Will This One State Destroy Obamacare's Chance of Success?


With just three days left to go before state-run and federally run health exchanges open for business, praise and criticism regarding the merits of the Patient Protection and Affordable Care Act, perhaps known better as Obamacare, are beginning to heat up.

Source: White House on Flickr.

On one hand, Obamacare supporters can revel in average premium prices across the U.S. for the mid-tier silver plan coming in lower than the Congressional Budget Office had forecast at $328 per month. In addition, while there are still millions of people left to educate on the law, the number of Americans who "aren't in the know" is shrinking.

Then again, opponents of the law will point to the Department of Health and Human Services, which has dropped three bombshells on us in a little less than three months, including the delay of the employer mandate until Jan 1, 2015, and the news earlier this week that Spanish-language and small-business health exchanges will be delayed by three to four weeks and a month, respectively. Opponents would cite this classic disorganization and the expected premium sticker shock some young adults may feel as all the more reason this law won't succeed.

Ultimately, though, the success or failure of Obamacare may come down to state participation. Even more so, it may come down to the participation of just one state in general.

The "Leave Me A-Lone Star" state
According to the most recent analysis conducted by research firm The Advisory Board in mid-September, 15 states were absolutely not going to expand their states' Medicaid program, while another seven were leaning in the direction of not expanding.

Why is this important? Under the PPACA, qualifying income levels under Medicaid will be expanded to include more low-income individuals. Because of the way the PPACA was set up (and how's this for a ridiculous loophole?), if a state chooses not to expand Medicaid coverage, very low-income individuals will not have any subsidies whatsoever on the health exchanges and will most likely not be able to afford health insurance. In other words, the PPACA was drafted with the assumption that all states would opt in, which clearly hasn't been the case.

By now you're probably wondering why on Earth a state would deny expanding its Medicaid program when the federal government has agreed to pick up the tab for the next three years. The answer to that question is based on two factors.

One, there are some political motivations in there. Many staunch Republican supporters truly believe Obamacare will not work, and they, as governors, refuse to allow their state to participate in the expansion.

Primarily, though, their refusal to expand lies with the expectation that it'll cost their state more in the long run. You see, beginning after 2016 and running through 2022, the federal government will scale back its portion of Medicaid cost-covering in participating states from 100% to 90%. I'm sure covering 10% of costs doesn't sound like a lot, but it's enough to make up to 22 governors completely opt out of what's essentially money being left on the table.

Not surprisingly, the one state at the center of it all is Texas (that's right, Floridians and Californians -- breathe a sigh of relief that it's not you for once!). According to HHS Secretary Kathleen Sebelius, who has been championing the law from the get-go, Texas' refusal to participate in Obamacare's Medicaid expansion will leave $79 billion in federal money on the table through 2022 and keep up to 2.5 million people from gaining access to reasonably priced insurance.

If that wasn't enough of an issue, Texas is also the state that carries the highest rate of uninsured people in the country! On one end of the spectrum is Massachusetts, which has been running its own health exchange for years now with an uninsured rate of just 4%. Then we have Texas at the other end, with an uninsured rate of a whopping 24%, as of 2010-2011's data from the Kaiser Family Foundation. Only eight of the 50 states are even at 20% or above, and Texas is by far the highest. With such a large uninsured population, in addition to California and New York, Texas is often looked as a state that sets examples for other states to follow. The example it's currently setting could negatively affect Obamacare's success and definitely has the ability to hurt insurers and hospital providers.

Texas plays Whac-a-Mole with your investments
The immediate concern I would have from an investment perspective is for insurers. The entire reason we saw three large buyouts in the insurance space since 2011 -- WellPoint buying Amerigroup, CIGNA buying Healthspring, and Aetna purchasing Coventry Health Care -- was so these insurers could take advantage of what was supposed to be the influx of 16 million newly qualified Medicaid members. Some of the most recent estimates I've seen from Forbes now show that this figure will approach only 10 million by 2017 and could be as low as 5 million within the first year. That's certainly not what these insurers thought they were buying into when they ponied up big money for these insurers that catered to government-sponsored enrollees. With specific respect to Texas, Aetna and CIGNA would feel the most potential loss, as WellPoint is not a participant in the state.

And don't think Texas' lack of participation harms only the aforementioned insurers that purchased their way into government-sponsored health care. Molina Healthcare and Centene will also feel the pain from Texas' decision. Molina and Centene have already been struggling with higher medical costs in Texas, but at least Molina has California and its some 1.4 million soon-to-be eligible Medicaid enrollees to fall back on. For Centene, it's pulled out of Kentucky because of high medical costs, and it now relies on Texas for about one-quarter of its revenue. If this move really slams any particular company, it's Centene.

Hospital operators aren't going to be thrilled about this decision, either. Perhaps none is more exposed from states opting out of Medicaid expansion than Tenet Healthcare . Tenet operates acute-care hospitals and surgery centers in 10 states, of which nine of those states are not participating, considering not participating, or considering an alternative plan altogether. The lone participant on Tenet's list is California. This is bad news for Tenet, because it's relying on expanded coverage for lower-income individuals to help cover the doubtful revenue it incurs every year from providing treatment to uninsured patients. With few of these currently uninsured people gaining access to insurance under the PPACA, it doesn't look like Tenet's doubtful revenue will be falling anytime soon.

Can Texas really topple Obamacare?
According to Kathleen Sebelius, Texas' non-participation will limit the impact of the PPACA. While I do somewhat agree with Sebelius' opinion that very low-income individuals in these nonparticipating states aren't gaining any ground despite this transformative legislation, I also don't believe that Obamacare's success or failure will be determined by its prospects in any one state. The only thing that'll make that determination is time.

I do, however, think that Texas and what Texas stands for could have a meaningful impact on your investments, as I've laid out a case for.

As always, I'd suggest staying tuned, as the next few days are going to be the real test that determines whether the health-exchange technology is firmly in place, the Obamacare navigators are ready to assist consumers with their queries, and the American public is educated enough to purchase health insurance on its own. We'll do our best here at The Motley Fool to continue to offer you every angle possible on how this law may affect you personally, and your investments leading up to, and after, the Oct. 1 health-exchange kick-off date.

You've got questions? We've got answers!
Still in the dark about how Obamacare might affect you and your portfolio? Don't worry -- you're not alone. To help prepare investors for the massive changes coming to the American health care system, The Motley Fool created a special free report that makes this complex topic easily understandable. Download "Everything You Need to Know About Obamacare" and discover how the law may affect your taxes, health insurance, and investments. Click here for your free copy today.

Editor's note: A previous version of this article referred to the Affordable Care Act as a bill. The Fool regrets the error.

The article Will This One State Destroy Obamacare's Chance of Success? originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published