The 10 States Least Critical to Obamacare's Success

Over the past two-and-a-half weeks, there have been no shortage of praises and criticisms to the launch of the state and federally run health exchanges as mandated by the Patient Protection and Affordable Care Act, perhaps known better by the public as Obamacare.

Source: White House on Flickr.

On one hand, we have a complete revamping of our health-care system that's allowing previously uninsurable people that have preexisting conditions to sign up for affordable health care, which is probably more beefed up than any previous policy they may have had. On the other hand, marketplace glitches have made it practically impossible for a majority of people to sign up, causing consumers and investors to point the finger at regulators for pushing through a law and cloud-based system that clearly wasn't ready.

With that in mind, we took a closer look over the past two days at states, which have thus far had the best success at signing up uninsured people (hint, they're all state-run!), as well as the states that a previously unreleased congressional report expected to carry the load toward getting approximately 7 million uninsured people signed up for health insurance by the March 31, 2014, coverage cutoff.

The 10 least critical states to Obamacare's success
Today, we're going to turn the tables and take a completely different approach by looking at the 10 least critical states to the success of Obamacare according to the same unreleased congressional report obtained by the Associated Press. The hope would be to identify characteristics that these states share that makes them unattractive and use those traits to identify some possible investment opportunities.

Here are, according to the state-by-state analysis, the 10 least critical states to Obamacare's success: 

Source: Associated Press.

Whereas the top 10 states are forecast to bring 3.56 million uninsured persons into the fold, the bottom 10 states combine for projected signups of just 180,000 people, which is less than the forecast for the entire state of Ohio and a mere 2.6% of the total targeted signups through March 31, 2014!

What these states have in common
Just like yesterday when we looked at the 10 most critical states to Obamacare's success, there isn't a precise blueprint that would encompass every single state. Instead there are noticeable patterns that stand out in the least crucial states that could help us understand the insurance landscape better.

To begin with, premium policy pricing is a big determinant as to whether or not a large number of uninsured people will sign up. Based on the average price point across all 50 states of $328 for a silver level plan, any price point that comes in higher than this is bound to scare away some uninsured consumers. With that being said, one of the reasons premium costs can soar relative to the national average of $328 is people's access to health care and services. Those who live in more sparsely populated states like Wyoming, Alaksa, Montana, and North and South Dakota are naturally going to have fewer hospitals and doctors to choose from, making their premiums markedly higher than the national average.

Another factor that contributes to high premium prices in many of these states is a lack of insurer competition. Although we saw in California yesterday that WellPoint (ELV 1.38%), Health Net (NYSE: HNT), and Kaiser Permanente effectively control close to 75% of the market, there are still eight additional insurers operating within the state, providing ample competition and giving consumers a reasonable number of transparent options. This doesn't mean that WellPoint and Health Net won't still get their lion's share of new members, but the added competition should help keep pricing in the state reasonably below the national average.

By contrast, many of the "least crucial" states have just two or three major insurers controlling the market with few smaller market share insurers offering any resistance. According to a Kaiser Family Foundation report on insurers' market share for 2010 that was released in October 2011, 17 states in the country had an insurer devoted to the individual marketplace that controlled 65% or more of the that states' market share! Included among those 17 states were Alaska, North and South Dakota, and New Hampshire. Delaware, Rhode Island, and Montana's single-largest individual market insurer accounted for between 45% and 55% of total state market share. While profitable for that solitary insurer, it's bad news for consumers of these states as it strongly discourages competition and has a tendency to keep prices higher than the national average.

Great, so how does this help me?
As I mentioned above, many of these least crucial states have one or two insurers that absolutely dominate their state. That means little competition and steady cash flow, which, even with relatively few signups, could be a very welcome sight for investors.

Just like yesterday, WellPoint is again a clear winner. As of a 2011 study released by the Kaiser Family Foundation of the nation's individual insurance market share, WellPoint boasted 76% of New Hampshire's market share and 45% of Maine's market share. From top to bottom, WellPoint is beginning to look like the most well-diversified insurer under Obamacare.

A possible loser could be Assurant (AIZ 1.43%), which, as of 2011, had solid individual market share positions in Montana (25%) and Wyoming (18%). Assurant decided not to be a participant in practically all individual market state exchange until 2015 and has instead refocused its products on helping out its enterprise customers. Ultimately, we're not talking about a huge number of enrollees lost here, but there are sizable market share chunks that are now up for grabs. 

Another insurer that's certainly gambling a bit is the nation's largest insurer, UnitedHealth Group (UNH 1.60%). In addition to taking the No. 2 market share spot in West Virginia in 2011, UnitedHealth was the No. 2 individual market share insurer in 19 of 50 states. With the company visibly shrinking down its presence on Obamacare's health exchanges for 2014, it runs the risk of being left behind if more people than expected do sign up for health insurance.