Will Insurance Companies Bail Out Obamacare?

Obamacare's ship has sailed -- and it's sprung some highly visible leaks.

The Healthcare.gov website has become the butt of late-night comedians' jokes and a source of embarrassment to the White House. More problems have arisen as millions of Americans received cancellation letters from their insurance companies, with President Barack Obama calling some of the insurers "bad apples."

With pressure mounting, those "bad apple" insurers and their peers just might be prime candidates to rescue the health reform legislation. Could insurance companies step in to bail out Obamacare?

Source: The White House on Flickr.

Willing to help
Despite the name-calling, there are plenty of reasons for health insurers to do whatever they can to help Obamacare succeed. A recent Fitch Ratings report highlights one important factor: an extension of the open enrollment deadline would be a logistical nightmare for the industry.

Such an extension will probably be one of the options under consideration if the Obamacare website -- the online health insurance marketplace for 36 states that didn't establish their own exchanges -- isn't fixed quickly. Although assurances were given that the website would operate smoothly by the end of this month, just days ago the official line was that it's still "a long way from where it needs to be."

There's no question that health insurers are concerned about the fallout of the website debacle. Humana (HUM -3.66%) cut its enrollment projections by at least 50% and says it expects a delay for the March 31 enrollment deadline. Aetna (AET) CEO Mark Bertolini expressed concern that enough younger, healthy people won't sign up for plans to succeed.

The insurers appear to be willing to help. Bertolini said this week that what is needed now is to "consider other solutions" to resolve the situation, adding that his company is "trying to help." UnitedHealth Group (UNH 0.23%) stated last week that it would work with the government "if a decision is made to allow individuals more time to sign up."

Bailing in all directions?
How can the nation's insurers help bail out Obamacare? The most visible assistance currently comes from UnitedHealth, which owns Quality Software Services, the contractor leading efforts to resolve the Healthcare.gov technical issues. There are several other important ways that the health insurers could help, though.

White House Chief of Staff Denis McDonough met with the CEOs of several major insurance companies last week. During that meeting, McDonough asked them to "ramp up communication and education efforts" for individuals who are losing their current insurance policies as a result of Obamacare's minimum benefits requirements.

A bigger alternative for assisting could be in the works. Both The New York Times and The Washington Post have reported that some insurers want to enable consumers to purchase health insurance directly from their websites rather than go through Healthcare.gov. There are several drawbacks to that approach, however.

First, the capability for customers to determine their federal subsidy eligibility isn't in place now. Second, taking this path would require that insurers be given access to personal information that they don't now receive. Another significant concern is that this alternative circumvents the promised ability for individuals to comparison shop on one site. However, moving forward with insurers selling Obamacare directly from their websites could turn out to be the best viable option if the problems with Healthcare.gov aren't resolved soon.

Winners regardless
You might think that with all of the tumult, especially initial reports of very low enrollment figures, health insurance stocks would be suffering. They're not, though. Over the past couple of weeks, the stocks of the major insurers have actually risen.

The reality is that many of these insurers should win regardless of what happens in the individual insurance market. That's particularly true for companies that benefit from Medicaid expansion fostered by health reform.

WellPoint (ELV 0.15%), for example, claims 12% of its total enrollment from Medicaid -- the highest level of any of the largest insurers. The hybrid federal-state program accounts for 9% of Aetna's total membership. UnitedHealth claims slightly less than 9% of its total enrollment from Medicaid. Humana lags behind the others, with only 1.3% of total membership coming from Medicaid.

It remains to be seen if the SS Obamacare will be successfully bailed out. Several of the big health insurers, though, can look at the boat half-full of water or half-empty -- and still be optimistic either way.