To say that Obamacare, known officially as the Patient Protection and Affordable Care Act, has surprised a few people in the 2014-2015 enrollment period might be an understatement.
After multiple problems last year -- including overloaded servers and glitches galore with the IT architecture behind Healthcare.gov, the federally run health exchange, which made it impossible for some to complete the enrollment process -- the lack of issues this year has made the comparison with the 2013-2014 process seem incredibly night-and-day.
Well ahead of the mark
According to the week 11 update (Jan. 24 - Jan. 30) from the Department of Health and Human Services, another 179,170 people had selected plans, bringing the number of enrollees from just Healthcare.gov to 7,473,699. Additionally, there's an approximate 2.7 million-person gap between applications submitted and plans selected. The thinking here would be that we could see this gap narrow considerably in the final weeks as people finally complete the process of selecting a plan.
Individual states have done their part as well, with New York noting that nearly 513,000 people had enrolled for health insurance. Altogether, some 2.4 million people have enrolled through the 13 state-run health exchanges. Combined, there are in the neighborhood of 9.9 million enrollees, far more than the 9.1 million projected by the HHS in mid-November.
However, these figures could go considerably higher.
Procrastinators boost enrollment
The deadline for 2014-2015 enrollment for health insurance is Feb. 15, 2015 (that's tomorrow). If you recall, Obamacare enrollment absolutely surged in the final weeks last year (the 2013-2014 enrollment period), doubling in March alone. Some of this very well could have had to do with technical glitches preventing enrollment at a previous time, but it also may have been due to a lack of understanding of the law in the earlier portion of the open enrollment period.
Yet, it may also relate to a deliberate procrastination on the part of consumers who waited until the last moment to sign up. The individual mandate allows people to miss three months of enrollment during the year but still avoid the penalty, allowing consumers who didn't particularly want to sign up to skip a few premium payments. We could very well see this play out in 2014-2015's enrollment period, leading to a gigantic surge in enrollment over these final few days.
Obamacare's line in the sand
One thing we won't see this year is the possibility of an enrollment extension, according to Andy Slavitt, the principal deputy administrator of the Centers for Medicare and Medicaid Services. This year, the CMS is drawing a very definitive line in the sand that if you aren't enrolled by Feb. 15, 2015, then you've missed out on your chance for a federal- or state-issued subsidy, as well as your opportunity to enroll via an Obamacare exchange.
As a refresher, extensions were granted last year for those who were unable to complete their applications and enroll by March 31, 2014. Last year was the first year Obamacare went into effect for individuals, so regulators felt it prudent, especially with the number of glitches earlier in the enrollment process, to extend the deadline for last-minute enrollees.
But, will this line in the sand actually work in terms of coercing more people to sign up?
On one hand, Obamacare has the backing of rising penalties for not being in compliance with the individual mandate on its side. This year, the penalty is the greater of $325 or 2% of an individuals' modified adjusted gross income, up from the greater of $95 or 1% of modified-AGI in 2014. Higher penalties could coerce more people to sign up, especially if they might have the opportunity to deduct some of these health expenses on their taxes.
On the other hand, Obamacare's history is littered with fluid deadlines. Last year's enrollment deadline and the official enforcement of the employer mandate being pushed back are two prime examples of consumers viewing deadlines less as a line in the sand and more as a suggestion. These fluid deadlines make hardline statements by regulators hard to trust.
Taking into account that this enrollment period is just three months long, half the length of last year, I wouldn't be surprised in the least if the CMS changes its tune if enough people miss the deadline or voice their displeasure at missing the enrollment deadline.
Two hurdles remain
Two even bigger concerns loom beyond Obamacare's proverbial line in the sand.
First, we'll have to wait and see how many enrollees actually make their first payment. Last year, the program lost around 1 million people because of lack of payment. Although there are still a little more than two weeks' worth of enrollment figures left to be added, it's not out of the question that enrollment attrition could exceed 1 million in 2014-2015.
More importantly, Obamacare has a big hill to climb in getting past King vs. Burwell, a landmark case that will decide whether the federal government is legally allowed to hand out subsidies to people enrolled through Healthcare.gov. With more than 6 million people presumed to be at risk of losing their subsidy if the Supreme Court rules in favor of the plaintiffs, this is a critical case that both consumers and investors have to monitor.
Near-term risk, long-term reward
When it comes to investing in health insurers, these looming hurdles mean very uncertain times over the near term, although the long-term landscape for insurers looks promising.
In the near term, I'd anticipate better-than-expected enrollment figures to provide a boost to most insurers' bottom lines. National insurer Anthem (NYSE:ANTM) should be one of the prime beneficiaries since it operates in a number of states that run their own exchange and expanded their Medicaid program. A key point to note is that state-run exchange subsidies aren't at risk under the upcoming Supreme Court decision.
On the flip side, I'd worry about a national insurer like Aetna (NYSE:AET) if the Supreme Court divvies out an unfavorable ruling. Florida and Texas are the two states topping 2014-2015's list in terms of total enrollment, and they're critical to boosting Aetna's Obamacare enrollment figures as well. Yet, residents in both states could see their subsidies vanish depending on the Supreme Court ruling.
Despite this near-term turbulence, no insurers have an inordinately large amount of Obamacare enrollees that make up their membership. In other words, over the long term, the sector still looks as if it has plenty of growth potential.