Here's Why Obamacare's Dismal Enrollment Figures May Not Matter
It has been six weeks since the launch of Obamacare's state and federally run health exchanges, and we appear no closer to a resolution of the problems that have plagued the federally run website, Healthcare.gov.
This dismal beginning was largely expected to be a bumpy ride, but it's still being touted by the Obama administration as a law that will transform our health care system for the better. Millions of Americans, those on Medicaid, and those who do not qualify for Medicaid but are in need of preventative and medical care are counting on Obamacare to improve their well-being -- if they could just sign up and complete their enrollment, that is.
Source: White House on Flickr.
Obamacare's dismal enrollment figures
Yesterday, however, The Wall Street Journaldished out what are believed to be the much-awaited early-stage enrollment figures for Healthcare.gov. According to two sources familiar with the matter -- since Department of Health and Human Services Secretary Kathleen Sebelius isn't slated to release official numbers until later this week -- less than 50,000 people in the 36 states that Healthcare.gov covers were successfully able to enroll in health plans.
This figure is actually a bit higher than some of the most bearish prognosticators had forecast, but it's still a long cry from the 7 million person enrollment target that Sebelius would like to see hit by the coverage cutoff period on March 31. It also represents just a 0.25% successful sign-up rate given that some 19 million people visited Healthcare.gov since its launch.
Despite these undeniably awful figures, the only phrase that comes to mind for me is, "No big deal."
One big reason not to worry
The reason I tend to not be so concerned about these figures -- which seem to have the opposition in an uproar and supporters biting their nails -- is that enrollment into new health reforms is always back-loaded. In other words, when people are required to pay for health insurance -- as the Patient Protection and Affordable Care Act requires Americans to do so or face a penalty -- they're going to wait for the last conceivable moment to do so. In addition, just consider the timing of the coverage cutoff and the April 15 tax date. I can imagine a good number of people will be filing early this year if they're due money back in order to have money to pay their premium come March 31.
As further proof, I offer up data from The Washington Post, which examined enrollment into the Massachusetts Commonwealth Care plans back in 2007. Although health-care reform in Massachusetts and Obamacare aren't the same, I believe they are similar enough to provide for what I believe is a striking comparison.
According to the figures -- which were collected by MIT professor Jonathan Gruber and reported by The Washington Post -- just 123 people signed up after the first month. Following the second month (which we haven't even hit yet for Obamacare, by the way!), Massachusetts' Commonwealth Care plan signed up 2,289 people. However, by the end of the 11-month enrollment period, the plan signed up 36,167 premium-paying new members. This means that only 6.3% of all enrollees signed up within the first two months. If we extrapolated that figure over to Obamacare's 7 million person projections, we would get roughly 443,000 enrollments by the end of November.
Now understand that we're dealing with only a six-month enrollment period with Obamacare versus 11 months for the Massachusetts Commonwealth Care plan in 2007, but that still only puts Obamacare's enrollment behind schedule by perhaps a few hundred thousand enrollees instead of just a cumulative month-by-month average of roughly 1.2 million. That's a big difference!
Stay the course
While this may provide for some near-term volatility in health care stocks dependent on the success of Obamacare, this temporary weakness may present itself a buying opportunity for more level-headed longer-term investors in the health care sector.
Take drugstores CVS and Walgreen as the perfect examples of stocks that may drop over the near term on Obamacare enrollment weakness, but that are in great shape regardless of how Obamacare enrollments fare.
Both CVS and Walgreen are anticipating a big boost in preventative care doctor visits, which they hope will translate into more prescriptions written. Pharmacy sales are where CVS and Walgreen make the bulk of their profits, so Obamacare is expected to be a nice boost to their top and bottom lines. But even if enrollment proves slower than expected both CVS and Walgreen are already benefiting from a push toward higher generic drug utilization rates because it gives them, as pharmacies, better pricing power. Tack on the fact that many drugstores are now offering loyalty or rewards programs, which has dramatically improved customer loyalty, and these two companies could be great long-term holds that can easily transcend this early stage weakness.
Health care industry IT service providers are another group that's unlikely to be fazed by slower-than-expected enrollment. Here I'm specifically thinking of an electronic-health records giant like Cerner or Medicaid payment processor Xerox .
Because hospitals and medical clinics were switching toward a more space and cost-efficient electronic platform long before Obamacare, there's little reason for Cerner's software and applications not to remain in high demand. In addition, regardless of whether Obamacare is a success, hospitals are always looking for ways to optimize their workforce and their revenue collection, which is precisely what Cerner's software is geared toward.
Xerox, on the other hand, has its fingers in a little bit of everything. It helped develop Nevada's state-run health exchange, is the sole Medicaid payment processor in California, acts as a collector of federal subsidies for states during Obamacare, and also offers IT services outside the health care sector, including a recently awarded contract over the next five years to handle electronic toll booth collection in Texas. Xerox's diversity has been on display for years and its higher margin and recurring revenue IT service operations make it a very intriguing company moving forward.
The point being that these weak early stage figures shouldn't scare you away from staying the course and investing in health care names you believe in for the long term.
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