Please ensure Javascript is enabled for purposes of website accessibility

Obamacare Skeptics Aren't Going to Like This

By Sean Williams - Mar 14, 2015 at 2:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

According to the polls, most Americans have an unfavorable view of Obamacare, but could this controversial law actually be working?


Source: White House on Flickr. 

A majority of Americans don't like Obamacare, but regardless of those opinions, it might just be working as intended.

Obamacare's checkered past
Back in October 2013, the Patient Protection and Affordable Care Act, as Obamacare is officially known, looked like a law that was piecemealed together right before the curtain rose for open enrollment. Server crashes and technical errors abounded for the federally run exchange, Healthcare.gov, as well as a number of state exchanges. It took two full months to work out the bulk of the technical kinks, and by then, it looked as if Obamacare had only a small shot of reaching its enrollment target of 7 million.

But, by the end of the enrollment period, Obamacare had cruised past 8 million. With the exception of the Department of Health and Human Services announcing an overstatement of enrollees by around 380,000 in 2013-2014, the enrollment process has run smoothly ever since, with the 2014-2015 enrollment period netting more than 5 million additional enrollees..

Despite the improved insurance shopping experience, and the fact that the IT architecture actually works now, the almost monthly Kaiser Family Foundation Health Tracking Poll continues to show that most people don't like Obamacare.


Source: Department of Health and Human Services, Facebook.

For some, it's being forced to purchase insurance, believing they're invincible and don't need healthcare. For still others, price is a big concern, such as business owners fearing rising costs, or consumers doubting their ability to afford health insurance. Lastly, there are those who disagree with the penalties imposed for noncompliance with the individual mandate.

Yet, according to new data released this past week from the Congressional Budget Office, this skepticism of Obamacare may be misplaced.

Have Obamacare's skeptics been proven wrong?
According to the Congressional Budget Office, or CBO, the Affordable Care Act is on pace to cost $142 billion less, or 11% less, over the next decade than what it had forecast just two months ago. This by no means implies that Obamacare is "cheap" -- the law is still slated to cost $1.2 trillion to implement over a 10-year period -- but taking into account that the initial estimates of Obamacare's cost from the CBO were $1.76 trillion over 10 years back in 2012, this is a major forecasted cost reduction in just three years.

Based on the report released from the CBO, there were two primary reasons for the substantial (and ongoing) cost reductions.

Source: Flickr user Will O'Neill.

First, premium prices are rising a lot slower on an annual basis than in recent memory. Whereas health insurance premiums increased by an average of 5% between 1998 and 2005, the average rate of premium increase has fallen to just 1.8% between 2006 and 2013. Most pundits have suggested that the recession has been the primary cause of the flattening in premium increases, but the anticipation of Obamacare's implementation and the penalties associated with non-compliance of the individual mandate likely played a role too.

Obamacare was designed to help spread medical expenses across as many paying adults as possible in order to control costs. Based on the latest update from the White House, nearly 12 million people were now enrolled through Obamacare, which is well beyond the 9.1 million that the HHS had forecast in mid-November. More people enrolled might just be aiding in this cost-control effect.

The other conclusion that influenced the CBO's Obamacare cost forecast was that more people already had insurance than it had initially predicted.The CBO notes that fewer employers dropped coverage on their employees (since more were insured to begin with than initially forecast) and fewer people signed up for Medicaid than expected (because fewer were uninsured to begin with). The implication here is that not as many people are ultimately expected to enroll in Obamacare, but that Medicaid costs and the number of people still uninsured will be lower, too. 

Lower premiums are generally good news
The uninsured rate continuing to drop because of Obamacare is good news for practically the entire healthcare industry.

Source: Flickr user Ilmicrofono Oggiono.

Hospitals such as HCA Holdings (HCA -1.77%) can likely take comfort in the fact that more people coming through their doors than ever are insured. Prior to Obamacare, hospitals regularly had to write off medical care given to patients who had no insurance or couldn't afford the out-of-pocket costs. In 2012, HCA provisioned nearly $3.8 billion, or roughly 10% of its revenue, toward doubtful collections. With more people insured, it should mean more revenue collected, which HCA can use to supercharge its expansion, buy new medical equipment, or perhaps even reward shareholders with a dividend.

This is even good news for insurance companies such as UnitedHealth Group (UNH 0.27%) and Anthem (ELV -0.19%). A lower uninsured rate implies that health-benefit providers should be able to spread out their medical costs across a bigger pool of members and, in turn, boost their margins and profitability.

One big worry continues to hover over Obamacare
But it's still possible Obamacare's skeptics will be vindicated.


Source: White House on Flickr.

A case currently being reviewed by the U.S. Supreme Court, King vs. Burwell, which is slated for a June decision, is examining whether the federal government is allowed to (based on the language of the ACA as the law is written) legally pay subsidies via Healthcare.gov to enrollees.

Healthcare.gov currently handles the exchange operations for 37 states, and if the plaintiffs are victorious, around 86% of the close to 9 million enrollees from Healthcare.gov could suddenly lose their subsidies, which average $264 per month. Chances are good that very few of these individuals could afford health insurance without those subsidies.

So, while Obamacare appears to be hitting on its stated goals of reducing the uninsured rate and arguably controlling the rate at which premium costs are rising, its long-term survival is still very much in question until this Supreme Court case is resolved. The next three months could lend to some very uncertain and volatile swings for investors.

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 Anthem and UnitedHealth Group. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
UNH
$546.12 (0.27%) $1.48
Elevance Health Inc. Stock Quote
Elevance Health Inc.
ELV
$492.28 (-0.19%) $0.94
HCA Healthcare, Inc. Stock Quote
HCA Healthcare, Inc.
HCA
$212.87 (-1.77%) $-3.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.