Extending Obamacare Signup May Cut Insurer Profits

Bruce Japsen Contributor Forbes

Though most health plans are reporting robust profits partly due to new business coming from the Affordable Care Act, an extension of the enrollment period could “dent” the insurance industry by causing “pricing and logistical implications,” a new report said.

Extending the period to sign up for coverage under the Affordable Care Act beyond March 31, 2014 could hurt health insurance industry profits, a new report by Fitch Ratings says. (Photo credit: Wikipedia)

A new report by Fitch Ratings puts a cloud over an otherwise sunny financial picture for health insurance plans poised to reap millions of new paying customers who are required to buy insurance coverage under the health law. Millions of Americans who have no coverage will receive federal subsidies of up to $5,000 to help them buy from health insurance companies that sell individual and small group policies.

 

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But signup has been slow due to flaws in the healthcare.gov web site. The glitches have some in Congress from both parties pushing for an extension for signup beyond the end of March 2014, the current end of the six-month signup period. For those who sign up by Dec. 15 of this year, coverage can begin Jan. 1, 2014 under the existing enrollment rules.
“An extension would enable consumers to put off any decision about purchasing healthcare beyond the current deadline, potentially increasing the portion of those who wait until they need the insurance to buy it,” Fitch said in a report the New York-based firm issued Wednesday.
“Allowing more time would also result in a bevy of logistical issues regarding pricing and state participation that could raise short-term risk for insurers,” Fitch said. “To the extent that the enrollment period is lengthened, cost of care estimates could deviate more from the original estimates. Insurers would like to be able to price for this risk, but it is unclear as to whether they would be able to.”
The potential bad news for the health insurance industry comes in the wake of a flurry of positive third-quarter earnings reports from several health plans such as Wellpoint (WLP) and Cigna CI +0.57% (CI), which raised their profit guidance for the rest of the year. Meanwhile, other health insurers like UnitedHealth Group UNH +0.46% (UNH) and Humana HUM +0.44% (HUM) have said they expect an influx in new business from the health law and have seen their stock prices rise.
On Wednesday, Humana chief executive officer Bruce Broussard said during his company’s third-quarter earnings call that new government business and new customers purchasing coverage on the exchanges are “growth opportunities that are difficult to ignore.”
But Broussard cautioned analysts and investors about the technical issues saying there could be risks for Humana.
To blunt some risks to insurance companies and their customers, some state insurance regulators are considering lengthening existing policies for three months into 2014.
“Fitch views this as less problematic for health insurers than an extension of the current enrollment period as long as benefits and premiums on the extended policies are unchanged from current levels and the extension is effective for only a relatively short period,” Fitch said in its report.