Few policies seem to have as many ups and downs as the Affordable Care Act, which you probably know better by its unofficial nickname, Obamacare. Through its first year-and-change of implementation Obamacare has produced its fair share of ups and downs.
Obamacare's mixed results
On the one hand, enrollment in Obamacare health exchanges came in better than expected -- 11.7 million people at the end of the Nov. 15, 2014 to Feb. 15, 2015 enrollment period for fiscal 2015. Based on statistics from Gallup, the uninsured rate in the U.S., including Medicare, dropped to 9.2% in the first quarter. It's the first time in history the percentage of uninsured people in the U.S. dropped into the single-digits. Therefore, Obamacare deserves some credit for substantially improving the percentage of citizens covered by health insurance.
Of course, there are downsides as well. For example, Obamacare's beefed up minimum benefit requirements for health plans on the marketplace exchanges pushed millions of people into a new plan, new primary care physician, or both. This is because some insurers simply chose not to bring older, cheaper plans into compliance, while some physicians simply don't accept Obamacare plan insurance for fear of not being reimbursed enough to cover their expenses (primarily a concern with Medicaid-insured patients).
Americans are also highly critical of the individual mandate, which is the actionable component of the ACA that requires individuals to purchase health insurance or face a penalty come tax time. Be it the fees attached for noncompliance (the greater of $325 or 2% of your modified adjusted gross income in 2015), or the concept of being "forced" to buy insurance, some Americans may be holding off on purchasing health insurance simply because of their views of the individual mandate.
Overall it's a pretty even mix of good and bad. But what if Obamacare's open enrollment figures weren't as robust as we all thought they were?
Obamacare can't hold onto this milestone
According to a press release issued by the Centers for Medicare and Medicaid Services on Tuesday, the number of paying Obamacare enrollees fell to 9.9 million by June 30, 2015, thus falling below the 10 million-person enrollment milestone many proponents had cheered. Put another way, roughly 1.8 million people who were enrolled in Obamacare at the end of February had either not paid their bills or were dropped by their insurers.
The CMS suggests that a number of factors could continue to play into this expected degradation in enrollment rates following the end of the open enrollment period. For some it could be as simple as coverage no longer seeming affordable. For others, life changes could affect their need for an Obamacare plan. Landing a new job or getting married could mean that health insurance purchased on an Obamacare exchange is no longer needed. Lastly, the CMS notes that about 423,000 of the 1.8 million consumers had their coverage terminated because sufficient documentation of their citizenship or immigration status could not be verified.
However, the CMS pointed out that even with the expected drop-off in paying customers, the 9.9 million enrollees is still higher than the 9.1 million targeted by year's end.
This is how Obamacare's legacy will be defined
But in my opinion the actual number of Obamacare enrollees on a month-to-month or year-to-year basis isn't what's going to define Obamacare and its success or failure. Instead, I strongly believe that Obamacare's ability (or inability) to soften the blow of medical cost inflation will make that determination.
Understandably, having more consumers enroll allows insurers to spread their medical costs across as many people as possible. This should help in keeping premium inflation from shooting notably higher.
Yet there's more to enrollment than just the numbers; it's also who the insurers enroll that counts.
In 2013-2014 Obamacare allowed consumers with pre-existing conditions to enroll for health insurance. Under the new rules set by the ACA, insurers could no longer deny coverage to people who are already sick. It meant that most insurers witnessed their medical expenses rise in 2014.
What's really worth watching is how well Obamacare courts younger, healthier adults, which are the key to success. Young adults are less likely to go to the doctor or have expensive medical complications, meaning they can pack some serious punch for insurers with their premium payments. But these young adults aren't easy to reach. Some feel invincible, while others have simply chosen to take the penalty associated with the individual mandate. The average penalty in 2014, per the National Taxpayer Advocate, was merely $190. In contrast, the average silver plan premium this year is $307 per month. Until the cost of the penalty nears the cost of buying a health plan, it could be tough to convince young adults to enroll.
It'll also be interesting to see if Obamacare's transparent marketplace exchanges serve as a breeding ground for competition among insurers. If consumers can properly utilize the information being presented to make informed purchasing decisions, it could encourage insurers to become more competitive with their premium pricing.
My suggestion as an investor would be to not get too caught up in the headline numbers associated with Obamacare and instead focus on how successful insurers are at attracting a balanced consumer base. The jury remains out on whether or not this is a venture insurers will succeed at, but I know I'll be keeping a close eye on the data, and would suggest you do too.