Is It Time to Stop Worrying Now That Obamacare Enrollments Have Reached 3 Million?

What a difference a different point of view and contractor can make!

The first two months following the Oct. 1 rollout of Obamacare's state and federally run health exchanges were an absolute nightmare for the Department of Health and Human Services, as well as the people around the country who wanted to sign up for health insurance. A combination of overloaded servers and poorly written source code made the federally run Obamacare website, Healthcare.gov, practically unusable, while select state-run exchanges, such as Hawaii, Oregon, and Vermont, struggled with IT-based glitches.

Source: Alex Proimos, Wikimedia Commons.

Fast-forward to today, and the past eight weeks have been a complete 180. Over the first two months, Obamacare managed to enroll fewer than 365,000 people, encompassing both state and federal exchanges. In the past eight weeks since, Obamacare enrollments have surged by more than 2.6 million, with Obamacare's cumulative enrollments hitting approximately 3 million people this month, according to Marilyn Tavenner, administrator of the Centers for Medicare and Medicaid Services.

The surge in Obamacare enrollments can be largely credited to the tech trio of Oracle, Red Hat, and Google for helping to diagnose and rapidly fix Healthcare.gov's architectural problems; to the HHS for continuing to improve public awareness of Obamacare; and to the Obama administration for taking the initiative not to renewCGI Group's contract to oversee Healthcare.gov, which expires on Feb. 28, after this botched rollout.

But is this recent surge in enrollments enough to quell the fears of those who are concerned that Obamacare will fail? Not yet, I would contend.

We're not out of the woods just yet
One of the biggest primary concerns with the latest round of Obamacare enrollment figures we received from the HHS just two weeks ago was the demographics breakdown. Within that breakdown we discovered that only 489,460 of a then 2.15 million people enrolled through Dec. 28 were between the ages of 18 and 34. In other words, just 24% of the enrollees were considered to be healthy young adults.

Source: White House on Flickr.

If you recall, the one factor above all else that will determine the ultimate success or failure of Obamacare is whether it's successful in luring young adults to sign up. Because young adults are often healthy, their premiums are needed to counter adverse selection -- the process whereby the sickest individuals will sign up for Obamacare first. If too few young adults sign up -- and the HHS has been targeting an enrollment figure closer to 38% just to put the previous 24% figure into some context -- then insurance premiums could skyrocket in 2015. Even Aetna CEO Mark Bertolini earlier this week on CNBC's Squawk Box cautioned that Obamacare enrollments are nowhere near where they should be to help insurers counteract their higher medical expenses costs. Bertolini, in fact, threw out a hypothetical scenario whereby health insurance premiums could rise by 15% in 2015.

Another concern would be the fact that, according to Tavenner's blog release, 6.3 million people have been deemed eligible for Medicaid or CHIP-based assistance. The ultimate goal of Obamacare was to insure a greater percentage of the population, so it's not as if the law is failing to do its job in this aspect. However, the implementation of the individual mandate came with the assumption that a number of younger adults and other paying members would sign up for health insurance. Based on Bertolini's enrollment figures established this week, just one in nine enrollees was previously uninsured. Instead, many consumers are simply switching away from employer-based or alternative plans and enrolling in Obamacare if they qualify for a higher subsidy. It's a smart move for consumers, but it could portend bad news for Obamacare as a whole, with fewer paying consumers than anticipated.

The last thing to remember is that some 6 million people lost their health insurance on Jan. 1 because the Patient Protection and Affordable Care Act, the official name for Obamacare, established more stringent health benefits, which these approximately 6 million policies didn't meet. The Obama administration offered to allow these individuals to purchase catastrophic insurance plans for 2014 without a fear of penalty if the higher costs of buying into a bronze plan were determined to be "unaffordable," but it appears few individuals went that route - at least as of Dec. 28.

The ins and outs of the early data
Ultimately, the fat lady won't have sung on Obamacare until March 31, when the coverage cutoff for obtaining insurance coverage in 2014 arrives, so there's still an opportunity for the numbers to improve, or get worse.

What we do know thus far is that any insurer that's focused on government-sponsored or lower-income individuals and families, and also happens to operate primarily in the U.S. states that chose to accept federal assistance and expand their Medicaid program, is sitting pretty. Particularly, I look to an insurer such as Molina Healthcare , which should be achieving strong revenue growth in California, Florida, and Washington. Medicaid-based members may not offer the best margins, but the sheer number of new members being added should have a dramatic impact on Molina's top and bottom line.

The drugstore sector should be another beneficiary regardless of whether we see a surge in Medicaid or non-subsidized enrollees. National drugstore chains such as Walgreen and CVS Caremark are expecting to see a jump in their pharmacy sales in the second half of the year, with preventative care visits from Obamacare enrollments expected to rise. Since Walgreen and CVS have been waging war with each other on front-end sales with discounts and loyalty reward cards, they'll be counting on a stronger number of prescription fills this year to more than make up the difference.

However, the prospect of weak young-adult enrollment and the potential for higher premiums in 2015 bodes poorly for the hospital industry and medical device companies tied to elective procedures, which could become even more expensive next year.

I know I've picked onTenet Healthcare a number of times previously, and its recent purchase of Vanguard Health Systems will assuredly help diversify and stabilize its business, but it also operates in an inordinate number of states that chose not to expand their Medicaid program, leaving millions of still uninsured Americans out in the cold. This means that Tenet's reduction in doubtful revenue (uncollectable revenue from uninsured or underinsured patients) may go down by far less than some of its peers.

Worse yet would be companies reliant on elective procedures. The potential for markedly higher premiums next year would be bad news for Zimmer , a medical device company responsible for a number of orthopedic reconstructive devices, including hip and knee replacements. While hip and knee surgery can be deemed necessary by an insurer, arthritis in the hip or knee area will usually be classified as elective. Higher premiums could quickly curb consumers' desire to get these orthopedic procedures done early and could adversely affect Zimmer's growth rate.

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The article Is It Time to Stop Worrying Now That Obamacare Enrollments Have Reached 3 Million? 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 Google. It also owns shares of Oracle and Zimmer Holdings. 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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