Source: Flickr user Adrian Clark.
Ask a diverse group of American citizens what their opinion is of the Affordable Care Act, known best as Obamacare, and chances are you'll get a wide range of answers that include everything from the worst law ever passed to the greatest thing to ever happen to healthcare.
Obamacare: success or failure?
The truth is that Obamacare's sweeping healthcare reforms, which are geared toward requiring individuals to purchase health insurance in order to spread medical costs over a greater swath of the population in the U.S. and curb medical cost inflation over the long term, are still years away from being deemed a success or failure.
Source: Flickr user Will O'Neill.
On the one hand, the number of initial enrollees in both state-run and federal online health exchanges totaled approximately 8.1 million, a clean 1.1 million higher than the Department of Health and Human Services had originally estimated in September 2013. What made this figure even more impressive when it was announced shortly after the closing of the open enrollment period at the end of March, was that it blew the HHS' estimates out of the water despite enrolling fewer than 400,000 people during the first two months of open enrollment due to website IT issues.
Yet, Obamacare still has a lot of questions left to be answered. Despite the uninsured rate dropping, there are concerns that health insurance premiums may continue to rise beyond the level of affordability for some citizens. We also are still very much on the outside looking in with regard to how much citizens plans to utilize their health insurance. This medical utilization ratio is going to be a key profitability driver for health-benefits providers, and it could set the tone for how much premiums rise or fall in the future.
The only Obamacare figure that actually matters
However, last week we learned about an Obamacare figure that actually has substance right now and is beyond dispute. That figure, released by the Obama administration, noted that 7.3 million people, or 91% of enrollees, were current on their premium payments as of Aug. 15, 2014.
Source: Covered California.
This figure definitely comes as a bit of a shock since a number of government officials and health industry experts had expected the number of paying enrollees to drop to somewhere between 80% and 85%, or about 6.4 million to 6.8 million people.
Why is this important? Enrollees are a good starting point for citizens and investors to gauge interest and participation; however all that really matters is whether or not consumers are paying their premiums. The more citizens that continue to pay their premium, the more health-benefits providers will collect. In turn, the more insurers wind up collecting in premiums, the less they may need to boost premium prices in subsequent years, which is potentially a good thing for consumers over the long run, and a key component to keeping medical cost inflation down.
Who this number really benefits
Initially I'd like to speculate that a higher-than-expected number of paying enrollees would benefit consumers vis-à-vis lower premium prices. Initial forecasts from the Kaiser Family Foundation, which included 15 major cities in different states and Washington D.C., would seem to suggest that premium prices could actually fall for consumers buying silver plans, the most popular tier of plans on the health exchanges last year. Of course, KFF was only working with a handful of states when it released its premium forecast earlier this month, so it could be subject to substantial change as more states finalize their fiscal 2015 health insurance plan premiums.
Source: Army Medicine via Flickr.
Instead, I'd opine that the biggest beneficiary of 91% of enrollees staying current on their bills might be those insurers which have waded into the individual market for the very first time, such as Molina Healthcare (MOH 0.34%) and Centene (CNC 0.07%). Don't get me wrong; the nation's largest insurers like UnitedHealth Group (UNH 5.85%) and WellPoint (ELV 1.46%) should see benefits from such a small rate of enrollee attrition. Yet, I'd expect Molina and Centene will see the most immediate EPS and potential share price impact since 2014 was their true first foray beyond the government-sponsored market and into the individual payer arena.
Incredibly enough, we may have already seen the impact of a high number of paying enrollees for one company. Centene, for example, has boosted its full-year earnings forecast twice this year, even though its total health insurance marketplace enrollment equates out to just 2.4% of its 3.16 million members. With stronger enrollment than expected, and a relatively low attrition rate, it's no wonder Centene shareholders have had a year to remember.
Molina Healthcare hasn't been quite as lucky as Centene, with reimbursement issues related to its ACA's Health Insurer Fee (HIF) still pending and causing the company to report somewhat disappointing second-quarter results in late July. Furthermore, whereas Centene enrolled nearly 76,000 health insurance marketplace members, Molina managed just 18,300, or less than 1% of its Q2 ending enrollment. Still, as a fairly well-known low-cost health insurance option that now has a year of experience under its belt, Molina could see its fortunes change very quickly. It's also worth noting that despite its ACA HIF reimbursement delay, the company was still able to stick to its full-year earnings forecast, possibly as a direct result of the positive benefit of more continuous payers than expected.
As I mentioned earlier, there are a number of unknowns left to be worked out before the success or failure of Obamacare can be determined with any certainty. But, based on this past week's data it would appear that Obamacare is clearing some of its most basic hurdles needed to succeed over the long run.
