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Obamacare's week one figures look promising, but they're still largely overshadowed by a huge HHS blunder.
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Source: White House on Flickr
It's been a little more than a year since the Affordable Care Act, which is best known as Obamacare, began enrolling people for health insurance, and all I can say is what a difference a year makes!
If I could sum up Obamacare's enrollment campaign last year in one word it would be "disaster." Through the first two months of open enrollment (October and November) last year Healthcare.gov, the federally run marketplace, and a number of key state-run exchanges were practically unusable due to technical issues associated with the architecture of the enrollment systems. With expectations from the Congressional Budget Office of netting 7 million enrollees things looked absolutely dismal for Obamacare's prospects at the end of November with less than 400,000 enrollees.
Of course, as you're probably aware by now, Obamacare enrollments made a furious comeback in February and March as procrastinators waited as long as they possibly could to sign up. Ultimately, enough people purchased health insurance last year to drop the uninsured rate to 13.4% according to Gallup.
What a difference a year makes
Earlier this week the Department of Health and Human Services released data on the federally run marketplace, courtesy of preliminary weekly figures supplied by the Centers for Medicare and Medicaid Services, that showed Obamacare is off to a reasonably good start.
According to the data presented by the HHS, 1,032,129 applications have already been submitted via Healthcare.gov with 462,125 of those people choosing a health plan. Per the figures, 48% of these consumers didn't have health insurance last year or had their coverage dropped due to nonpayment, while the remaining 52% simply renewed their coverage with the same insurer or a different insurer.
Other intriguing figures include Healthcare.gov's 3.74 million "users" (or visitors) as well as the 1.07 million people who've contacted the call center. But it's worth noting that Healthcare.gov's user statistics don't differentiate between devices, so it's possible someone could have accessed Healthcare.gov via their PC and mobile device and had their visit counted twice.
All in all this is a pretty good start for the federal exchange and Obamacare as a whole. Current estimates from the HHS have Obamacare ending the year with 9.1 million enrollees, a 2.4 million-person increase from mid-October.
Good results still don't dwarf this
However, a good start in its first week probably isn't going to be enough to erase a huge blunder from the HHS two weeks ago where the agency announced that it had incorrectly reported the total number of Obamacare enrollees.
Source: White House on Flickr
According to the HHS it had included some 380,000 dental plans in with standard Obamacare health insurance enrollment, inflating the figures to 7.1 million enrollees. The updated mea culpa from the HHS indicates there were just 6.7 million paying customers as of mid-October which is below the original 7 million-person CBO enrollment estimate and well below the 8.1 million enrollees initially reported in May 2014.
In addition to comprehending how such an easy mistake could perpetuate for so long, Americans and investors are left to wonder exactly how enrollment figures dwindled from 8.1 million to 6.7 million in a matter of four months. Was this due to the enrollment error or did that many people simply not pay their premium? That's an answer we simply may not get for a while.
What I can say with some degree of confidence is that trust in Obamacare has been damaged at a time when approval of the law is just one month removed from an all-time low based on polls from the Kaiser Family Foundation's Health Tracking Poll.
An interesting scenario for the healthcare sector
Speaking as an investor, the past two weeks have been filled with modest promise and utter disappointment for the entire healthcare sector.
As you might imagine, insurers are at the forefront of this whipsaw of emotion. The good news here is we as investors can trust the enrollment data we've been fed from individual insurers. So even though criticisms of Obamacare and the HHS may come to light, nothing has fundamentally changed for insurers.
What will be interesting to see, though, is whether or not the HHS's enrollment restatement negatively impacts peoples' faith in Obamacare this year so as to hurt total enrollment. For private insurance service eHealth (EHTH +0.00%) this news is just what the doctor ordered, if you'll excuse the horrible pun.
Source: eHealth
Because eHealth has the ability to offer Obamacare health plans on its exchange, including subsidies, but has no actual connection with Healthcare.gov, it could see its membership soar in 2015. Any disassociation with Healthcare.gov and the HHS right now is probably going to be viewed as a good thing for the company.
The mixed news is also concerning for hospitals and medical equipment providers. Similar to insurers, hospitals aren't going to see an immediate impact from an HHS reduction in its enrollment figures. The bigger concern for a company like Tenet Healthcare (THC +0.01%) is going to be whether or not fewer people enroll in 2015 than expected. Hospital stocks like Tenet have been priced by investors with the expectation that their doubtful revenue (e.g., services that go uncollected) will fall as the rate of uninsured drops. If doubtful revenue fails to fall fast enough investors might punish hospital stocks. In Tenet's case its doubtful provisions rose by 52% through the first nine months of 2014 to $949 million, a trend investors will want to closely watch.
Lastly, medical equipment and diagnostic device makers are reliant on hospitals and outpatient clinic orders to drive their growth. With the HHS restating Obamacare's enrollment figures and a negative reaction likely expected from the public it's possible that hospitals and clinics could be tighter with their spending in the near term. I, therefore, wouldn't be surprised to see device makers report weak earnings over the coming two quarters. Don't get me wrong, over the long run many device makers should benefit from an aging baby boomer population, but the sledding could be a bit rough in the coming months.
As always, it's probably not worth reading too much into one week's worth of figures since enrollees are notorious procrastinators. However, keeping abreast on the latest data is still wise in case something material does change with Obamacare or these underlying companies.