Four months in and the locomotive known as Obamacare is beginning to pick up speed.
The transformative health law that opened to the public on a state and federal level in October, and formally took effect at the beginning of 2014, saw enrollments surge by 53% (link opens PDF) between Dec. 29 and Feb. 1, with 1,146,071 people fully signing up for health insurance.
The Department of Health and Human Services released figures showing total enrollments since Oct. 1 now stand at 3,299,492. It's a far cry from the 364,682 people who were fully enrolled at the end of November and speaks to the night-and-day difference created by the tech surge that fixed the federally managed Healthcare.gov insurance marketplace.
Missing the mark
Ultimately, many will view these figures as disappointing. While enrollment has surged by nearly 3 million over the past two months, the current pace would place enrollments at an estimated 6.3 million by the coverage cutoff for 2014 of March 31. By comparison, HHS had targeted an enrollment figure of 7 million.
Furthermore, our first demographic breakdown last month showed that just 24% of all paying enrollees were between the ages of 18 and 34, the age range that is viewed as crucial to success of the Affordable Care Act effort. You see, people in this age range are often healthy and require little medical care, so their premiums are needed to help offset the costs of treating terminally ill and elderly patients who make up the bulk of health care spending in this country.
Obamacare enrollments are weak -- and that's OK
While the numbers are certainly lower than the HHS would like, they're also not nearly as dire as many pessimists might believe.
I've said it many times before and I'll say it again, the only Obamacare deadline that really matters is the March 31 coverage cutoff date. As we've looked at recently, Obamacare is viewed unfavorably in a majority of polls, so it wouldn't be surprising if those who don't particularly care for the law, but also who don't want to violate the individual mandate, wait until the last possible moment to sign up late next month.
In addition, we have to consider that health insurance premiums are nothing more than a bill to most people -- very few of us actually prepay our bills, and we often wait until the last possible moment to pay when we can. If we use the Massachusetts health care reform as our example, just 6% of total enrollees signed up in the first two months, with the remaining 94% coming in the nine following months in 2006. The same rules apply here: People are waiting as long as possible to not owe an insurance premium without violating the individual mandate, which will levy a penalty that is the greater of $95 or 1% of annual income in 2014.
Another positive here is that a higher percentage of young adults between the ages of 18 and 34 who signed up in January. According to statistics from the Centers for Medicare & Medicaid Services, young adult enrollment accounted for 27% of the 1.146 million sign-ups, compared to just 24% of the previous 2.153 million enrollees in the preceding three-month period.
While no specifics were cited for this jump, I'd propose that improved education on the law, as well as the looming March 31 deadline, is pushing uninsured young adults to sign up.
Finally, we should also note that insurers are seeing a nice blend of enrollments based on package level. Since the last HHS report, silver and bronze enrollments have crept up slightly to 81% of total sign-ups, compared to 80%, while gold and platinum plans selected have dipped by 1% to 19%. The thinking here is a bit counterintuitive in that you might assume higher-priced plans are better for insurers. The reverse may actually be true, however, since lower-premium bronze and silver plans require more out-of-pocket money from plan members during initial visits and for early medical care. Unless each bronze or silver plan member uses up their entire max out-of-pocket costs for the year, these lower-tier plans are actually more profitable for insurers.
Nothing is perfect
The data isn't abysmal by any means despite being more than 1 million enrollees off the HHS projected path to 7 million, but I also don't want to give up the impression that everything is perfect, either.
In particular, young adult enrollment will need to pick up steam considerably over the coming two months; otherwise, insurers could be forced to rely on the Affordable Care Act reinsurance fund to help reimburse hefty Obamacare-plan losses. Earlier this month, Aetna (AET) CEO Mark Bertolini told CNBC's Squawk Box that just one in nine Obamacare enrollees were genuinely uninsured prior to the program's implementation. The majority, as Bertolini noted, are simply moving from employer-based insurance platforms to Obamacare in order to receive bigger subsidies. Without younger adults offsetting this effect, Bertolini suggested that a 15% hike in premiums wouldn't be out of the question.
Another concern is the number of enrollees who are receiving federal assistance. One of the largest unintended consequences of Obamacare is the fact that citizens are doing exactly what Bertolini described -- jumping off insurance plans that require higher out-of-pocket expenses and diving into Obamacare health plans that provide a bigger subsidy. If you recall, those subsidies extend up to 400% of the poverty level, offering a good chunk of Americans the opportunity to get at least some form of subsidy. While certainly reducing the number of uninsured, this subsidy could push premiums higher if a sufficient number of young adults and non-financially assisted members don't sign up. Through Feb. 1, a whopping 82% of enrollees were eligible for some form of financial assistance.
Hitting the home stretch
You might say that we're starting to hit the home stretch when it comes to Obamacare, at least for 2014.
Based on what I've seen thus far it could be a banner year for Medicaid-based insurers such as Molina Healthcare (MOH 2.03%), which should be adding members hand over fist in California. As long as Molina can keep its internal costs under control, it could be a surprisingly strong year.
It could also be a strong year for private-market insurer eHealth (EHTH 3.02%), which has seen membership soar, as many individuals want to avoid the individual mandate penalty but want nothing to do with the government's marketplace, Healthcare.gov. eHealth's platform gives consumers a similar path to select their insurance plan. I'd personally guesstimate that eHealth's membership could rise another 20%-25% in 2014.
National insurers, though, may be on the outside looking in. The latest earnings report from Cigna (CI) wasn't encouraging in the least, with the company providing full-year earnings-per-share guidance that was modestly below the Street's expectations on higher medical costs and increasing Medicare Advantage competition. As government reimbursements for Medicare are expected to fall, national insurers could find themselves more reliant on young adult enrollment for growth; and thus far those figures aren't working in big insurers' favor.