Posted on Tuesday, March 12th, 2013 | In Stocks to Watch
Right from its inception, the Affordable Care Act, widely known as Obamacare, has faced strident criticism. The new act has resulted in a range of reimbursement reductions, tax hikes and a plethora of new regulations.
Tax hikes is one area which has been difficult to ignore. Several patients have to deal with new payroll, capital gains and excise taxes. Meanwhile, hospitals and medical practitioners are already feeling the effects of a 2.3% tax on the gross income of medical device companies. These additional costs would possibly be passed onto customers.
Now more fuel is being added to the fire, via the sequestration. Of course, several conservatives have indicated that $85 billion worth of budgetary cuts are a mere 2% of the entire federal budget. But when seen from the perspective of its impact on healthcare, doctors and patients alike are sure to face severe discomfort.
The other significant reason expected to make health insurance unviable is what is being described as premium rate shock. This is expected to take effect in 2014 as the new Act is implemented nationwide. As more and more of the uninsured are given healthcare coverage, there will be steep hikes in insurance premiums. This prediction was made by an important figure in the insurance industry, Mark Bertolini, CEO of Aetna Inc. (AET).
Speaking at an investor conference, Bertolini said he expected premiums to increase by 20% to 50% in 2014, before government subsidies take effect. In fact, he expected rates to increase by 100% in some markets. Blue Shield of California also has similar views. According to a report in The Los Angeles Times, it is looking to raise rates from 12% to 20% for 300,000 or more individuals. The company has declared that these rates would take effect by March.
There are complaints on the insurers’ side as well. Insurance companies have been drawing attention to the proposed reductions to Medicare Advantage plans. The Obama administration has said it may reduce payments to Medicare Advantage plans next year. A 7% to 8% reduction in payouts could mean a significant jump in premiums. This, is turn, could lead to a reduction in services to senior citizens or lowered access to plans.
However, evidence on the ground tells us a different story. Applications from insurers wanting to get into the Medicare Advantages domain have risen by more than 50%. Data from the Centers for Medicare and Medicaid Services show that 48 companies' applications have been filed this year, compared to 31 in 2012. Of course, these applications are from parent companies which offer more than one health plan.
Apart from Aetna, Humana Inc. (HUM), UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP) all offer Medicare Advantage plans. Others like Health Care Services Corp, which offer Blue Cross and Blue Shield plans in Illinois, Texas and New Mexico, are also looking to offer more Medicare Advantage plans or widen their reach. The fact that they are new to this business doesn’t seem to be acting as a deterrent. In fact, the company has applied for more plans under Medicare Advantage in Oklahoma and is expanding service coverage in New Mexico.
Even so, governmental reductions are being viewed as detrimental to the adoption of Medicare advantage. Health insurance lobby America’s Health Insurance Plans recently claimed in a report that the cuts could result in an increase in payments of $50 or more for a citizen opting for Medicare Advantage.
The success of Medicare Advantage depends on a higher rate of adoption. Optimism has grown with the program’s recent monthly contract reports predicting that enrollment may increase to 14 million this year from 12.8 million senior citizens in 2012. And this is true for the Obamacare reforms as a whole.
The success of the program depends on a steep increase in adoption and participation. Since insurance firms have been prevented from refusing coverage, lower adoption will mean that the plan covers only those who need it desperately. As rates take a spike, the young and healthy would begin to opt out after paying a $695 a year penalty by 2016. This is a bitter political pill for anyone to swallow.
But there is growing optimism and action among citizens and governments alike. Over the past few weeks, six Republican governors have agreed to expand Medicaid coverage to their states. And voluntary organizations such as Enroll America have begun to play a major role in increasing awareness about the reforms.
In fact, Covered California, that state’s health exchange, will actually guide new applicants through the complicated process of filling up applications. Surely, Obamacare’s wide adoption holds out hope for insurer and beneficiary alike.
AETNA INC-NEW (AET): Free Stock Analysis Report
HUMANA INC NEW (HUM): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
About Zacks Market Commentaries (http://www.zacks.com/)
Zacks Market Commentaries