Remember How Obamacare Hit Its Enrollment Target Last Year? Yeah... Not Quite

Source: White House on Flickr.

It's been nearly two weeks since open enrollment for the Patient Protection and Affordable Care Act -- better known as Obamacare -- kicked off, and so far it's been mostly smooth sailing from a technical perspective for the federally run Healthcare.gov along with many of the state-run exchanges. Sure, there have been a select few exchanges that have struggled with technical difficulties, including the one in my home state of Washington; however, compared to last year -- when certain exchanges, including Healthcare.gov itself, were almost unusable for the first two months -- it's a night-and-day difference.

A relatively smooth start was important for the exchanges this year, even with a number of complications thrown into the mix. In addition to insurers trying to sign up the remaining uninsured, they also needed to focus on ways to retain last year's paying enrollees. Furthermore, Healthcare.gov contractor Accenture and the 14 remaining state-run exchanges have to be able to adapt their software to accommodate small and large businesses, which will be using the online marketplaces for the first time.

But last week Obamacare suffered what might be its biggest gaffe since it was signed into law.

Obamacare's biggest gaffe to date?
Consider for a moment the amount of criticism that Obamacare has received over the past four years. It was criticized after multiple technical glitches within the exchanges brought enrollment to a practical standstill last year, and was also critiqued for not sticking to its initial timeline and incorporating the employer mandate in 2014.

However, a new report from the Department of Health and Human Services showed that it had incorrectly accounted for the number of enrollees originally reported, and actually overstated this total by 380,000! The problem arose by incorrectly adding dental plan subscribers to the overall enrollee total, giving an inflated picture of how well Obamacare actually performed.

Source: White House on Flickr.

Why's this important? For one, it puts the total number of paying health insurance enrollees at just 6.7 million through mid-October. If you recall, the Congressional Budget Office had forecast 7 million enrollees in Sept. 2013 before the kickoff of last year's open enrollment period, so this new figure actually means Obamacare failed to hit its enrollment target. This is a potentially huge blow to supporters of the health reform law, which had been touting its success and utilizing its more than 7 million enrollees as evidence to that effect.

The reality of this gaffe is even more painful because of HHS figures reported in May that 8.1 million people were enrolled through the online marketplace and an additional 1.1 million obtained dental coverage. Essentially, it means that current enrollment is 17% below the HHS' May figures, casting a cloud over exactly how much of this dip was caused by calculation errors and how many people actually stopped making their monthly premium payments.

Two potentially dangerous consequences of this gaffe
As you might imagine, this enrollment revelation came at a particularly poor time considering that the HHS also released enrollment guidance just two weeks ago that was dramatically lower than what the Congressional Budget Office had originally forecast. The CBO had been looking for at least 13 million enrollees by the end of 2015, yet the HHS range implies 9 million to 9.9 million members by year's end. The HHS enrollment figures include 3 million to 4 million new enrollees, as well as a retention rate of the remaining members of around 83%.

Put plainly, this is troubling news for two reasons.

Source: Flickr user Bruno Sanchez-Andrade Nuno.

First, sentiment toward Obamacare is already poor, and this may only magnify that pessimism at a time when states and the HHS are focused on encouraging people to enroll. Although it depends on who you use as your source, the consensus opinion throughout all polls is that more people view Obamacare unfavorably than favorably. The November Health Tracking Poll from KFF, for instance, showed that 46% of respondents have an unfavorable view of Obamacare, compared to just 37% who view the law favorably.

Normally, opinion polls can be taken with a grain of salt -- regardless of whether people like Obamacare or not, they still needed to legally purchase health insurance per the individual mandate. However, with Republicans now in charge of Congress, it's possible they could use any downward surge in sentiment to gain momentum to overturn certain aspects of the ACA, such as the medical device excise tax or perhaps even the individual mandate itself.

Second, this casts a gray cloud over insurers moving forward. Though we can assume insurers have properly accounted for their enrollees in 2014, the inflated overall figures coupled with poor consumer sentiment toward the law could adversely affect insurers' retention rates.

UnitedHealth Group (UNH -0.42%) could be one of the few beneficiaries thanks to the fact that it stayed out of most marketplace exchanges last year. Expanding from just four states to 24 this year, UnitedHealth could come across as the insurer that "didn't raise rates this year," and garner more profitable members since the sickest individuals likely signed up last year.

Big insurers like WellPoint (ELV -0.55%), which garnered the greatest number of Obamacare enrollees last year, could actually have the most to lose from this HHS gaffe. Enrolling the greatest number of people means WellPoint will have to work harder than any other insurer to keep its existing members. Admittedly, I view WellPoint's chances of being unprofitable from its Obamacare business when the year is over as very small, but it may nonetheless be a much tougher enrollment period now than investors are taking into account.

Ultimately, we should be able to tell pretty quickly if this potentially gigantic HHS flub adversely impacts 2015 enrollment since the open enrollment period is only three months long this year. For now, it's probably best to stay the course if you currently own insurers in your portfolio, but it would also be prudent to keep up on consumer sentiment, as well as the ongoing Supreme Court case, if you're going to remain invested in the health care sector.