On Wednesday, the Department of Health and Human Services released its latest monthly update (link opens PDF) on the progress of Obamacare, and the best way I can describe its report is "bittersweet."
Through the first five months of enrollment through state and federal health exchanges, a total of 4,242,325 people have signed up for health insurance. This represented an improvement of 942,833 people between February 2 and March 1, and continues a string of three consecutive months with impressive enrollment gains. Statewise, California and Florida continue to be the Obamacare saviors with 1.19 million and 0.99 million enrollees, respectively, while laggards like Hawaii continue to hold cumulative enrollment figures back.
You're probably thinking to yourself, "That's fine and dandy, but what exactly does this data mean?" The reality is that portions of the HHS report are filled with promise while other aspects are pointing us toward potential disappointment once the March 31 insurance coverage cutoff deadline finally hits.
It's good... but it's not
Let's first look at the headline enrollment number of 4.24 million.
Overall, this figure is both encouraging and disappointing. On one hand, the combination of 4.24 million enrollees and millions of eligible government-sponsored enrollees (i.e., Medicaid) should ultimately help reduce the number of people who are uninsured in this country. This would theoretically mean that hospitals are writing off less uncollectable revenue and insurers are collecting premiums from more members.
But this 4.24 million enrollment figure is also substantially below the 7 million-person enrollment target set forth by HHS Secretary Kathleen Sebelius. While it wouldn't be a devastating blow for Obamacare to miss the 7 million-person target per se, a miss may nonetheless be viewed negatively by the public. Insurers also need as many new members as possible since many, such as Aetna (AET) and CIGNA (CI), are currently losing money on their Obamacare-enrolled patients.
Young adult enrollment data is another bittersweet point of contention.
First the positives: For a second straight month, young adult enrollment accounted for 27% of all new members between February 2 and March 1. This is the second straight month that young adult enrollment has come in at 27%, and marks a 3 percentage point increase from the young adult signup rate of 24% that we witnessed through the first three months of enrollment.
Although young adult signups are headed in the right direction, it still may be too little, too late for insurers and premiums in 2015. The cumulative young adult enrollment through five months is 25%, and the official target that the HHS was aiming for is 38%. This shortfall is troublesome because younger adults (classified as 18-34 years old) are often healthier and require little medical treatment, thus their premiums are needed by insurers to help offset the higher costs associated with treating terminally ill and elderly patients. If too few young adults sign up as a percentage of total enrollment, regardless of how far we miss or surpass the 7 million-person target by, there's a strong possibility that premiums could march much higher in 2015 to make up the difference.
Hold the phone
Like I said, the data is bittersweet at best, with both positive and negative points of contention; however, that has the potential to change over these final two weeks and change.
One point that I've made on a number of occasions is that procrastination is to be expected -- perhaps no group waits to the last minute more than young adults. I'm bumping my head on the ceiling of the aforementioned targeted age range of 18-34 years, but I can attest in my own personal instance that I tend to hold off until the last possible moment to pay my own bills. With a health insurance premium likely to be viewed as nothing more than another bill by young adults, but also not wanting to violate the individual mandate, it wouldn't shock me to see a surge in enrollment over the final week leading up to the March 31 deadline.
As the HHS report also points out, the lag time between enrolling for Obamacare and being eligible for benefits is also considerably shorter now than it was months ago. When I personally enrolled in October, I had to wait months before my plan would become effective. Enrollees now are likely to see their health coverage activated within a month, or perhaps even less, which should help induce some consumers to enroll.
The surprising impact on your portfolio
More than anything, the potential for a shortfall in Obamacare enrollments serves as an opportunity for established private insurance platforms and private corporate networks to shine.
In the individual, family, and small-business insurance market, the company to watch here is eHealth (EHTH -3.90%). Although the federally run marketplace, Healthcare.gov, has the majority of its kinks worked out, eHealth is still seeing explosive membership growth as a number of consumers simply choose to disassociate themselves from the Obamacare website that's run by the federal government. eHealth's platform has also been around for years unlike the still-young Healthcare.gov, so consumers have little concern that they can access similar features and compare plans through eHealth.
We're also seeing a big push by corporations to move their employees to privatized exchanges. Both Aon (AON 0.49%) and Xerox (XRX), through their subsidiaries, offer private health networks for larger corporations. Even though the employer mandate has been pushed back two full years from its original implementation date of Jan. 1, 2014, the problems associated with Healthcare.gov and select state-run exchanges have pre-empted some businesses to proactively move a percentage of their employees to privatized health-care platforms that allow those employees the ability to make their own educated health insurance decisions after receiving a corporate subsidy. I would personally guess that this is a pattern we'll only see grow in the coming years leading up to the employer mandate implementation on Jan. 1, 2016.
Finally, Obamacare is still very much a wash for insurers. It's going to take time for insurers to process the enormous amount of enrollment data through the first five months, and it seems plausible that losses for CIGNA and Aetna will continue for the interim. What investors should remember is that Obamacare represents a very small fraction of total premium revenue collected for these insurers, and that a reinsurance fund is protecting insurers against excessive losses above a medical payout ratio of 108%.