Obamacare Hits 4 million Enrollees... Now What?

On Tuesday both the president and The Department of Health and Human Services announced that 4 million people had selected a private insurance plan through the federal and state health insurance exchanges. Ultimately the question both the insurance carriers and the government are grappling with, is if the exchange are offering health insurance of compelling value at a price that is affordable to get the uninsured enrolled. The value of the program should also be judged based what it can provide in the long run and not necessarily on which benchmarks it meets immediately.

For the government and insurers Humana (NYSE: HUM) and WellPoint (NYSE: WLP) success will measured by the programs ability to attract the over 40 million uninsured while creating a stable risk pool.

About That Four Million

Is 4 million good or bad? The administration is unlikely to meet its initial hopes of enrolling 7 million people by the end of open enrollment (March 31st). Three million people in the last month of enrollment appears to be a little out of reach. We need to think about what the early enrollment numbers indicate regarding interest in the program. When we consider the context of the Obamacare launch our evaluation changes slightly. The federal site and many of the state websites lost months due to disasterous launches. The Oregon exchange still continues to have problems with enrollment today. Adjusting for lost time 4 million consumers choosing a private plan is not terrible pace. It is clear that the tax credits and the subsidies are offering value to a significant part of the public.

The question however is not necessarily how many are interested, but rather who is interested?On this front however we are still left with almost no answers. The profiles of the enrollees is important in evaluating both the long term health of the insurance pools as well as figuring out if the program can achieve its singular purpose of insuring the uninsured.

Is The ACA Attractive For the Uninsured?

One concern is that enrollees in the marketplaces are mostly those who previously had insurance. For many of these people the tax credits and cost sharing subsidies help to make having insurance more affordable. Because these people already had insurance premiums budgeted into their spending habits, the lower costs of subsidized coverage makes them easy converts. For the uninsured who had previously not budgeted for insurance even the subsidized price of insurance may not be something they can find room for in their finances.If current enrollment numbers are overly represented by the previously insured then it will underperform in reducing the uninsured. For the carriers it also means smaller growth in policyholders as exchanges simply help to shift how existing customers pay for insurance.

Meanwhile of the uninsured those with preexisting conditions and high medical care costs are very likely to see the new marketplaces as a significant improvement in their coverage choices. With a greater incentive to enroll we would expect these consumers to make up a large percentage of the 4 million. This brings up the second concern that the insurance pools will not have a good mix of health status to remain stable. Many insurers have reported that the young and healthy are not enrolling at a sufficient pace to meet the criteria for stable insurance pools. This was to be expected in the early part of open enrollment. If it continues to be imbalanced then the insurers will eventually be forced to raise premiums driving even more people out of the market.

At this point it is simply impossible to judge.

Focus On March

What we should begin to focus on however is the developments over the course of the next few weeks. The end of March is pivotal in understanding whether the incentives built into the program actually work. Tax penalties related to the individual mandate are set to kick in for those who lack of insurance at the end of March creating a deadline pushing people towards enrollment. The hope is that the healthier uninsured who would normally find less value in having health insurance will be incentivized to participate. In the Massachusetts experience, an uptick of enrollment for the young and healthy was observed as the end of enrollment approached.

Watch for any uptick in demographic mix as a good sign that these incentives are working. As the penalties get more severe in later years the trajectory of health mix should only increase.If however there is no change in demographics and consumers are indifferent between paying penalties and actually paying for insurance then we should begin to question the health of the law as a whole.

Jonathan Wu

Jonathan is the CEO and Co-Founder of ValuePenguin. He reports on an array of topics, including the financial services industry, healthcare reform, and financial products for consumers. He previously worked in the financial services industry, including at such hedge funds as Avenue Capital Group.

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