Aetna tops Street 3Q expectations, narrows 2016 forecast

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

Aetna’s enrolment in government programs like Medicaid and Medicare grew 11 per cent, to nearly 4.5 million people, while its much larger commercial business fell compared to last year’s quarter. The insurer also said Thursday that it set aside $20 million to cover expected future losses from its individual commercial business, which includes the ACA’s public insurance 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 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 per cent 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 per cent to $15.74 billion.

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

Aetna shaved its general and administrative expenses about 1 per cent to $2.42 billion the quarter, which helped keep its operating expenses nearly flat.

The Hartford, Connecticut, insurer also narrowed its 2016 forecast, dropping the top end of its range by a nickel, which pushed it just below analyst expectations. The company now expects full-year adjusted earnings of $7.95 to $8.05 per share.

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. 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.

After reaching a string of new, all-time high prices last year, Aetna Inc. shares have failed to keep up with the broader market so far in 2017. The stock closed at $111.01 on Wednesday and has climbed almost 3 per cent this year. The Standard & Poor’s 500 index, meanwhile, has advanced nearly 5 per cent.