Aetna Tops Street 3Q Expectations, Narrows 2016 Forecast

Aetna’s third-quarter earnings rose nearly 8 percent to top Wall Street forecasts, as growing government business and cost cutting countered higher costs from the health insurer’s Affordable Care Act coverage.

But the nation’s third-largest insurer narrowed its 2016 forecast just below analyst expectations heading into the year’s final months, and its stock fell in morning trading.

Aetna’s enrollment in government programs like Medicaid and Medicare grew 11 percent, to nearly 4.5 million people, and the insurer said Thursday that segment now contributes about half of its total health care premiums.

Enrollment in the insurer’s much larger commercial business fell compared to last year’s quarter. Aetna expects an operating loss of $350 million before taxes this year from its individual commercial coverage, most of which is sold on the Affordable Care Act’s public exchanges.

Aetna has said it has been swamped by higher-than-expected costs from that business, and it announced in August that it will chop its exchange participation down to four states in 2017, from 15 this year. The company covers about 775,000 people on the exchanges.

The state-based public exchanges are a key element behind the ACA’s push to expand insurance coverage, but they face challenges on many fronts. Insurers have had a hard time attracting younger, healthy customers to the still-evolving market, and several carriers have scaled back their participation. Many that remain are seeking premium hikes of 25 percent or more.

Health insurance is Aetna’s main product, and most of the 23.1 million people it covers come from commercial insurance sold through employers or directly to individuals.

Overall, the nation’s third-largest health insurer earned $603.9 million in the three months that ended Sept. 30. That’s up from the $560.1 million last year. Earnings adjusted for one-time items came in at $2.07 per share and operating revenue rose 5 percent to $15.74 billion.

Industry analysts had expected earnings of $2.04 per share on $15.73 billion in revenue, according to FactSet.

The Hartford, Connecticut, insurer also said Thursday that it had narrowed its 2016 earnings forecast to a range of $7.95 to $8.05 per share, raising the bottom end and dropping the top by a nickel, respectively, compared to its previous forecast.

Analysts project $8.06 per share.

Aside from dealing with ACA challenges, Aetna also has been fighting to preserve its $34-billion purchase of rival Humana Inc., a deal that will make it one of the nation’s largest Medicare Advantage providers. The U.S. Department of Justice sued last summer to block that deal and another major acquisition, Blue Cross-Blue Shield carrier Anthem Inc.’s proposed purchase of Cigna Corp.

Chairman and CEO Mark Bertolini told analysts Thursday he was still confident the deal will close.

In trading Thursday afternoon, Aetna shares dropped 43 cents to $110.58.

After reaching a string of new, all-time high prices last year, Aetna Inc. shares have failed to keep up with the market so far in 2016. The stock had climbed almost 3 percent this year, as of Wednesday, while the Standard & Poor’s 500 index has advanced nearly 5 percent.