Love it or hate it, the Patient Protection and Affordable Care Act is the law of the land.
Widely known as Obamacare, the PPACA was signed into law in 2010 and was officially put into action in 2014. To put it mildly, Obamacare is completely changing the way we purchase health insurance, how insurers market their plans to consumers, and even how doctors provide care to patients.
Obamacare's primary goals
The goals of Obamacare are many, but it's primarily designed to help lower the rate of uninsured Americans. It does this by offering subsidies to individuals who make less than 400% of the federal poverty level (which works out to around $46,000 in annual income), and by offering the use of federal money to expand state Medicaid programs. In total, 29 states have agreed to take federal funds and expand their Medicaid program to include people earning up to 138% of the FPL.
Secondarily, Obamacare is looking to make the health insurance buying decision easier and more informative. Under the ACA, 13 states created individual marketplace exchanges, while the federal government created Healthcare.gov for the remaining 37 states that chose not to operate an individual exchange. These exchanges provide transparent pricing and tiered platforms that allow for easy price and benefits comparisons. It also helps that all plans now must conform to certain minimum benefits and insurers can no longer deny consumers based on pre-existing conditions.
Finally, Obamacare aims to control medical cost inflation. The idea here is that people who didn't previously have access to affordable health insurance will visit their doctor more often for preventative care purposes. This should lead to earlier diagnoses of potentially serious and costly later-in-life health problems, which can lower insurers' and consumers' costs and result in modest medical cost inflation.
Early results from Obamacare suggest some degree of success. It's impossible to tell if Obamacare is having any effect on pricing as of yet, but the nearly 12 million sign-ups it garnered following its second enrollment period ending Feb. 15, 2015, suggest that there's interest in the program. It's also clearly lowered the uninsured rate. Per Gallup's first-quarter 2015 figures, the uninsured rate now sits at 11.9%. In context, the uninsured rate was 17% prior to implementation of Obamacare in the fourth quarter of 2013.
An interesting Obamacare bifurcation emerges
However, when examining Obamacare, you'll note a very interesting bifurcation in sentiment toward the law depending on whether it's affected you directly.
According to a new survey released last week by The Commonwealth Fund, the majority of people who've purchased health insurance through Obamacare are happy with their coverage. Its survey showed that 86% of respondents who'd purchased health insurance through Obamacare were either "very satisfied" or "somewhat satisfied" with the scope of their coverage.
Further, more than nine out of 10 adults who used their Obamacare-purchased health insurance were satisfied with their choice of doctors, and better than three-quarters of respondents who were required to find a new primary care physician said it was relatively easy to do so. Perhaps the most important figure is that 62% of those surveyed who used their health coverage would not have previously been able to afford it prior to Obamacare.
In short, if you're signed up through Obamacare, then you're probably receiving much better coverage than you previously were, and you're likely happy with your access to care.
On the other side of the coin...
Let's remember that less than 12 million people are enrolled via Obamacare. This means the health reform law is indirectly affecting millions of other Americans, and for the most part, they aren't thrilled with it!
According to the May release of the Kaiser Family Foundation's Health Tracking Poll, which measures America's sentiment toward the ACA, 43% of Americans had a favorable view of Obamacare as of April, while 42% Americans had an unfavorable view. This was actually the first time there were more favorable views than unfavorable in 29 months, although it's still well within the margin for error. Previously, the gap between favorable and unfavorable had been as wide as 16 percentage points, signaling just how much negative sentiment the public had toward Obamacare.
Why the angst toward Obamacare? For some, it's the individual mandate. The mandate is the actionable component of the PPACA that requires consumers to purchase health insurance or face a penalty. In 2015, the penalty for not purchasing health insurance is the greater of $325 or 2% of your modified adjusted gross income, and in 2016, it'll jump to the greater of $695 or 2.5% of your modified AGI. Being punished for not purchasing something that was previously a choice isn't sitting well with some consumers -- especially healthier young adults.
Another problem is the affordability of the program. Even with recently reduced 10-year cost estimates from the Congressional Budget Office, Obamacare is projected to cost $1.2 trillion over its first decade. That's no drop in the bucket for taxpayers to absorb, and it's not as if everyone can afford the plans being offered in the first place.
For example, a middle-class individual that makes just beyond $46,000 receives no subsidy but is expected to pay full price for their insurance premium. The average silver plan ran $307 per month in 2015. Thus, this individual could be kissing nearly $3,700 goodbye in premiums fees each year and still be responsible for out-of-pocket costs in the $2,000 to $5,000 range, depending on the insurer and the plan. It's more than some Americans can afford, and they aren't happy about it!
This is a touchy situation
What makes this blatant bifurcation of opinion even more dicey is the fact that the Supreme Court is just a matter of days or weeks away from making its decision on the landmark King vs. Burwell case, which will decide whether or not the federal government is allowed to divvy out subsidies on behalf of the 37 states it represents.
The language of the ACA implies that only states are allowed to offer subsidies to enrollees. If the Supreme Court upholds the plaintiffs' case, then subsidies for more than 9 million individuals across 37 states would cease. It would also mean individual states would probably have to scramble to get their own exchanges up and running in order for citizens of that state to get health insurance subsides. Finally, it could even mean the demise of Obamacare, at least as we know it.
Until the Supreme Court makes its decision, investing in the insurers, hospital operators, and even medical device makers that are intricately tied to the health of hospitals might be worth avoiding.
Anthem (NYSE:ANTM), arguably the biggest Obamacare beneficiary so far in terms of enrollment, would probably be spared a drubbing because it gets a good chunk of its enrollees from the 13 states that are running their own exchanges and aren't subject to the Supreme Court's ruling.
However, insurers like UnitedHealth Group (NYSE:UNH) and Assurant (NYSE:AIZ), which largely stuck to the sidelines in 2013-2014's enrollment period, but went all-in on expanding into new states in 2014-2015's enrollment period, could feel a significant amount of pain. If subsidies are taken away, I'd presume very few current subsidy-eligible enrollees would be able to continue paying their premium, and these insurers would likely lose these customers due to non-payment. The consolation here is that UnitedHealth and Assurant have expansive businesses well beyond Obamacare, so we could be talking about a low- to low-mid single-digit revenue percentage loss at worst.
Regardless of whether Obamacare is the greatest thing since sliced bread or your arch nemesis, you need to be watching this upcoming Supreme Court decision and paying attention to consumer sentiment surrounding the law. Your investments could depend on it!