By Lewis Krauskopf
Sept 16 (Reuters) – Investors expect 4 million Americans to
initially enroll in the state insurance marketplaces created
under President Barack Obama’s Affordable Care Act, according to
a survey released on Monday, as concerns mount that technical
glitches could present obstacles to enrollment.
The expectations of the investors – hedge funds,
institutional clients and other investors surveyed by Citigroup,
56 in total – fall far short of a Congressional Budget Office
forecast that 7 million Americans will seek subsidized health
coverage through the online exchanges. Starting on Oct. 1,
Americans have six months to enroll for coverage in 2014.
The progress of enrollment is being closely watched by Wall
Street, as the coverage means new paying customers for insurers
and hospitals.
Citigroup analysts Gary Taylor and Carl McDonald called the
investor projections “modest.”
“We are optimistic that final 2014 enrollment will exceed
low expectations, propelling” healthcare provider stocks, such
as hospitals, the analysts wrote in their report. “Accordingly,
we’d be aggressive buyers if initial enrollment is disappointing
this fall.”
Of the 4 million expected by investors to enroll, 2 million
to 3 million are projected to be previously uninsured, according
to the survey. The CBO projection includes 4 million previously
uninsured people signing up and 3 million enrollees who had been
covered through either employer or individual plans, according
to the Citigroup note.
Tim Nelson, a healthcare analyst at Nuveen Asset Management,
said investors’ lower expectations likely stemmed from news
reports of delays in certain aspects of the law and other
suggestions that the government may not be ready. Such concerns
have weighed on hospital sector shares.
“All the headlines say the implementation is slower, the
software doesn’t work, the security isn’t there,” said Nelson,
who was not part of the Citigroup survey. “All this tells the
average investor that things will be slower to evolve than we
might expect.”
The projections also could reflect cautious commentary from
various healthcare companies about the exchanges, said Les
Funtleyder, a healthcare strategist with investment firm
Poliwogg.
“In general, corporate projections are at the low end, and
investors for better or worse are taking the companies at their
word,” said Funtleyder, who did not take part in the survey. “I
have not heard any company with overly optimistic projections
about the exchanges.”
NO DELAY SEEN FOR INDIVIDUAL MANDATE
Investors surveyed expect 500,000 to 650,000 people to sign
up in October. Enrollment to receive benefits in 2014 will run
through March.
“Given probable technical glitches and functionality issues,
this expectation does not appear to be as conservative as the
full 2014 outlook,” the Citigroup analysts said.
Asked whether they expect technology problems to materially
delay or otherwise affect 2014 enrollment, 46 percent of
investors surveyed replied “yes” while another 27 percent said
“maybe.”
The implementation of the exchanges involves a mammoth
information technology effort, and state and federal officials
have been racing to ensure the exchanges will function properly
on day one.
Earlier this summer the Obama administration delayed until
2015 a requirement that employers provide coverage to workers.
But investors doubt the government will push back a requirement
that individuals buy coverage starting next year.
According to the survey, 81 percent of investors said they
do not expect the administration to delay the so-called
individual mandate. The provision, which requires people to pay
a penalty if they do not buy insurance, is meant to ensure that
healthy people also buy coverage and thereby keep overall
premiums in check.
The investors believe that the period to enroll will widen.
A majority – 55 percent – said they expect the administration to
extend the open enrollment period beyond March.
