The Patient Protection and Affordable Care Act, known better in its slang form as Obamacare, has had a topsy-turvy introduction over the past year and a half.
When Obamacare's marketplace exchanges opened for business on Oct. 1, 2013, it was a complete disaster. Healthcare.gov, the federally run marketplace that catered to nearly three dozen states at the time, took two months of IT-architecture fixes to get right, and a number of state-run exchanges fared no better. Despite these monumental speed bumps, Obamacare enrollment topped 8 million in May 2014.
Of course, that rollercoaster came back in full force around the start of the latest Obamacare open enrollment period when the Department of Health and Human Services announced it had overstated 2013-2014 health insurance enrollees by 380,000. In actuality, just 6.7 million people were still enrolled and paying by mid-October, 300,000 below the 7 million enrollment mark that the Congressional Budget Office had predicted in Sept. 2013.
But, proving resilient once again, Obamacare ended the latest open enrollment period with nearly 12 million members. Obviously some will drop out from non-payment through the remainder of the year, but this is well ahead of the forecasted 9.1 million by the HHS in Nov. 2014.
Despite these wild swings, it would appear on the surface that Obamacare is an early success. More people have signed up than expected, the uninsured rate has fallen, and millions that previously had no access to medical care suddenly do.
But, Obamacare has also exhibited three worrisome trends in the early going that could put its long term success in jeopardy.
No. 1: Lawsuits and legal challenges are stymying spending
If there's one aspect that defines Obamacare, it's the fact that a significant portion of the American public has an unfavorable view of the law. Whether it's the individual mandate which requires consumers to purchase health insurance or face a penalty, or the uncertainties associated with possibly having to change your health plan or primary doctor, it's been more than two years according to the Kaiser Family Foundation's Health Tracking Poll since more respondents viewed the law "favorably" rather than "unfavorably."
Even more worrisome has been the near constant barrage of legal challenges to Obamacare, from its individual mandate to the legality of its Premium Tax Credit (i.e., health premium subsidy). A current challenge being heard by the Supreme Court is King vs. Burwell, which challenges the federal government's ability to hand out subsidies via Healthcare.gov. The plaintiffs in the case assert that due to the wording of the law, because the federal government isn't a state, the subsidies it's paying to qualifying Healthcare.gov enrollees should be null and void. A decision is expected by the Supreme Court in June.
Uncertainties leading up to this decision -- and the entire Obamacare rollout for that matter -- have caused hospitals and other medical care providers to approach their spending very cautiously. For instance, if the plaintiffs win in King vs. Burwell, nearly 8 million people could lose their subsidies and their ability to afford health insurance. That could mean a rise in the number of uninsured people walking through medical care providers' doors for treatment, and thus a rise in uncollectable revenue.
Cautious spending might be good news for, say, investors in hospital stocks, as it should help improve margins. But, tighter spending could mean slower medical facility growth and less investment in top-notch doctors and state-of-the-art medical equipment.
Surgical robotic device maker Intuitive Surgical (NASDAQ:ISRG) has already admitted that tempered spending associated with Obamacare from hospitals is stunting its growth. Luckily, Intuitive Surgical has a tenured base of its machines in hospitals throughout the country, but this is a concerning development that over the long-term could mean lower quality patient care.
No. 2: No sizable increase in preventative care visits
I want to emphasize again that this data is still evolving, so reading too much into it might not be a good thing, but a research team at Athenahealth (NASDAQ:ATHN) last year examined the early trends surrounding Obamacare adoption and found no Obamacare-inspired increase when it came to preventative care visits.
As Athenahealth (strangely) noted, the patients that were coming in for doctor's visits in 2014 were comparably healthier in some areas than patients in 2013. One statistic cited was that the rate of diabetes among established patients in 2013 was 9.4% compared to 5.3% for new patients through mid-2014. Of course, Athenahealth's study was unable to differentiate how many patients were truly "newly insured" versus simply changing health plans.
On the flipside, USA Today reported a month prior to Athenahealth's research that Obamacare caused more patients to head to the ER based on a poll conducted by the American College of Emergency Physicians. Having insurance coverage in the ER is obviously going to be good news for hospitals since they presumably won't have to write off services rendered as frequently, but the ER is traditionally a low-margin department for hospitals. They would much prefer to see established patients on a regular, non-emergency, basis.
The bigger concern here would be for insurers and consumers. The point of gaining access to affordable preventative care was to ensure people went to the doctor annually in order to stay on top of potentially-controllable but widespread diseases, such as diabetes. If consumers aren't taking advantage of that, they're doing themselves a disservice.
Further, it's potentially bad news for Anthem (NYSE:ANTM), the biggest Obamacare enrollment beneficiary, as these preventative visits are designed to help catch potentially dangerous and chronic problems earlier in order to prevent them from turning into costly treatments later in life. If consumers aren't heading to their doctor's office annually, it means the high costs of treatment for the elderly could be here to stay for insurers like Anthem.
No. 3: The Premium Tax Credit is wreaking havoc on millions of low-income enrollees
Lastly, the saving grace of Obamacare that's allowed individuals above the federal poverty line (FPL), but below 400% of the FPL, to receive a subsidy, may be doing just as much harm as good.
As described above, gaining access to preventative care and the ER is a big positive step for many low- and middle-income Americans that previously had no access to healthcare. Without subsidy assistance, these individuals simply wouldn't have the ability to afford health insurance.
But, there's also a caveat to Obamacare's Premium Tax Credit (PTC) that many low- and middle-income consumers were unaware of prior to this tax season -- if you underestimated your income for 2014 and received a PTC, you could owe some of your premium tax credit back to the government. In total, according to H&R Block, about half of all people receiving a subsidy in 2014 will owe money back to the government. For low-income families which are struggling to meet their bills, an unexpected expense around tax time is not going to be pleasant.
The problem with Obamacare's PTC is that consumers have to estimate their annual income anywhere from 10.5 to 13.5 months in advance. That's not easy to do for hourly workers who can never predict how often they'll work, or for those who receive bonuses or change jobs throughout the year. It's technically the responsibility of the consumer to report income changes to their Obamacare exchange in order to adjust their subsidy, but, not surprisingly, few consumers knew this.
Moving forward, it's possible we could see this sticker shock around tax time become more magnified as the number of enrollees in Obamacare's marketplaces grows.
To emphasize again, Obamacare is a dynamic health reform law that's constantly evolving. It'll be years before we can look back and truly say "Yes, this succeeded," or "No, that didn't work." But, these three trends are worth monitoring for the time being, as they have the potential to negatively affect the ability of Obamacare to succeed over the long term.
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.
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