On the surface, Obamacare's enrollment figures would imply that it's been a resounding success following its first full year of enrollment. Although it didn't start off on the right foot, with state and federal exchanges experiencing all sorts of IT-architecture issues in October and November, total enrollment eclipsed the Department of Health and Human Services' estimates by a clean 1.1 million.
However, Obamacare's enrollment figures don't completely tell the full story. Behind those figures we have to look at the bigger picture, which includes how many of those 8.1 million people actually are paying their premiums on a monthly basis, as well as how many of those people provided accurate information during the enrollment process.
This last component is especially important, because out of the 8.1 million private health insurance plan enrollees, 85% qualified to receive subsidies to help pay the cost of their premium.
As a whole, income discrepancies between what consumers reported and what the Centers for Medicare and Medicaid Services noted on health insurance applications were actually quite common. According to the CMS, some 1.2 million households and 1.6 million people, or nearly one-in-five enrollees, had discrepancies between their application and what federal records indicated. Thankfully, 467,000 households have resolved their discrepancies with regulators, but there are another 430,000 cases currently in progress.
The problem is that there are a number of other citizens – about 363,000 -- who've yet to resolve their income discrepancies with regulators, and which could be set to lose their Obamacare subsidies beginning next month if they don't verify the accuracy of their income, according to The Huffington Post. Not only are these 363,000 individuals at risk of losing their lifeline to more affordable health insurance, if it's determined that bigger subsidies were granted than their income should have afforded, it's possible regulators could seek reimbursement for the difference.
In addition to income discrepancies, the CMS pointed out that another 115,000 people could lose their health insurance coverage by the end of this month if they haven't cleared up their legal status. Per The Huffington Post, regulators contacted approximately 310,000 people last month in an effort to obtain proper documentation.
Keep this in mind
One thing enrollees should keep in mind is that a discrepancy between their income and what federal records indicate isn't necessarily considered by regulators as a blatant act to defraud the government. During early enrollment a number of applications were processed without required information, allowing some people to gain access to health insurance without fully verifying their income. That wasn't their fault, but merely a function of the numerous glitches that plagued the software that comprised the health exchanges in the early going.
Also, the CMS made sure to emphasize that consumers may be reporting more accurate and fresh income data than it has within its records. In other words, the CMS is giving enrollees every opportunity to prove their income to regulators in order to maintain their existing subsidy. Furthermore, people may not necessarily lose their whole subsidy -- CMS has indicated that they will begin by having their tax credits reduced.
What happens if 363,000 enrollees lose their subsidy?
Although we wouldn't know for certain until the following year, I'd suggest that a majority of people who are set to lose their Obamacare subsidy aren't going to be able to afford health insurance on a monthly basis without the additional assistance.
Even though this group represents less than 5% of all health exchange enrollees from 2014, it could still wind up stinging insurers who've come to count on these members for premium income.
Which insurers could wind up seeing the most pain? That's difficult to say because the CMS didn't exactly break down which states these discrepancies are located in. However, it's probably fair to assume that insurers which have angled their member base toward lower-income individuals could see a reduction in membership as the year progresses and regulators sort out additional income discrepancies.
One name that would come to mind here is WellPoint (NYSE:ANTM), which doesn't solely target subsidy-reliant consumers, but did enroll the most health insurance marketplace individuals in 2014. On the all, though, WellPoint is one of the few insurers that is already profitable based on its Obamacare enrollments, so the loss of some members whose income can't be verified and who subsequently lose their subsidies probably won't be a share price killer.
I'd also suggest there could be some degree of concern for government-sponsored insurers which have ventured into the individual payer market for the first time, such as Centene (NYSE:CNC) and Molina Healthcare (NYSE:MOH). During the first year of enrollment Molina signed up a shade more than 18,000 private payers while Centene was pushing nearly 76,000. Because Centene has boosted its full-year earnings guidance twice this past year it would likely take a big member loss to significantly impact the stock. Molina, though, didn't sign up as many individual payers as investors would have expected, so any member losses here could sting.
It's obviously going to take some time for these discrepancies to play out, and to find out exactly how many consumers will lose their Obamacare subsidies entirely or have them reduced. However, that doesn't mean you shouldn't stay vigilant with your own investments (especially if you own stock in health insurers), as well as stay on top of your own finances if you currently qualify for an Obamacare subsidy.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool recommends WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.