Quantity versus quality?
The age-old question appears to have raised its head again with the latest information about enrollment in the Affordable Care Act, commonly referred to as Obamacare. According to the White House, over 7.5 million Americans are expected to enroll in health plans through Obamacare. Since the stated goal was to sign up 7 million individuals by March 31, Obamacare seems to be in decent shape in the quantity department -- although the exact number of fully paid enrollees is still unknown and could alter that assessment when announced.
Two reports published this week, however, raise some doubts about the quality of Obamacare enrollment thus far. The non-profit, non-partisan RAND Corporation released its Health Reform Opinion Study on April 8. The next day, giant pharmacy benefits manager Express Scripts (ESRX +0.00%) published its 2013 Drug Trend Report. Both studies generated qualms about the demographic makeup of the Obamacare enrollees.
Source: WhiteHouse.gov
Where are the uninsured?
RAND reported some good news: Around 9.3 million Americans gained health insurance between September 2013 and mid-March 2014. This increase received some corroboration from a recent Gallup poll that found the percentage of Americans without health insurance dropped from 18% in late 2013 to 15.6% in the first quarter of 2014.
The bad news, though, was that RAND discovered that only around one-third of individuals signing up on the Obamacare marketplaces were previously uninsured. That's problematic because President Obama declared in 2009 that addressing the problem of nearly 46 million Americans without insurance was one of the most important goals of health reform.
Those higher numbers of individuals with health insurance stemmed primarily from enrollment in employer-sponsored insurance, or ESI, and Medicaid. RAND stated that 8.2 million people gained insurance through employers with another 5.9 million enrolling in Medicaid. However, the jump was offset somewhat by 5.2 million previously insured Americans losing coverage.
Could Obamacare be behind the increase in Medicaid enrollment? Yes, but only in part. As The Washington Post's Sarah Kliff pointed out earlier this year, we just don't know yet how much of the rise is due to Obamacare. Over 1 million individuals signed up for Medicaid in states that opted out of the Obamacare expansion of the program. Even if every Medicaid enrollee in the other states signed up because of Obamacare (which is highly improbable), that leaves most uninsured Americans still uninsured.
Sicker than others?
Express Scripts fanned the flames of another question about Obamacare enrollment. The company sampled more than 650,000 de-identified pharmacy claims of Obamacare health exchange enrollees during the first couple of months of 2014. Initial findings from Express Scripts could bolster the argument that Obamacare enrollees are less healthy than members of commercial health plans.
In particular, Express Scripts found that specialty drug use was greater among members of Obamacare plans than those participating in commercial plans. Six of the top 10 drugs in terms of cost were specialty medications for Obamacare plans versus four for commercial plans. While specialty drugs make up less than 1% of all prescriptions filled in the U.S., they account for over 25% of total prescription drug spending.
Gilead Sciences (GILD +0.39%) looks to be a beneficiary of this trend associated with Obamacare plans. The biotech's HIV drugs Atripla and Truvada both rank in the top 10 costliest therapies for the plans, with Atripla taking the top spot. Gilead's hepatitis-C drug Sovaldi snagged the No. 2 position.
Source: Gilead Sciences
Obamacare enrollees received nearly four times more HIV drug prescriptions than members of commercial plans. The proportion of pain medications used by Americans who signed up on the exchanges was 35% higher than for other insured individuals, while the proportion of anti-seizure drugs was 27% higher.
However, Obamacare plan drug utilization was lower than that of commercial plans for some conditions. The proportion of contraceptives used by Obamacare enrollees was 31% less than others in the Express Scripts study, while the proportion of ulcer disease medications was nearly 15% lower.
If there are higher numbers of less healthy Obamacare enrollees, it could mean problems ahead for health insurers participating in the exchanges. This very concern led the nation's largest insurer, UnitedHealth Group (UNH +1.80%), to take a decidedly cautious approach. UnitedHealth CEO Stephen Hemsley last year stated that he expected initial enrollees to have a "pent-up appetite" for medical spending that warranted a "watch and see" stance.
So far, though, health insurers are actually paying 35% less per member on prescription drugs for Obamacare enrollees than they have for commercial plan members. Express Scripts said that is because patients are paying more money out of their own pockets.
Still early
Investors hoping to capitalize on Obamacare's wins or woes should remember that it's still early in the game. There's a lot of information yet to be learned about the health reform legislation's effectiveness and impact.
We should also note that neither RAND's survey nor Express Scripts' report included the surge of enrollees from late March. Express Scripts' research focused on utilization, which gives more weight to individuals signing up early in fourth quarter 2013. These enrollees are more likely to be less healthy than people signing up later.
Some stocks should do well as the story unfolds, though. Gilead Sciences, for example, continues to dominate the HIV/AIDS market and sits in the catbird seat for hepatitis-C. Even without the positive impact from Obamacare and despite concerns about the high costs of hep-C drug Sovaldi, Gilead seems poised for more success over the long run.
Speaking of high drug costs, pharmacy benefits managers, or PBMs, should also reap the rewards as companies and government programs seek to control those escalating prescription drug expenses. Express Scripts' economies of scale as the nation's biggest PBM puts it in a good position to take advantage of this trend. Likewise, UnitedHealth's OptumRx PBM business unit should continue to help power growth for the big insurer.
Of these three stocks, only UnitedHealth has enjoyed a solid start in 2014. Express Scripts shares moved up only a little, while Gilead's stock dropped as part of a general pullback among biotechs. Pay more attention to each company's solid business model and savvy management team than short-term stock movements, though. Regardless of whether it's applicable to health reform, quality trumps quantity for long-term investors.
