While media coverage of Obamacare has focused on how much the plans cost or how many people have signed up, the real impact of the law is the long-term effects of small changes that haven't really taken effect yet. Tech issues with the exchange rollout pushed back many of the opportunities to change consumer behavior in the individual market. For health insurance carriers like Humana (NYSE:HUM) and brokers such as eHealthInsurance (NASADQ:EHTH), the next year should be significantly more rewarding and begin a longer term change in how consumers buy insurance.
Moving Towards Direct Enrollment Through Carriers And Third Parties
During this previous enrollment period, subsidy-eligible consumers were generally required to use the exchanges themselves to get coverage. While some workarounds exist, nearly none were capable through the web or internet. eHealthinsurance, which in 2013 had announced a deal with CMS to enroll the subsidy-eligible, was unable to perform any such enrollments until towards the end of the period. Even then, it required a phone call with an agent instead of directly through their portal. Clearly the highly publicized technical issues that plagued the exchanges also hampered the development of these capabilities.
With these issues resolved we can expect the next enrollment period to go very differently. We should expect direct web enrollment for the subsidy eligible for both carriers and brokers like eHealth come this October. As the leader for internet sales of individual health insurance, the benefits for eHealth are obvious. It is estimated that the majority of new individual insurance sign ups were eligible for subsidies. Opening up direct subsidy enrollment will more than double the potential opportunities for eHealth.
For insurers like Humana and Aetna (NYSE:AET), two of the larger sellers of on-exchange plans, direct enrollment can also prove to have significant benefits. Insurers typically allocate 2-6% of an ACA compliant plan's total premiums towards commissions for brokers. Bypassing brokers and enrolling more consumers directly would immediately open up profit margins.
It will also alter the efficacy of marketing and the tactics they choose to take. With the existing process, even if insurers managed to capture a consumer's attention and get him onto their website, they would ultimately be sent to the exchanges where competing plans are being marketed. With direct carrier enrollment, the carriers will have greater control over the shopping experience by keeping shoppers on their website. This should have a big impact in the value proposition of direct to consumer advertising.
Long-Term Changes In How Insurance Is Sold
Where this can have the largest impact is in training how consumers think about health insurance in the long haul. Enrolling the young and currently uninsured through direct web enrollment now will make the individual market an acceptable way for consumers to shop for health insurance.
A few other factors are also working to shift how health insurance is bought and sold. Historically the benefits of individual market plans have been worse than those available in the small and large group markets. Regulations brought about by Obamacare have changed that, bringing plan benefits and requirements closer to those in employer-sponsored plans. With little difference between plans, the individual market plans are going to be viable options going forward. In addition, the availability of subsidies means that small businesses and their employees may both be better off encouraging enrollment in individual on-exchange plans.
Currently the private insurance market in the United states is dominated by employer-sponsored coverage. As more consumers become accustomed to actually purchasing individual market plans and carriers see benefits from them doing so, there will be a gradual shift away from employer-based coverage. Carriers have an additional incentive in getting consumers on the individual market plans in the long run: retention. The uproar over the plan cancellations in recent months is just one small indicator of how unwilling most policyholders are in switching their coverage. Wider adoption of individual plans will mean consumers can stay with the same coverage despite changes in employment.
The companies aggressively pursuing this market will be in the best position as all these changes come to pass. In the next few months, keep an eye out for which carriers are making the biggest investments in the individual market.