The Patient Protection and Affordable Care Act, or Obamacare, is beginning to wind down its third open enrollment period. Opening its doors on Nov. 1, 2015 for calendar year 2016 coverage, consumers' last day to enroll on the Obamacare marketplace exchanges will be three weeks from today, on Jan. 31, 2016.
Obamacare's many challenges
Every year unique challenges present themselves, and enrollment for coverage in 2016 will be no different. Consumers are dealing with the highest premium inflation they've witnessed in about a decade, which is largely the result of more than half of Obamacare's health cooperatives closing their doors, and low-cost insurers realizing their plan prices were simply too low.
The uninsured could also be facing record shared responsibility penalties for not buying health insurance. Kaiser Family Foundation suggests that the average penalty in 2016 could total $969, up from the $190 average penalty H&R Block reported for 2014. There's some question as to whether or not these rising penalties will convince consumers to buy health insurance.
There's even uncertainty from the business world, with the employer mandate kicking into full effect on Jan. 1, 2016. This mandate requires businesses with 50 or more full-time-equivalent employees to provide qualifying medical coverage options and, in cases where an employee would be spending more than 9.5% of their gross adjusted income on health insurance, supply financial assistance. No one's exactly sure how successful the employer mandate will be in terms of getting employees covered.
How Obamacare's success is traditionally measured
Traditionally, the magnitude of how these uncertainties affect Obamacare is determined by total enrollment figures, which are supplied weekly during the open enrollment period by the Centers for Medicare and Medicaid Services.
Through the eighth week (Dec. 20 – Dec. 26), the 38 states covered by the federally run HealthCare.gov enrolled nearly 275,000 people. That might seem like a low figure, but remember that this is the week following auto-renewals and the January coverage deadlines, as well as the Christmas holiday. All told, 8,524,935 plans were selected, of which 29% were bought by new customers, through week eight. Although the enrollment totals aren't really comparable from last year to this year by week since the enrollment periods began at different times, it's looking very likely that the 2016 enrollment period will handily outpace the 12 million plans selected by the end of the 2015 coverage period.
We've also witnessed early signs of a surge in young adult enrollment, which is defined as anyone under the age of 34. Young adults are a particularly tough crowd to reach because they feel invincible, but insurers are counting on enrollment from this group since they're often healthier and less likely to go to the doctor. An update provided on Dec. 22 by CMS showed that young adult enrollment was up by almost 50% from the prior-year period when using corresponding dates for the comparison. This doesn't guarantee that insurers are looking at a more favorable selection of enrollees in 2016, but it's certainly not a bad thing.
However, there is a far less publicized enrollment number that's exploded higher since September 2013, and it has Obamacare to thank for a vast majority of its uptick.
The Obamacare enrollment number flying under the radar
One of the more controversial components of Obamacare is the Medicaid expansion. Under the proposed expansion, Medicaid, which most commonly covers the healthcare needs of persons or families making below the federal poverty level ($11,770 in 2016), was to be expanded in all 50 states to cover persons making less than 138% of the federal poverty level. Ultimately, the Supreme Court decided that the federal government could not impose the expansion program on every state, and ruled 7-to-2 that it would be up to each state to decide whether or not they'd expand their Medicaid program.
For some states expansion made sense. The states expanding coverage received federal dollars to help pay for the millions of newly covered enrollees. The catch? Beginning in 2017, and running through 2020, the federal government would begin paring back its financial assistance from 100% coverage of Medicaid expansion enrollees to 90% by 2020. It would be up to the participating states to come up with the remainder of the funds.
Other states didn't see it that way. Whether it was politically motivated or not, some very large states, including Texas, Florida, and North Carolina, decided not to expand their Medicaid programs. These states generally rallied around the idea that expanding their Medicaid programs would have created a long-term cost burden. In other words, they were concerned about how they'd raise additional revenue once the federal government began paring back its contribution in 2017.
As it stands today, 31 states have adopted Medicaid expansion. Just how many new Medicaid members have been added between the July 2013-Sept. 2013 and October 2015 period, according to Medicaid.gov? 13,506,800! Note that this figure includes Medicaid enrollees as well as Children's Health Insurance Program, or CHIP, enrollees.
The 13.5 million newly added Medicaid and CHIP enrollees over the past two-plus years have increased Medicaid/CHIP enrollment by 23.6% to 71.75 million as of October 2015's preliminary numbers. Another way to look at it is this: Medicaid enrollment has, thus far, actually eclipsed paid enrollment via HealthCare.gov and the one dozen state-operated exchanges since open enrollment kicked off on Oct. 1, 2013. Inclusive of the 9.9 million paying customer per the CMS at the end of June 2015, Obamacare has potentially added more than 23 million previously uninsured people to the insurance pool.
It's worth noting that Medicaid.gov's figures don't break down exactly how much of this surge is due to Obamacare expanding the income limits of Medicaid in 31 states and what percentage is merely based on new consumers earning less than the FPL. But the timing of the surge pretty clearly indicates that the PPACA has played a big role in surging Medicaid enrollment.
Government-sponsored healthcare companies rejoice
For health-benefit providers, government-sponsored care comes with an interesting give and take. On one hand, margins associated with government care can often be pretty small. On the other hand, government-sponsored care means guaranteed payment, and if an insurer can enroll a lot of new members covered by Medicaid, it can deal with a low margin and still be very profitable.
Three names in particular have really savored the 13.5 million-person jump in Medicaid enrollment over the past two-plus years: Molina Healthcare (NYSE:MOH), Centene (NYSE:CNC), and Anthem (NYSE:ANTM).
Molina and Centene are natural beneficiaries of Medicaid expansion since they've each been covering government-sponsored individuals for more than three decades. They have a keen understanding of the business, and it's reflected in their enrollment totals. As of Q3 2013, Centene was covering 1.95 million Medicaid enrollees. By Q3 2015 Centene's Medicaid enrollment had jumped to 3.47 million. The story is similar at Molina, which had added about 540,000 members directly from Medicaid expansion through Sept. 30, 2015.
However, national insurance giant Anthem has been cleaning up in regards to Medicaid enrollment, largely thanks to California. Between Q3 2013 and Q3 2015, Anthem's Medicaid enrollment jumped from 4.32 million to 5.86 million. As noted above, these won't be the highest margin members, but they do provide (at least theoretically) safer income since they're being covered by the government.
There's a lot left to evaluate when it comes to the success or failure of Obamacare, but as an investor you'll want to pay attention to the little and sometimes big details that are flying under the radar. Medicaid enrollment is critical to the long-term success of Obamacare, and as such it looks as if Centene, Molina, and Anthem are going to continue to benefit.