Obamacare's Medicaid Mess?
Could yet another problem for Obamacare be buried within the limited enrollment data reported so far?
Some suggest the answer to this question is "yes." In particular, they say that the proportion of individuals enrolling in Medicaid through the health insurance exchanges could mean trouble ahead for Obamacare. If they're right, the real trouble could be for some health insurers.
Mess in the making?
Unfortunately, the federal government has yet to release any detailed information about enrollments through the Healthcare.gov website. All we know so far is that around 700,000 applications have been received through the federally operated exchange that serves 36 states plus the other 14 state-run exchanges. That number doesn't indicate, however, how many individuals actually enrolled in health plans.
We do know, though, detailed numbers from several of the states operating their own exchanges. And those details show a consistent trend: higher numbers of people are enrolling in Medicaid instead of private health insurance plans.
New York reported that 64% of exchange enrollees signed up for Medicaid. In Kentucky, 82% of the total number of individuals enrolling through the state exchange qualified for Medicaid. Those figures were relatively low, though, compared to Washington, where 87% of all enrollees were for the hybrid federal-state health program.
Why does this matter? If these trends hold true for the other states, it could mean that much higher numbers of young people are enrolling in Medicaid instead of private insurance. These insurance plans rely on plenty of younger, healthier Americans to sign up. If there aren't enough of them, insurance companies take losses in the near term and have to increase their rates over the longer term.
Of course, the higher rates are, the less likely that healthy individuals will buy insurance. If this scenario continues unchecked, it could result in what is known as a "death spiral," where insurance becomes too costly for most individuals.
On the other hand, worrying about any problems such as these certainly seems premature. Open enrollment through the Obamacare exchanges extends through the end of March -- and we're not even past the first month yet. There are also still many unknowns about how enrollment is going in the other states.
The Congressional Budget Office projected that Medicaid enrollment would be higher than private insurance enrollment. According to the CBO's estimates, around 9 million additional people would sign up for Medicaid for 2014 with 7 million enrolling in private plans. That's 56% for Medicaid, which isn't all that far below what New York reported, although admittedly well lower than Kentucky's and Washington's rates.
There are at least a couple of reasons that could be behind the initially higher numbers of Medicaid enrollees. For one thing, several states specifically targeted citizens eligible for Medicaid with the expanded income criteria supported by Obamacare.
Another important factor is that Medicaid is free -- unlike private health insurance plans. It makes sense that individuals who found out they could get coverage under Medicaid with no cost would immediately enroll, while others who had to pay for private plan coverage would be more likely to think about their possibilities before opting to enroll.
Winners and losers
These caveats are valid, but it's not too early for investors to at least contemplate the consequences of what could happen if current Medicaid enrollment trends persist. Let's first look at the potential winners.
With its acquisition of Amerigroup last year, WellPoint stands to be a significant Medicaid winner. The company's 4.3 million Medicaid members puts it at the top of all insurers in terms of Medicaid enrollment. Medicaid accounts for 12% of WellPoint's total enrollment -- also the highest of the major publicly traded insurers.
Aetna is another company that should benefit from increased Medicaid enrollment. Medicaid currently makes up more than 9% of Aetna's total membership -- the second-highest rate of the big publicly traded health insurers. At least five of the states where Aetna operates are expanding their Medicaid programs under Obamacare, including California, Illinois, and Pennsylvania.
UnitedHealth Group could join Aetna and WellPoint in claiming victory. It boasts the second-highest total Medicaid enrollment, with over 3.9 million members. However, because of its larger overall membership size, Medicaid makes up less than 9% of the total.
What about possible losers if Medicaid enrollment keeps healthier individuals from signing up for private Obamacare plans? WellPoint could fall into both winner and loser brackets. The company is participating in state exchanges everywhere it operates. Without enough healthy enrollees in those states, WellPoint could incur significant underwriting losses.
It's too early to know whether Obamacare will truly have a Medicaid mess on its hands. Watch as more states report detailed enrollment numbers and especially for when the federally operated exchange numbers come out. If Medicaid continues to be a high percentage of total enrollment, look for Aetna and UnitedHealth to be the clear winners.
Clearing up Obamacare confusion
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The article Obamacare's Medicaid Mess? originally appeared on Fool.com.Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. It recommends and owns shares of 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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