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.

New Regulations

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. (On Oct. 2019, former President Donald Trump halted payments of some of these subsidies to insurers. In 2020, however, a federal appeals court ordered that the subsidies be paid.)

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.

New Business

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 noted 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 2019. According to the U.S. Census Bureau, the number of Americans who remained uninsured was 9.2% at the end of 2019, up from 8.9% in 2018. But that was still an improvement from the pre-Obamacare peak of 19% in 2012.

New Profits

Since Obamacare was passed in 2010, health insurance companies have significantly outperformed the S&P 500. As of Feb. 2020, UnitedHealth Group’s (UNH) stock surpassed the index over the 10-year period by about 500 percentage points and Centene Corporation (CNC) beat the index by over 600 percentage points. Health insurers Anthem (ANTM), Cigna (CI), and Humana (HUM) performed almost as well.

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.

The Bottom Line

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 by nearly 41% to 9.2% since the law went into effect.

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. Years past its passage, the jury is still out on the real impact of Obamacare.