Aetna reports 8% higher profit in 3Q

A pedestrian passes a sign for Aetna Inc. outside the insurance company’s Hartford, Conn., headquarters in this file photo. Aetna on Thursday reported a quarterly profi t of $603.9 million.
A pedestrian passes a sign for Aetna Inc. outside the insurance company’s Hartford, Conn., headquarters in this file photo. Aetna on Thursday reported a quarterly profi t of $603.9 million.

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 coverage under President Barack Obama's health care law.

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 Thursday trading.

Aetna's enrollment in 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 with 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 Patient Protection and 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 health care law'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 increases 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, Conn., 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 with its previous forecast.

Analysts project $8.06 per share.

Aside from dealing with the challenges of the health care law, 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 Chief Executive Officer Mark Bertolini told analysts Thursday that he was still confident the deal will close.

Aetna shares fell 18 cents to close Thursday at $110.83.

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.

Business on 10/28/2016

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