Obamacare Lives! Here's What to Expect Now

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Barring nothing short of a last-second miracle, the Affordable Care Act (ACA), known better as Obamacare, is going to be around for at least a little while longer as America's healthcare law of the land.

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Despite numerous efforts by Republicans in Congress, and coercion from President Trump to get a deal done, the GOP factions were unable to come to an amicable solution as to how best to repeal and replace Obamacare. The Freedom Caucus, a right-leaning group of Republicans, wanted to see Obamacare rolled back completely, while centrist Republicans feared that scaling back the ACA in its entirety would have cost those with low incomes and pre-existing conditions dearly.

As a result, the GOP would need 60 votes in the Senate to pass a repeal-and-replace bill after the expiration, on Oct. 1, of the budget reconciliation process, which would have allowed a repeal-and-replace bill to pass with a simple majority. Given the Democratic Party's opposition to repeal efforts, Obamacare is here to stay a little while longer.

However, the Obamacare we've become accustomed to over the past couple of years may look a bit different in 2018 and subsequent years, assuming the GOP struggles to get a healthcare reform bill passed in 2018 or beyond. Here's what consumers and investors can expect in the months and possibly years that lie ahead.

Subsidies will continue...for now

Arguably the most important aspect of Obamacare sticking around is that low-income and some middle-income individuals and families will still have access to subsidies that make health insurance and medical care more affordable. The Advance Premium Tax Credit (APTC), which lowers the cost of premiums for folks making between 100% and 400% of the federal poverty level (FPL), and cost-sharing reductions (CSRs), which lower the out-of-pocket costs tied to co-pays, coinsurance, and deductibles for those who earn between 100% and 250% of the FPL and who purchase a silver plan, should continue...for now.

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At the end of the enrollment period for the 2017 calendar year, 83% of those enrolled in an ACA marketplace exchange received the APTC (10.1 million people), and more than 7 million qualified for CSRs. Though government-sponsored patients tend to be lower-margin than private payers, the guaranteed nature of government funding provides an incentive for insurers to lure these customers into their networks. Anthem (NYSE: ANTM), which operates the Blue Cross Blue Shield network in 14 states as a for-profit company, has been among the biggest beneficiaries of an uptick in government-sponsored patients since 2013.

Medicaid expansion remains intact

In addition to key subsidies continuing for the time being, Medicaid expansion won't be going anywhere. Medicaid expansion allowed states the opportunity to take federal funds to expand their Medicaid programs to include folks earning up to 138% of the FPL, as opposed to its traditional cutoff at 100% of the FPL. Currently, 31 states and the District if Columbia have chosen to take advantage of federal funds and expand their programs for millions of low-income individuals and families. 

However, one thing that will begin to change is the amount of funding provided by the federal government. Between now and 2020, the federal government will gradually shift from supplying 100% of the funds needed to cover expanded Medicaid enrollees to 90%. This means states are going to be responsible for coming up with the other 10% of funding.

Enrollment numbers will likely decline

Despite these critical subsidies remaining in place, there's still a very good chance that enrollment numbers are going to decline from the 12.22 million people who selected a plan at the end of the 2017 enrollment period. The reason? Look no further than a recent announcement from the Trump administration that it'd be cutting outreach funding by 90%, and navigator funding by 41%, for the upcoming enrollment period, which runs from Nov. 1 through Dec. 15, 2017. 

Outreach funding, which totaled $100 million last enrollment period, is the marketing effort in print, TV, and mobile that alerts consumers that it's time to enroll for health insurance. Meanwhile, navigators play the part of assistant, helping to answer questions, guide consumers in their health insurance search, and even helping those who speak a different language other than English. Without this added marketing and assistance, it seems prudent to expect enrollment figures to taper in 2018.

President Trump will continue to use CSRs as bait for repeal and replace

You'll have noted above my use of the phrase "for now" with regard to subsidy payments. That's because President Trump has a nuclear option that could eliminate cost-sharing reductions. Trump has previously attempted to coerce cooperation from Congress by threatening to pull the plug on CSRs if they don't work toward repealing Obamacare.

Back in 2014, the GOP-led U.S. House of Representatives sued the head of the Department of Health and Human Services at the time, Sylvia Burwell. Republicans claimed that CSRs weren't being properly approved for disbursement by Congress, and eventually won the case in 2016. The Obama administration appealed the decision, and that appeal is currently on hold. Should Trump desire, he could drop the appeal, and the $9 billion to $11 billion in CSR funding that gets doled out annually would cease. In effect, 7 million people would lose their ability to receive affordable medical care. It is uncertain whether Trump will follow through with his so-called "nuclear option."

Young-adult enrollment will languish

More bad news for insurers: Young-adult enrollment will probably be subpar once again. Part of the blame can be traced to the reduction in outreach funding, which will reduce marketing to let younger folks know that it's time to enroll.

However, Trump's executive order signed in April that eased the burdens of Obamacare is yet another reason why quite a few healthier young adults will likely remain uninsured. This executive order, among other things, allows taxpayers to turn in their tax forms without line 61 filled in. This is the line that describes what people who did not purchase insurance during the previous year paid on penalties. Since the Internal Revenue Service can't garnish wages or seize property for failing to pay this penalty, young adults probably won't be incentivized to enroll. And that's bad news for insurance companies, which are counting on a large enough pool of healthy adults to counter the higher costs associated with insuring sicker patients.

Insurers lack the incentives to increase their presence

And the previous point leads to the last point: Insurance competition will probably dwindle further in the months and years to come. With little incentive for young adults to enroll, and the threat of CSR funding being cut off still lingering, insurers have little reason to increase their presence on the ACA marketplace exchanges.

Heading into 2017, three of the five national insurers dramatically cut their coverage. UnitedHealth Group (NYSE: UNH) slashed its coverage to just three states from 34 in the previous year, while Aetna (NYSE: AET) and Humana (NYSE: HUM), which had been attempting to merge before regulators shut that idea down, cut their county-based coverage by close to 70% and 90%, respectively. Ahead of the upcoming enrollment period, Aetna and Humana both announced that they're out completely, while even Anthem has been cutting back on its presence on the ACA marketplace exchanges. This exodus clearly suggests that Obamacare isn't sustainable for most insurers without significantly higher prices, which is bad news for consumers, especially those without subsidies.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.