5 States That Are Holding Obamacare Back

The enrollment surge in Obamacare last month was incredible. State and federal enrollments combined for a 490% increase to 2.15 million people through Dec. 28, up from just shy of 365,000 enrollees at the end of November. The Dec. 24 coverage cutoff date certainly had something to do with that increase, but the tech surge that led to the Healthcare.gov fix played a major role in allowing users to gain nearly full use of the website after two months of persistent technical glitches.

Source: Centers for Medicare & Medicaid Services 

The end result, as you can see above, was a dramatic surge in enrollments in the federal marketplace in December. While enrollment figures haven't matched up with the Department of Health and Human Services' lofty goal of 7 million new members, they very well could as procrastinators and people who've filled out their applications but have not selected a plan finally do so before the March 31 deadline.

Yesterday we took a closer look at five of the most important states leading the Obamacare charge. These five states account for roughly 48% of the cumulative 2.15 million paying members that have signed up. Extrapolate that further and the top nine states are responsible for nearly 62% of cumulative enrollment thus far.

On the flipside, though, we have a handful of states that can only be described as the laughing stocks of Obamacare because their contribution toward that 7 million person enrollment target has been absolutely abysmal. A few states have excuses, but many don't. Let's have a look at the underperforming states and see if there are any trends available we can exploit that could make us more successful investors.

Here are the five most disappointing states thus far with regard to enrollment:

Source: Department of Health and Human Services (link opens PDF)

Whereas the top nine states combined for nearly 62% of total enrollment, these five states are responsible for a paltry 0.68% of total enrollees.

As we saw with the leading enrollment states yesterday, population density does have a role in boosting figures. In other words, we would expect higher population states like California with its 38.3 million-plus residents to contribute more new members than a state like North Dakota, which had fewer than 724,000 according to the 2013 estimates from the U.S. Census Bureau. 

But none of these states really deserves a pass on account of population as their percentage of enrollments relative to their state's population is comparatively lower than the national average. According to the latest HHS report, 2,153,402 people have enrolled out of 316,128,839 people in the U.S., which works out to about a 0.68% average. By comparison, the five aforementioned states have delivered an Obamacare conversion rate of just 0.16% for Hawaii, 0.35% for Delaware, 0.36% for North Dakota, 0.38% for South Dakota, and finally 0.46% for Alaska. Yes, these states do have fewer residents, but they are also trailing the national signup percentage significantly. With the exception of Massachusetts and Vermont, which both had single-digit uninsured rates prior to Obamacare's implementation, these five states really have no excuse and certainly dragging down Obamacare's results.

Source: White House on Flickr

The worst of the worst
What's truly astonishing within this group is just how poorly Hawaii's state-run exchange has operated considering Oregon's health exchange didn't even get off the ground until late December and Vermont's has been working almost exclusively by phone or online for a few hours a day while reserving the night hours for ongoing IT maintenance.

What shouldn't come as a surprise, though, is the company behind Hawaii's health exchange, known as the Health Connector. I hope you are sitting down for this, because that company is none other than CGI Group (GIB -1.68%). That's right; the same company that designed the federally run Obamacare website, as well as Vermont's glitch-filled health exchange, also received a $53 million contract to be the lead architect behind Hawaii's health exchange. 

The result has been anything from a tropical paradise. Constant technical issues have allowed just a fraction of the some 100,000 people that are expected to benefit from Obamacare to sign up thus far. Furthermore, the federal government, according to a report from CBS News, gave Hawaii $203.4 million in federal funds to operate the Connector -- which is a whopping $92,792 per enrollee thus far! If Obamacare enrollments fail to reach their 7 million person mark, Hawaii will almost certain be cast some blame.

"Great, now how does this make me money?"
Now that we've taken a closer look at both ends of the spectrum when it comes to enrollments, you're once again probably asking yourself, "OK, how does this information help me become a better investor?"

I believe that some of the factors we've learned from this now-monthly exercise is that income matters when it comes to enrollments, larger population density is preferential for insurers and hospitals targeting new members, and resident/uninsured member conversion is also extremely important.

Obviously, this continues to be bad news for CGI Group and could make the company a short-sale candidate for investors who are more risk-willing. CGI has suffered through major IT problems now with Vermont, Hawaii, and was replaced earlier this week by Accenture (ACN -1.45%) on Healthcare.gov as the lead contractor once its contract expires. It's quite possible CGI Group's orders over the next two or three years could be adversely affected since it'll take time to put these PR disasters in the rear-view mirror.

While I'm personally a fan of hospital and rehabilitation center operator Select Medical (SEM -1.19%) because of its valuation and tight cost controls, I'm also not oblivious to the fact that it runs hospitals and/or physical therapy facilities in South Dakota and Alaska. This isn't to say that it also doesn't have a strong presence in many top-performing states as well, but the company is highly concentrated in states that chose not to expand their Medicaid program, so it could run into issues when it comes to lower its doubtful revenue accounts due to uninsured and underinsured persons.

For insurers, the one that continues to face the most dubious track record thus far has to be Aetna (AET). Aetna and its now purchased subsidiary Coventry Health Care are one of the primary individual plan participants according to eHealth in Delaware, South Dakota, and Alaska. In addition, Aetna has also ducked out of both California and New York's individual plan markets, two of the top-performing states over the three months. I know if I were an Aetna shareholder I wouldn't be too pleased with the individual insurance portion of their business at the moment.