Care-ex­change exit lifts Aetna’s profit

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - STEPHEN SINGER

HART­FORD, Conn. — Aetna Inc. on Thurs­day posted sharply higher sec­ond-quar­ter profit on a strong per­for­mance by its core health in­sur­ance seg­ment and its exit from un­prof­itable Pa­tient Pro­tec­tion and Af­ford­able Care Act health ex­changes.

Op­ti­mistic about the rest of the year, Hart­ford-based Aetna raised its profit ex­pec­ta­tions for 2017, ex­ceed­ing what an­a­lysts ex­pected.

How­ever, Chief Ex­ec­u­tive Of­fi­cer Mark Ber­tolini warned about un­cer­tainty in health in­sur­ance mar­kets as the Repub­li­can-led Congress and Pres­i­dent Don­ald Trump strug­gle to keep their prom­ise to re­place for­mer Pres­i­dent Barack Obama’s health care law.

Aetna also demon­strated it can suc­ceed without ac­quir­ing Hu­mana Inc., which it un­suc­cess­fully pur­sued last year. Medi­care Ad­van­tage prod­ucts were a “pri­mary driver of growth,” ac­count­ing for a 14 per­cent in­crease in mem­ber­ship this year, Ber­tolini told in­vestor an­a­lysts on a con­fer­ence call. The prod­ucts are pop­u­lar pri­vate in­sur­ance of­fer­ings that han­dle Medi­care cov­er­age for se­nior cit­i­zens.

Medi­care Ad­van­tage was a key rea­son why Aetna sought to pay $37 bil­lion for Hu­mana, which has a sig­nif­i­cant pres­ence in Medi­care Ad­van­tage mar­kets. A fed­eral judge blocked the deal in Jan­uary.

Aetna’s abil­ity to reap profit from Medi­care Ad­van­tage “re­ally crys­tal­lizes the logic be­hind the strat­egy” to buy Hu­mana, said Spencer Perl­man, man­ag­ing part­ner and di­rec­tor of health care re­search at Veda Part­ners in Bethesda, Md.

In con­trast, Aetna was un­able to make a go of the Af­ford­able Care Act ex­changes, he said. “It’s never been Aetna’s sweet spot,” Perl­man said.

Aetna an­nounced in May it will not of­fer on- or of­fex­change in­di­vid­ual plans in Delaware or Ne­braska in 2018. It pre­vi­ously an­nounced it will not of­fer plans in Iowa and Vir­ginia next year.

Aetna said its in­di­vid­ual com­mer­cial prod­ucts lost nearly $700 mil­lion be­tween 2014 and 2016.

For the April-June pe­riod, net in­come of $1.2 bil­lion, or $3.60 per share, was up 52 per­cent from $791 mil­lion in last year’s sec­ond quar­ter. That beat Wall Street ex­pec­ta­tions.

Rev­enue of $15.52 bil­lion was down about 3 per­cent from the sec­ond quar­ter of 2016 but still beat ex­pec­ta­tions of an­a­lysts sur­veyed by Bloomberg.

Aetna raised its 2017 earn­ings-per-share guid­ance to a range of $9.45 to $9.55, from a pre­vi­ous pro­jec­tion of $8.80 to $9. That out­paces an­a­lysts’ ex­pec­ta­tions of $8.99.

Shares rose 2.5 per­cent to close at $158.54.

Credit Suisse an­a­lyst Scott Fidel said in a note to in­vestors that Aetna’s sec­ond-quar­ter re­sults ex­ceeded a “beat and raise” per­for­mance in which a com­pany beats Wall Street ex­pec­ta­tions and raises its guid­ance for earn­ings per share or rev­enue. He called it a “crush and raise.”

“It’s not of­ten that we see [earn­ings per share] beats of the mag­ni­tude that Aetna re­ported this morn­ing,” he said.

Aetna at­trib­uted the in­crease in earn­ings to a con­tin­ued strong per­for­mance in its core health care seg­ment. The busi­ness unit in­cludes in­sured and self-in­sured med­i­cal, phar­macy, dental and be­hav­ioral health prod­ucts and ser­vices.

The earn­ings jump also re­flects a larger drop in Aetna’s es­ti­mate of its ex­po­sure to costly, high-risk Af­ford­able Care Act cus­tomers than in the sec­ond quar­ter of 2016. Lower costs also ac­counted for the im­proved re­sults.

Ber­tolini warned that the un­re­solved health care de­bate in Congress will have an im­pact.

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