WellPoint, Inc. (WLP), CIGNA Corporation (CI): Will Obamacare Deliver a Crushing Blow to the Middle Class?

Page 1 of 2

Tick-tock, tick-tock, tick-tockjust six-and-half more months until the Patient Protection and Affordable Care Act, also known as Obamacare, goes into full effect.

Over the past year we at The Motley Fool have examined the ins-and-outs of this bill from multiple angles, including how a cap on the medical loss ratio at 80% will ensure patients who need medical care are getting it, and that no patient can be turned away for preexisting conditions. However, we’ve also looked at the other side of the coin, which demonstrates there’s a strong possibility that health insurers will maintain much of their pricing leverage that would most likely lead to continued premium hikes.

WellPoint, Inc. (NYSE:WLP)

As I’ve said before, one of the few certainties about the PPACA is that uncertainties reign! Questions abound as to how it will affect the quality and price of care received, as well as impact the individual pocketbooks of consumers around the U.S. Perhaps no issue, though, is more pressing than how the bill will affect the middle-class American consumer.

Some will like this bill

Source: LaDawna Howard on Flickr.

This isn’t to say that lower-income individuals are going to unanimously be in favor of Obamacare, but the fact of the matter is that the PPACA will almost certainly provide them with better quality care. The Medicaid expansion will bring approximately 16 million currently uninsured people into the government-run program, and beefed up minimum health plan requirements will ensure a steady level of care even for our nation’s lower income individuals.

This is one of the primary reasons we witnessed WellPoint, Inc. (NYSE:WLP) and CIGNA Corporation (NYSE:CI) jockeying for position in the Medicaid arena by purchasing AMERIGROUP and HealthSpring, respectively, in 2012 and 2011. Government-run health care may not provide the beefiest margins, but it’s more than made up for with the sheer volume of new Medicaid patients expected to enter the system next year.

Some won’t…
The viewpoint of upper-income earners with regard to the rollout of Obamacare isn’t likely to be as enthusiastic. Just as upper-income earners pay the majority of taxes in this country, they’ll be responsible for 40% of all new tax revenue from Obamacare, according to estimates by the Christian Science Monitor. A 0.9% tax surcharge on income up to $200,000 ($250,000 for a family of four) and a 3.8% tax on unearned income of more than $250,000 (e.g., dividends and capital gains) will certainly go a long way to helping pay for this Medicaid expansion. Despite an unpopular viewpoint among the rich, this tax isn’t likely to be a backbreaker for this income group.

And others will be crushed whether they like it or not!
The real concern I have stems for the middle class, which could see a conglomeration of problems derived from the implementation of Obamacare.

The bill itself has failsafes in place to ensure that it isn’t a burden to the middle-class consumer. Specifically, subsidies up to 400% of the federal poverty level — which equates to roughly $46,000 for an individual or $94,200 for a family of four — are in place to help curb rate shock for middle-class individuals who fall under the $46,000 range. But what happens to those individuals who are considered middle class and make $46,000 to, say, $70,000 a year? I’d propose that there’s a potential they’re going to get crushed!

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!