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Employer Mandate Delay Won’t Hurt Insurers

Thursday, 4 Jul 2013 | 3:23 PM ET
Registered nurse JoAnn Brand (L) examines Sham Tavakoli at the Lifelong Medical Marin Adult Day Health Care Center.
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Registered nurse JoAnn Brand (L) examines Sham Tavakoli at the Lifelong Medical Marin Adult Day Health Care Center.

The Obama administration's decision to delay the employer mandate provision of the Affordable Care Act for one year should have little impact on health insurer earnings in 2014, according to a number of Wall Street analysts. But it still raises concern about the implementation of the massive and complicated health care overhaul known as Obamacare.

"On the margin, it's certainly fair to argue that fewer people will be covered by employers next year," wrote Citi's Carl McDonald in a note to clients. "Remember, though, that we're talking about large employers, and almost all of them already offer coverage, so the number of large employers adding coverage wasn't going to be big anyway."

McDonald noted that 98 percent of employers with over 200 workers already offer insurance, according to a 2012 Kaiser Family Foundation survey.

(Read More: America's Self-Employed Caught in Obamacare Gaps)

"What it does is brings back to the fore the uncertainty that we have around Obamacare and the Affordable care Act," said Les Funtleyder, a health care fund manager with Poliwogg, and that could pressure managed care stocks.

"The uncertainty discount could go up," he said.

Managed Care stocks were mixed in Wednesday trade ahead of the Fourth of July holiday. Markets were closed Thursday in its observance. The Morgan Stanley Healthcare Payers Index fell fractionally. But the sector has outperformed the overall market 2013 in anticipation of the rollout of the ACA, with Medicaid plan provider Molina Health, and the major carriers Cigna, Aetna and WellPoint all up more than 30 percent for the year.

The big concern for investors now is whether this latest move by the Obama administration will be followed by more problems with implementation. The employer mandate delay until 2015, comes months after a one-year delay of provider choice for the small business insurance marketplace on the federally-built health insurance exchange.

"You have this gradualism going on," explained Chris Rigg, an analyst with Susquehanna. "You've seen two small changes here, and the next step is to come to the conclusion by the Obama administration that they're not ready to operate the federal exchanges on the individual side."

(Read More: Obamacare Challenge: Youngsters Shun Insurance)

While the employer mandate is a key provision of Obamacare, Rigg said the individual mandate requiring all Americans to obtain insurance coverage is the linchpin of the system. A delay of the individual mandate would fundamentally undermine the entire system.

"That would be a major problem or concern for the insurance industry," said Rigg, "because then you'd be subject to adverse selection where only the sickest people get the insurance through the exchanges next year, but those that are healthy will probably opt out, because there's no penalty if they choose not to buy the insurance."

But even beyond the insurers, a delay of the individual mandate would represent a huge blow to Obamacare, said Les Funtleyder.

"That would make the plan a disaster. I mean, the whole point is to insure everybody and to spread the risk over the largest number of people possible," he said.

—By Bertha Coombs. Follow her on Twitter @berthacoombs.

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