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How Could This Controversial Extension Affect Obamacare, You, and Your Portfolio?

By Sean Williams - Mar 8, 2014 at 11:48AM

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The Obama administration just announced a key deadline extension for the Affordable Care Act. Find out what this could mean for you and your portfolio.

It is officially crunch time for Obamacare, with the six-month enrollment period for 2014 coming to a close in just 23 more days.

The results thus far for this transformational new health reform law have been mixed. On one hand, expanded Medicaid coverage in approximately half of all U.S. states, coupled with the enrollment of some 4 million people into Obamacare via the state and federally run health exchanges, have helped lower the number of people without health insurance and given hope that long-term health costs will remain under control.

On the other hand, total Obamacare enrollment is currently tracking below the Department of Health and Human Services' goal of 7 million. If this number isn't hit or if not enough healthy individuals enroll, insurance companies may not bring in enough in premiums to cover the higher expenses related to treating ill and elderly patients.

Source: White House on Flickr.

A double-edged sword
Earlier this week, however, the administration announced that it would be extending transitional health insurance plans that would have otherwise been cancelled under Obamacare for not meeting its beefed-up benefit requirements for two additional years, until Oct. 1, 2016.

The move is being made for one primary reason: to allow those whose health insurance plans were cancelled additional time to transition to a newer health plan. The ultimate goal of Obamacare is to ensure that as many people as possible have health insurance, and if it means extending the deadline by which these non-qualifying plans are allowed to be renewed, then regulators see it as a smart move.

However, this move can also be viewed as a double-edged sword for Obamacare.

Since July, we have witnessed a number of key deadlines delayed, including the implementation of the employer mandate. This is the component of the Affordable Care Act designed to ensure that employers of 50 or more full-time employees provide health insurance options, and possibly subsidies, for them. It was delayed first in July, and again more recently, until Jan. 1, 2016. When coupled with this week's transitional plan extension, these delays may weaken the urgency of Obamacare's deadline. However, the enrollment deadline at the end of this month have the potential to hurt enrollment as we enter those critical last three weeks of enrollment for 2014.

How this extension will affect you?
There's a pretty good chance this extension won't affect consumers, but estimates from Forbes indicate that millions of policies were cancelled because they didn't meet the beefed-up requirement of the Affordable Care Act.

Of these consumers, there's a good sized chunk that simply will not have the opportunity to extend their plans. Individual states, not the Obama administration, make the decision of whether to allow insurers to reinstate canceled plans. California is one state, for example, which chose not to allow its insurers to carry over cancelled plans. While there's not a perfect rhyme or reason to which states agreed to let insurers offer this extension, most Republican-led states, according to The Wall Street Journal, approved it. 

But, consumers in the states which have chosen to extend (about half of all U.S. states allowed this extension) can choose to continue renewing plans through Oct. 1, 2016 without having it cancelled and without violating the individual mandate. According to the Obama administration, citing RAND estimates, 500,000 people chose to keep their pre-Obamacare policies into 2014.

What this means for investors
The most obvious beneficiary of this extension would be insurers who have the opportunity to continue offering insurance coverage to those who could otherwise be priced out of the market.

In terms of large states that allowed their insurance companies to extend older health plans, Texas, Ohio, and Florida stand out as among the most populated. Some potential beneficiaries here would be Molina Healthcare ( MOH -0.72% ) and Centene ( CNC -0.52% ) which tend to focus on lower-income individuals and families and both operate in all three of these highly populated states. While this extension probably won't provide Molina or Centene with a large bottom-line impact, it could help improve their retention rate, especially when these individuals do transition over to Obamacare or an alternate form of insurance before Oct. 1, 2016.

Don't forget that hospital operators in these states should also be prime beneficiaries. Here I'm thinking about Community Health Systems and Select Medical, which operate acute care hospitals in the three aforementioned states. Hospital operators in these states would benefit since a larger number of people coming through its doors should have health insurance, meaning these hospitals would potentially be writing off less revenue as uncollected. As more people gain and retain health insurance hospitals should be able to utilize this extra revenue to update their equipment, or perhaps even pay out dividends to investors as Select Medical recently began doing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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