Insurance in the Age of Obamacare (AET, CI)

The Affordable Care Act, or Obamacare as it is commonly known, has remained more or less intact since it was signed into law on March 23, 2010. Despite more than 50 attempts to repeal the law and significant attempts to weaken it, it’s still standing. And despite all the doomsday forecasts, the insurance industry has done extremely well in the Obamacare era.

The primary goal of Obamacare was to make health insurance more affordable for all and to extend its reach to those who could not afford the premiums because they were too poor to pay or too sick to qualify. It also aimed to extend coverage to people like the self-employed, who found it difficult to buy affordable insurance on the open market. 

In order to achieve all this, the new law made health insurance mandatory, subjecting those without coverage to a fine. That fine has been effectively abolished beginning in 2019.

The law provided government subsidies to help individuals below certain income levels to pay for the new mandatory coverage. (As of October 2019, President Donald Trump has halted payments of some of these subsidies to insurers. The law also faces legal challenges. The issue of subsidies remained unresolved but consumers who received subsidies were unaffected.)

The law forbid insurance companies from denying coverage or charging higher premiums to those with pre-existing conditions. And, it defined the minimum requirements for coverage.

Ultimately, the purpose of these new insurance regulations was to extend health benefits to all Americans at an affordable price. While many people could benefit from the new law, insurance companies worried that it would be at their expense.

Yet, there was one aspect of the law that the insurance companies failed to fully take into account. That is the vast number of new customers they would acquire.

Oddly, insurance companies did not foresee the influx of business from millions of new clients. Many of them had government-subsidized premiums with payments that went directly to their insurers. Many others were healthy young people who hadn't bothered with health insurance until the law required it. The new subsidies helped those who could not afford health insurance and put the government in the business of transferring large sums of cash directly to insurance companies. The New York Times notes that made insurers the “most direct beneficiaries of the law.”

About 20 million Americans were covered by health insurance policies they purchased through the federal database as of January 2017. According to a Gallup poll, the number of Americans who remained uninsured rose a bit, to 12.2 percent at the end of 2017, as promotion of the program was axed and the enrollment period was shortened. But that’s still an improvement from the pre-Obamacare peak of 18 percent in 2013.

Aetna Inc. (AET), Anthem Inc. (ANTM),  Humana Inc. (HUM) and United Health Inc. (UNH), four of the five biggest American health insurers, have outperformed the S&P 500 index over the last three years ending Oct. 1, 2018. Cigna (CI), the worst-performing of the five, came in slightly below the 40 percent rise of the S&P 500. This period covers the end of the Obama administration and the start of the Trump administration, with all of the political turmoil and uncertainty that entailed for the program.

Meanwhile, new insurance companies have been popping up to take advantage of the business created by the law. While this is a sign of a healthy industry, it is also creating increased competition. That may help keep costs for customers low while putting pressure on existing insurers. Yet, competition is one of the very foundations of an efficiently functioning market economy.

Far from being victims of Obamacare, the insurance industry has enjoyed increased revenue from millions of new customers. This also means that at least one goal of the new law has been achieved: increased coverage, with the number of uninsured Americans falling to falling by nearly 25% to 12.2% since the law went into effect. Given the pressure to overturn or weaken the law, that may change in 2019.

As for the second goal of greater affordability, the subsidies have made insurance accessible to many but has caused some premiums to rise in order to accommodate the minimum coverage levels now required. In late 2018, those increases appeared to be tapering off. Years past its passage, the jury is still out on the real impact of Obamacare.