Aetna Lifts Guidance as Profit Tops Expectations

Aetna Inc., which has agreed to buy fellow insurer Humana Inc., reported better-than-expected earnings for its second quarter as it benefits from growth in its government business. Aetna also raised its operating earnings guidance for the year to $7.40 a share, while it had previously forecast a range of $7.20 to $7.40 a share. Aetna in early July agreed to buy Humana, part of a rapid-fire reconfiguration of the U.S. health-insurance industry's top ranks. The consolidation momentum in the industry is being fed by a desire to diversify and cut costs following changes brought by the Affordable Care Act. The deal to buy Humana would boost Hartford, Conn.-based Aetna's Medicare business and give it scale to thrive as the industry consolidates. In the latest quarter, Aetna said strength in its Medicare and Medicaid businesses offset the impact of federal calculations on health care reform risk adjustments on its commercial business. The company said its overall medical membership stood at 23.7 million at the end of the quarter, up 2.5% from a year ago. Medicaid membership grew 4% to 2.14 million, while Medicare Advantage membership grew 11% to 1.23 million. The company said its total medical benefit ratio, which is the amount of premiums used to pay medical costs, was 81.1%, down from 83.1% a year ago. Aetna said the ratio benefited from moderate medical cost trends. For Aetna's government business, the ratio fell to 80.3% from 86.5% a year ago, and for its commercial business it was 81.8%, up from 80.6% a year ago. Overall, for the quarter ended June 30, Aetna reported earnings of $731.8 million, or $2.08 a share, up from $548.8 million, or $1.52 a share, a year ago. Operating earnings were $2.05 a share. Operating revenue, which excludes net realized capital gains and losses, grew 4% to $15.13 billion. Analysts polled by Thomson Reuters had forecast $1.82 a share in earnings and $15.43 billion in revenue. Last week, Humana reported a better-than-expected 25% jump in profit in its second quarter, though revenue disappointed as the health insurer faces challenges in its Medicare Advantage business.