Obamacare's Uh-Oh Moment?
The countdown is on.
Obamacare's health insurance exchanges -- the most visible component of the legislation -- are set to begin operations on Oct. 1. It will without question be a huge milestone for the Affordable Care Act, but will it also be Obamacare's "uh-oh" moment?
There are enough things that could go wrong starting next week to make up a long list -- sort of a "dirty-laundry" list. Probably the biggest risk is that technical glitches will occur. Just days ago, the federal exchange software that will be used in 36 states was miscalculating prices. The Government Accounting Office, or GAO, which serves as a watchdog for federal agencies, has been warning for months that a lot needed to be done in a short amount of time to successfully launch the Obamacare exchanges.
It's not just the federally operated exchanges that face the prospect of technical snags. The District of Columbia exchange won't be fully operational on Oct. 1 because of a large number of errors uncovered in recent testing. While the exchange will launch as scheduled, the system won't be able to determine whether individuals are eligible for Medicaid or for government subsidies to help pay for insurance. Similarly, Colorado's state exchange won't be able to calculate federal subsidies for the first few weeks of operations.
Another significant issue is public acceptance of the exchanges. To say that confusion runs rampant when it comes to Obamacare would be an understatement. Only a quarter of Americans think they have a good understanding of how the health reform law will affect them, according to a recent USA Today/Pew Research Center poll. The survey also found that 40% of uninsured individuals don't even realize that Obamacare requires them to purchase insurance next year.
The same story applies to the business world. Nearly half of accountants serving small companies surveyed recently by Accounting Today said their clients were "not very prepared" for Obamacare, with a third of respondents stating that their clients were "totally unprepared." Forty percent of accountants surveyed who assist medium-sized businesses their clients weren't very prepared for implementation of the law.
Even parts of the federal government itself don't appear to be ready. Roll Call reported earlier this week that senators and their staff were told to not sign up for insurance using the Obamacare exchanges until they receive "further guidance" because Office of Personnel Management "regulations are not final".
Is there a chance that Obamacare will have a "ta-da" moment, like a magician performing a cool trick, rather than an "uh-oh" moment? Absolutely.
The fear of technical glitches could turn out to be totally overblown. Even if a few minor problems occur, if they're handled in the right way no real damage will be done. Gary Cohen, a Medicare official whose area is involved in building the exchanges, told Congress that "we may encounter some bumps when open enrollment begins, but we'll solve them."
Remember also that while the exchanges are set to begin running on Oct. 1, the earliest effective date for insurance coverage is Jan. 1. That provides time to work through issues that could arise.
Tackling the confusion might take even greater magical abilities, but it's not out of the question. There will be a lot of media attention on the exchanges and how they affect people. Sure, there has already been a tremendous amount of press coverage, but many Americans don't pay close attention until right up to the last minute.
Seize the moment
Whichever way Obamacare's big moment plays out, investors have opportunities to seize the moment. If you're a firm believer that whatever can go wrong will go wrong, there are ways to profit from major Obamacare miscues.
One option is to sell short stocks of companies that lose if the Obamacare exchanges encounter significant issues. Large hospital operator Tenet Healthcare would probably experience some pain in this scenario. Shares have soared over the past couple of years with the assumption that millions of newly insured individuals would help boost revenue and earnings for hospitals.
Walgreen is another company that could take a hit to its stock price if the exchanges don't work well. The nation's largest pharmacy retailer was among the first to publicly jump on board promotional efforts for Obamacare. More insured Americans would mean more prescriptions potentially filled at Walgreen's stores. If the exchanges flop, the probability of those higher prescription sales decreases.
What if things go well for the Obamacare exchanges, especially from a technical standpoint? CGI Group would probably get a lot of the credit. The Canadian information-technology company has been heavily involved in building the federally run exchanges as well as several state-operated exchanges.
Online health-insurance broker eHealth could also do well in that scenario. The company's stock wasn't performing very well for most of 2013. That changed, though, after eHealth scored a major federal contract to sell insurance plans that participate in the exchanges. If the American public embraces purchasing health insurance as hoped for, eHealth seems likely to capture its fair share of that expanded market.
If I had to predict how things will turn out, I'd say that the "uh-oh" outcome is more likely than the "ta-da" one. The teams that developed the technology behind the Obamacare exchanges were racing against the clock with a vague scope of work and steady changes being introduced, according to the GAO. Anyone who has worked in IT knows that's not a recipe for success.
There's also a psychological effect that could take hold if there are initial problems. With 53% of Americans disapproving of Obamacare (and 41% strongly disapproving), any issues -- even relatively small ones -- will undoubtedly get a lot of negative publicity. That could sap confidence that the exchanges work and result in having fewer Americans use them.
We'll soon know one way or the other. Obamacare's moment is close at hand.
Magic in the air
Even if the exchanges do stumble for a while, Obamacare is still rewriting the rules for the health-care industry. In the process of doing so, it's creating massive opportunities for investors to profit over the long run. How? By investing in a handful of specific health-care stocks. In this free report, our analysts walk you through these opportunities and the companies that are positioned to exploit them. The informational edge contained in it is invaluable, but it can be exploited profitably only while the rest of the market remains in the dark. To access this free report instantly, simply click here now.
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