Are New Obamacare Tax Credits Incoming?

The insurance industry is recommending changes to Obamacare that could have profit-friendly consequences for WellPoint (WLP) and Aetna (AET).

Jun 15, 2014 at 1:00PM

Insurers got together this week to talk strategy at the America's Health Insurance Plans annual conference, and came away asking for the government to start subsidizing payments via tax credits for catastrophic health-care plans offered through Obamacare.

Those catastrophic plans are high deductible options that expose people to significant out-of-pocket costs for medical care, but provide coverage for worst-case-scenarios. As a result they're not right for everyone. Only 2% of the roughly 8 million people who signed up for health-care coverage through the federal and state exchanges through March selected catastrophic plans offered by insurers like WellPoint (NYSE:ANTM) and Aetna (NYSE:AET).

Those companies are allowed to offer such high-deductible plans on the exchanges to people under 30 years old who qualify for a hardship exemption; however, the Government currently doesn't help pay for them. The AHIP believes that if the Government were to offer subsidies, it could attract millions of twenty-somethings who remain uninsured. If so, it may accomplish three important goals that benefit WellPoint's and Aetna's bottom line.

Obama

Source: White House Flickr

It may boost the total number of premium paying members.
So far, Obamacare has helped increase insurers' top line, particularly at insurers that administer Medicaid plans in states that adopted the Affordable Care Act's Medicaid expansion.

WellPoint is one insurer that is seeing its sales climb thanks to reform. The company's Blue Cross and Blue Shield plans captured nearly 50% market share in the 14 states in which they were offered on exchanges.

In WellPoint's first quarter earnings conference call, the company said that it expected 600,000 people to have signed up for its private health-care insurance plans through the end of open enrollment in March. WellPoint also added 120,000 new Medicaid members, resulting in WellPoint's Government business sales climbing 5% year over year in the first quarter. Overall, WellPoint's membership growth helped lift its total revenue by more than $200 million in the first quarter, giving the company enough confidence that it increased its full-year revenue guidance to more than $73 billion, up from $70 billion in 2013.

If insurers are able to convince regulators to expand subsidies to catastrophic plans, it will likely mean more premium paying members juicing top line growth at insurers like WellPoint.

It could help skew the total membership population toward younger, healthier people, lowering insurer's medical cost ratio.

G

Source: Aetna

The impact of providing subsidies to catastrophic plans could be even more valuable to an insurer's bottom line than it is to the top line.

Aetna offers insurance plans through Federal or state exchanges in Washington, D.C. and seven states, including Florida and Texas. 

Aetna spent nearly 85% of each premium dollar collected from its government plans on patient care during the first quarter; but spending on care for members enrolled in commercial plans totaled just 77% of collected premiums.

That difference in cost of care is in part because government plan members are typically older patients who require more services, medications, and procedures. If offering subsidies increases the percentage of younger, healthier members, it could help keep insurers' overall health-care costs in check, something that is becoming especially important given that costs associated with treating hepatitis C and cancer are soaring in the wake of new treatments coming to market.

It may boost the percentage of people signing up for coverage who actually follow through and make their premium payment.
Providing subsidies for catastrophic plans could also ensure that insurers collect payments from more people who are signing up for coverage.

WellPoint reported in its first-quarter earnings conference call that roughly 90% of those signing up for exchange plans followed through in making their scheduled payments. That's a solid percentage, but I'm sure WellPoint would welcome changes that could help it capture the remaining 10%, too. Aetna may be even more eager to see more people follow through with paying, given that it reported about 80% of members made their payment. Think about it this way: if an already cheap plan gets even cheaper because of tax subsidies, it'll make it much easier for people to make the monthly premium payment, hopefully bumping up the percentage of people who sign up and follow through to keep paying. 

Fool-worthy final thoughts
It's not clear whether insurers' recommendations will be embraced by lawmakers or, if embraced, whether they would apply to plans offered when enrollment opens again in November. President Obama has been a vocal critic of catastrophic plans, arguing that they don't do enough to help lower medical expenses for covered patients. In December, the President eased restrictions that only allowed catastrophic plans to be offered to people under 30 when news broke reporting that millions of older people enrolled in such plans were losing coverage as part of insurer's compliance with minimum coverage mandates. In order to allow people to maintain their coverage, the President expanded the hardship exemption to allow for people to qualify for catastrophic plans if they couldn't afford higher cost plans available on exchanges. Whether the President's willingness to ease those restrictions will stretch to include subsidizing them is a big question insurers hope will be answered soon.

Looking for a potentially bigger opportunity?
This smart device –kept secret until now – could mark a new revolution in smart tech (with big implications for health care). It’s a gigantic market opportunity -- ABI Research predicts 485 million of its type will be sold per year. To learn about the small-cap stock making this device possible – the stock that could mint millionaires left and right when its full market potential is realized – click here.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers