Aetna Inc. reported a stronger profit for its second quarter, boosted by limited medical spending and better-than-expected results from Affordable Care Act programs intended to reduce insurers' risk on health-law insurance plans.
The insurer highlighted the growth and future prospects in its government business, particularly its continuing expansion in Medicare Advantage, the plans sold by private insurers under the federal program, as it continued detailing its strategy after the failure of its effort to buy Humana Inc. That deal was terminated in February after a federal judge ruled it would violate antitrust law.
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Aetna on Thursday raised its full-year earnings outlook, lifting its adjusted earnings on a per-share basis by 60 cents at the midpoint to $9.45 to $9.55; analysts projected $8.89 a share. In May, Aetna projected earnings of at least $8.80 a share.
In all for the second quarter, Aetna reported a profit of $1.2 billion, or $3.60 a share, compared with $790.8 million, or $2.23 a share, a year earlier. Revenue fell 2.5% to $15.5 billion.
The Hartford, Conn., company attributed its quarterly earnings expansion to disciplined pricing and an effective growth strategy, and said its year-ago results were affected by transaction-related costs tied to the now-ended Humana deal. The company also benefited from moderate health-care spending, and specifically said it did better than expected in holding down pharmacy costs, excluding specialty medications. "Across the board, virtually every metric looks good" on medical-spending trends, said Chief Financial Officer Shawn M. Guertin in an interview.
Mr. Guertin also said the insurer's future appetite for deals focused on government business, though he said Aetna wanted acquisitions that brought new capabilities, rather than just additional membership. He said Aetna was also interested in bolstering its international business. It recently bought a small insurer in Thailand.
In the second quarter, Aetna also saw upside because it did better than it had projected on two ACA programs, known as risk adjustment and reinsurance, for which the federal government recently calculated outcomes based on 2016 performance. Aetna had to pay out less to its competitors for the risk-adjustment program than it had planned, and received more from reinsurance. The insurer said the two programs together generated an earnings benefit of around $170 million for the quarter, or 45 cents a share.
Aetna previously announced plans to next year exit the ACA exchange business, which has generated losses and is expected to do so again this year, despite the results of the risk programs. The insurer already shrank its footprint sharply in 2017. Aetna said that at the end of the second quarter, it had about 240,000 enrollees in ACA plans, with about 180,000 of those having purchased their coverage through a health-law exchange.
But Aetna Chief Executive Mark Bertolini warned that the insurer's costs on that business might rise late this year, as enrollees, alarmed at the uncertainty about the law's future amid debate in Washington, seek to get medical care while they still have insurance. "You have individuals who are sitting there with coverage not knowing whether they'll have it next year," he said. "And for those individuals, a run on the bank is more likely the longer the uncertainty continues into the fourth quarter."
Mr. Guertin said that to consider returning to the ACA exchanges in the future, "we need some sense of a stable and predictable marketplace....That doesn't seem to be on the horizon right now." Mr. Guertin said that in addition to leaving the ACA exchanges, Aetna will "in essence" also pull out of the business of selling individual plans outside the exchanges next year. Insurers that exit completely from a state's individual market can be locked out for five years, though state regulators might have some flexibility in administering their rules.
Aetna's overall revenue in the second quarter fell 2.5% from a year ago, reflecting lower premiums in the company's health-care segment tied to the smaller ACA business. Despite the decline, revenue was buoyed by higher yields in commercial and government businesses and growth in membership for Medicare products.
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(END) Dow Jones Newswires
August 03, 2017 11:58 ET (15:58 GMT)