Were Obamacare's Health Exchanges Doomed From the Start? This CEO Thinks So
We're officially halfway through the first month of the launch of state and federally run health care exchanges under the Patient Protection and Affordable Care Act, better known as Obamacare, and the reviews and experiences couldn't be more mixed.
Putting aside the politics behind the law for a moment, the sheer difference between the functionality of the state versus federally run exchanges has been painfully obvious. While the 14 state-run exchanges haven't been without flaws, these individually architected systems have largely been working well in providing an online marketplace for insurance plans.
The Guardian reports that Kentucky, Nevada, New York, and Washington state (my home state) have been among the top of the list in early enrollments. As I've noted previously, that's good news for the visible architects behind these exchanges such as Xerox which helped design and implement the Nevada health exchange. Visible successes like this can translate into multiyear contracts for Xerox down the road.
The federally run exchanges, though, have seen sign-ups move as slow as molasses. The problem has boiled down to Healthcare.gov, the Department of Health and Human Services' landing page for the 36 states running off the federal government's health exchange. A mixture of poor website design and overloaded servers has led to what you might call around-the-clock glitches since the Oct. 1 kickoff. With no concrete enrollment figures from HHS and no end in sight for the glitches, consumers and investors in Obamacare-related companies are beginning to question when it'll all end. As for Aetna CEO Mark Bertolini, he questions why it began at all in the first place.
Bertolini's harsh criticism of Obamacare's federally run health exchanges
In an interview with CNBC's Squawk Box yesterday, Bertolini laid out multiple harsh criticisms against Obamacare's federally run health exchanges. "There's so much wrong, you just don't know what's broken until you get a lot more of it fixed," he said.
Bertolini said Healthcare.gov was put together "on the fly," with Aetna not even being involved in functionality testing of the site until about one month prior to its live launch. While there's no context to the length of time this system should have been tested based on the enormity of this overhaul, I can say with some certainty that it should be a lot longer than one month.
Furthermore, Aetna's CEO offered plenty of skepticism as to whether enough young adults would sign up to help offset the costs of enrolling older adults with more health problems. If that doesn't happen, Obamacare wouldn't be a profitable venture for insurers, and premiums would inevitably move much higher.
Bertolini also alluded to an idea that we've touched on previously -- that younger adults have grown up in an era in which they're accustomed to technology. If the system doesn't work the first time they try it, those young adults may be less willing to give it a second chance. With that population being the key to success for Obamacare, this clearly isn't a good sign to this major health insurance CEO.
The reality of the rollout
The "big question," as Bertolini alluded to in his interview with CNBC, is when the exchanges will be fixed and fully operational. The actual answer to that question probably lies somewhere in between the HHS estimate of a few weeks and Bertolini's prognostication that it could be up to three years before everything meshes.
Although there is really have no precedence for a cloud-based system rollout of this magnitude that accesses so many different branches of the government, we can look back to the 2006 implementation of Medicare Part D to see that glitches were common then as well. For Medicare Part D, enrollment verification, incorrect premiums, and even credited rather than charged premiums were common occurrences up to 10 months after the start of the program on Jan. 1, 2006. Everything clearly worked out for this prescription drug plan, but it took time and patience on enrollees' part for that to happen.
What does this mean for your portfolio?
The big thing investors will want to realize is that these early stage problems are fixable, but that they need to remain patient. In other words, short-term traders are in for a rude awakening if they hoped to see an Obamacare boost from health-care companies while short-sellers may wind up seeing some very near-term gains.
The insurers are really a mixed bag when it comes to how Healthcare.gov's malfunctions could affect their membership. WellPoint , the company behind Blue Cross Blue Shield, could see an even distribution of benefits and weaknesses. WellPoint has a huge presence in California and New York, where enrollments are moving along strongly, while it struggles in some of its other states operating on the federally run health exchanges like Missouri and Indiana.
For Aetna and Cigna , there could be a little more near-term pain than gain.
Aetna actually pulled out of five of its originally proposed 14 state exchanges as the deadline for the kickoff drew closer; interestingly enough, many of those states are among the state-run group that's doing just fine. To put it mildly, Bertolini should be just as miffed at himself as the inauspicious start of Obamacare's health exchanges.
Cigna, likewise, is going to struggle with moderate exposure to south and southeastern states, which are almost exclusively part of the Healthcare.gov federally run program. This isn't to say that neither Cigna nor Aetna will be successful in signing up young adults and other new members, but the initial wave that many investors had expected is likely going to be pushed further down the road.
As I've said before, your best bet is to stick to your long-term thesis (whether it be bullish or bearish), accept that a glitch-filled start to the health exchanges was fully expected, and ignore the political rhetoric that's unlikely to have much, if any, material impact on your investing thesis in the health insurance sector.
Big changes -- even glitches -- could mean big opportunities for investors
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The article Were Obamacare's Health Exchanges Doomed From the Start? This CEO Thinks So 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 may not 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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