Image source: White House on Flickr.
As billions of people around the world celebrate the New Year and think long and hard about their resolutions for 2016, Americans who haven't already done so will be turning their attention to obtaining health insurance.
Health insurance is on Americans' minds
The Affordable Care Act, also known by its shorthand of Obamacare, requires everyone to purchase health insurance via the individual mandate or face a penalty come tax time, unless by some chance they qualify for an exemption. Open enrollment for Obamacare's third year began on Nov. 1, and it will officially wrap up on Jan. 31, 2016. The Congressional Budget Office has projected that Obamacare will have 10 million paying consumers by the end of 2016.
Out of the 13 weeks consumers have to enroll, none proves more important each year for HealthCare.gov than the week in which the January enrollment deadline and HealthCare.gov auto renewals kick in. This year, HealthCare.gov, which is the federally run healthcare marketplace that represents 38 states, pushed back the deadline for obtaining Jan. 1 coverage by two days to Dec. 17, and auto enrollments were ongoing throughout week seven, which ended on Dec. 19, 2015. Last year, 43% of total HealthCare.gov enrollment occurred between Dec. 14, 2014 and Dec. 20, 2014, so this year's enrollment data for the week that included both the auto renewal and the January coverage deadline was expected to be substantial as well.
Why Obamacare's future could be in doubt
Shortly before the Christmas holiday, the Centers for Medicare and Medicaid Services released a deluge of marketplace data, including not only the highly sought-after enrollment statistics but also data detailing some finer points about total enrollment thus far. What emerged from this data were two statistics that may change your mind about the health of Obamacare.
Aside from the generally negative sentiment toward the law evidenced by Kaiser Family Foundation's near-monthly Health Tracking Polls, there has long been concern that Obamacare isn't an economically feasible law.
Image source: Flickr user Francisco Osorio.
The nation's largest health insurer, UnitedHealth Group (UNH +1.29%), recently lowered its full-year profit forecast solely due to losses being experienced from plans on Obamacare marketplace exchanges. UnitedHealth blames the losses on higher-than-expected insurance usage by its marketplace enrollees and the ease for consumers to switch plans year to year.
For the time being, UnitedHealth is so convinced that Obamacare is toxic to its bottom line that it has decided to pull the plug on all marketplace advertising for the current open enrollment period, and it may leave Obamacare entirely in 2017. The way Obamacare skeptics see it, if the nation's largest health insurer can't make money from Obamacare, then what company can?
The lack of funding for the "risk corridor" has also been a concern. The risk corridor is a fail-safe that's designed to funnel a percentage of excess profits from insurers who are rolling in the dough with Obamacare to insurers who are losing excessive amounts of money. The problem is that money-losing insurers are only in line to receive 12% of what they've requested via the risk corridor. This lack of funding has put more than half of all approved Obamacare healthcare cooperatives out of business, and it could seriously deter new and inexperienced entrants from entering the field. Less competition is ultimately bad news for the consumer, who's counting on competition to keep premium cost inflation at a reasonable level.
These two statistics could change everything
However, two key statistics from the week-seven update issued by CMS suggest that Obamacare may be a lot healthier heading into 2016 than some pundits have recently opined.
1. HealthCare.gov's enrollment data is crushing last year's figures thus far
First, we have the overall enrollment data through the "auto renewal and January coverage deadline" period. Between Dec. 13, 2015 and Dec. 19, 2015, nearly 4.1 million people selected a plan. All told, 78% of these enrollees were consumers who renewed their coverage ahead of the January coverage deadline. The flood opf enrollees practically doubled the cumulative enrollment of the prior six weeks to 8,250,276 through Dec. 19, 2015.
Data source: Centers for Medicare and Medicaid Services.
Now here's the interesting thing: Automatic renewals were still not completely accounted for at the time of the CMS data release. A vast majority of them do appear to be accounted for, but it's not out of the question that we could still see a minor jump in enrollment data based on automatic renewals within HealthCare.gov. Some of the dozen states operating their own exchanges have even later January enrollment deadlines, meaning renewals could pour in for those states as well. However, for the figures above, we're strictly looking at enrollment data for the 38 states operating under HealthCare.gov.
Furthermore, at the end of last year's auto renewal and January coverage deadline week, "only" 6.39 million people had selected a plan. This year, we're already up to 8.25 million. To be fair, consumers have had an extra 15 days to shop for health insurance this year, with open enrollment having begun on Nov. 1 for calendar year 2016 as opposed to Nov. 15 for calendar year 2015. But enrollment this year ends on Jan. 31, 2016, whereas last year consumers could shop until mid-February. In any case, enrollment appears to be pacing well ahead of last year, and this could imply that either consumers are eager to be insured or higher shared-responsibility payments are doing the trick. Either way, higher enrollment usually bodes well for insurers.
2. Plan selections for younger adults have soared
Arguably, the bigger news came from a same-day but separate press release from the CMS showing that enrollment for young adults (those below the age of 35) had almost doubled prior to the January coverage deadline this year as compared to last year.
Data source: Centers for Medicare and Medicaid Services.
As you can see above, approximately 1.1 million young adults between the ages of 18 and 34 enrolled prior to the January coverage deadline last year (last year was also the second open-enrollment period under Obamacare, thus the labeling of OE2). This year, some 2.1 million young adults have selected a plan in OE3 (the third year of open enrollment).
Additional analysis provided by CMS also shows that it's not just auto renewals driving this surge in young adult participation. Last year, 670,000 young adults selected a plan for the first time via HealthCare.gov. In the current enrollment period, we've seen an almost 50% jump to 980,000 new, young enrollees.
Image source: Centers for Medicare and Medicaid Services.
Young adults are a critical component to success for health-benefit providers, as they're often healthier and far less likely to go to the doctor. This means young adults, more often than not, tend to be a source of profit for insurers. They can also help offset the high costs of treating elderly and terminally ill patients. If insurers are going to thrive under Obamacare, they need young adult enrollment to pick up. Once again, it's possible consumers simply want to be insured heading into 2016, but I suspect the likely culprit in the enrollment surge for young adults is the rapid rise in the shared-responsibility payment to the greater of $695 or 2.5% of modified adjusted gross income in 2016, up from $325 or 2% of MAGI, in 2015.
What's next for Obamacare?
As is often the case, Obamacare's future remains somewhat murky. The latest CMS data suggests a vibrant enrollment environment complete with a growing number of younger, healthier enrollees. Yet UnitedHealth's warning, coupled with the closure of 12 Obamacare co-ops, also demonstrates that not everything is going according to plan.
Beyond the dynamics of the exchange itself, the 2016 elections could dramatically reshape the healthcare landscape. Depending upon which candidate takes the Oval Office and which political party controls Congress, Obamacare as it currently exists may be altered or removed completely in the coming years. Investors will want to monitor enrollment developments closely through the end of the current open-enrollment period, but also keep an eye on the elections, as they'll be paramount to deciphering Obamacare's long-term potential.
