential for duplicate enrollments for insurers. Essentially it could mean a slight overstatement in overall enrollment, but that the number of payments being received is actually higher than the 80%-90% being reported by insurers to the Congressional subcommittee.
All eyes on premiums
Why is it crucial for members to pay their bill? The amount of premium payments received by insurers is one of the larger factors that will help determine whether or not premium rates go up in 2015 (in addition to the actual age and health breakdown of enrollees). Simply put, if there are few deadbeat payers then it's probable that premiums would rise by a smaller amount. As we saw two weeks ago in my home state of Washington, most of the rate increase were modest, with one insurer actually requesting a nearly 7% premium reduction. This speaks to the idea that insurers have just as much of a learning curve to endure as the public.
Another often overlooked factor that will affect health insurance rates in 2015 that usually flies under citizens' radars is that the health insurance tax is set to balloon from $8 billion in 2014 to $11.3 billion next year. There's no way of dancing around this tax without a number of insurance companies increasing their premium to hopefully reach or improve their Obamacare-based profitability.
We're still quite a ways from finalizing 2015's proposed premiums, but the combination of better-than-expected enrollments in 2014 coupled with surprisingly positive premium pay rates may ultimately bode well for the consumer and investors when all is said and done.
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