According to an audit of Obamacare data, more than 2 million people have entered information in their health-care insurance applications that doesn't match up with Federal records. The revelation that some individuals' data conflicts with Federal records may have investors wondering whether it will mean fewer members enrolled in insurers offering plans on Federal and state exchanges, including WellPoint (NYSE:ANTM) and Aetna (NYSE:AET). So let's take a closer look.


Source: White House on Flickr.

A lot of missing zeroes
The Department of Health and Human Services released a presentation to the Associated Press showing that roughly 1.2 million people have income discrepancies on their application. Another 965,000 people have inconsistencies associated with either immigration or citizenship records.

Despite those scary numbers, HHS believes that most of the errors are small and will be quickly resolved. The agency also believes many of those errors are tied to out-of-date Federal data. Part of the reason for that may be because insurance applicants are asked to provide data on their expected income this year, not last year. As a result, job losses, children moving off of parent's tax forms, and career changes could all account for some number of those income discrepancies.

Because the Affordable Care Act provides subsidies up front for health-care plans based on income, applicants reporting lower income get the biggest benefit. But the benefit is short-lived. Once taxes are filed for 2014, the government would end up taking back those subsidies in any cases where a person's income significantly exceeded what was initially estimated on the person's application.

Little impact on insurers
The discrepancies should have little impact on insurers like WellPoint and Aetna. Each of those companies participates in either the Federal health-care or state health-care exchanges. As a result, those companies have seen membership, and revenue, grow in the wake of more than 5 million Obamacare sign-ups.

At WellPoint, the company reported it had signed up 400,000 new enrollees through February through the exchanges. Overall, WellPoint expects that 600,000 new members will sign up for coverage through it during the open enrollment period, which ended in March.

WellPoint is having even bigger success in its Medicaid business, which benefits from ACA's expansion to include those making up to 133% of the Federal poverty levels. Twenty-six states have adopted the Medicaid expansion, and WellPoint's Medicaid enrollment jumped by 120,000 people in the first quarter, helping lift sales in its Government business segment by 5% from last year.

Aetna saw its insurance membership climb by more than a half-million people between the end of the fourth and end of the first quarters. And enrollment in its Medicaid programs also surged. Aetna bought Coventry Health to build up its presence in private Medicaid ahead of expansion and, coupled with Medicaid expansion, Aetna's Medicaid enrollment jumped by 800,000 year over year.

Because Medicaid enrollment isn't affected by the discrepancies -- Medicaid recipients have to pass muster differently than those signing up for exchange plans -- the impact on each individual insurer from those 2 million inconsistencies is likely to be small, and possibly best described as a rounding error in relation to the overall increase in membership.

Fool-worthy final thoughts
The revelation that Obamacare applications are flooded with discrepancies shouldn't be too surprising. After all, it's been a rocky road for the exchanges since they went live last fall. And even if individuals willingly adjusted their incomes to get bigger subsidies, it still shouldn't pose a big threat to total enrollment or revenue at insurers like WellPoint or Aetna, because its unlikely those individuals would lose coverage. Instead, folks like that would just end up having to pay back their subsidy to the government when they file taxes. The immigration issue is a bit more of an unknown given that while most of the discrepancies are likely easily explained, there could be instances where coverage is ultimately denied.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital Markets, LLC may or may not have a position in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends WellPoint. The Motley Fool owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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