(Reuters) – Aetna Inc reported a higher-than-expected quarterly profit on Thursday as member health costs were lower than anticipated and it benefited from exiting most of its Obamacare individual insurance markets this year.
Shares of Aetna rose 2.5 percent to $158.54, helped by stronger results not only for individual insurance but also in its small and large business division and in its government-backed Medicaid and Medicare segments. The company raised its full-year earnings outlook.
While the individual business’ financial results improved more than expected, Aetna said it still anticipated losing money on the Obamacare markets this year. The company has already shrunk that business to 240,000 members from 1 million last year and will completely exit it at the end of 2017.
Aetna Chief Executive Mark Bertolini said on CNBC that the uncertainty about how and when the individual business will be stabilized made it unsustainable for Aetna right now.
“When they get it right, which it can be fixed – it very much can be fixed, and it’s stable, we’ll reconsider our participation,” Bertolini said.
Republican leaders’ effort to repeal and replace former President Barack Obama’s signature healthcare law failed dramatically in the U.S. Senate last week, having barely passed the House of Representatives in May. There are some bipartisan efforts in both houses of Congress to stabilize healthcare markets, but it is unclear how far these will advance.
Republican President Donald Trump has added to uncertainty by saying he might cut off federal subsidies that help make the individual insurance plans affordable for millions of Americans this year.
Bertolini said during a conference call with analysts that lawmakers needed to commit to funding those subsidies in 2018 to help dispel that uncertainty.
Bertolini said member costs could rise during the second half of this year if individuals use more medical services because they are worried about not being able to afford insurance without subsidies next year. Many insurers have raised premium rates for 2018 by more than 20 percent.
Aetna Chief Financial Officer Shawn Guertin said the company expected to lose about $200 million on Obamacare plans this year, a smaller loss than in 2016.
Guertin said Aetna estimated its 2017 medical spending, excluding the Obamacare business, to show a 6 percent increase from last year, compared with its previous forecast range of a 6 percent to 7 percent rise. He attributed that decline in part to more plans based on high deductibles, which shift the early costs of care to patients before insurance kicks in, and lower care utilization.
Leerink Partners analyst Ana Gupte said Aetna’s lower medical cost trend reflected an industrywide view that spending will be less this year. It may be due to an increase in so-called value-based contracts that are focused on care quality rather than medical services volume, she said.
“It feels like there is an acceleration in how value-based care is playing out,” Gupte said.
Aetna’s second-quarter net profit rose to $1.20 billion, or $3.60 per share, from $791 million, or $2.23 per share, a year earlier.
Excluding special items, Aetna earned $3.42 per share, blowing past the analysts’ average estimate of $2.35, according to Thomson Reuters I/B/E/S.
Revenue fell nearly 3 percent to $15.52 billion.
The company said it expected full-year earnings of $9.45 to $9.55 per share, excluding items. It previously had forecast $8.80 to $9.00.
Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Lisa Von Ahn and Richard Chang