Aetna Reports Revenue and Profit on the Rise

By William Moore,
Money and Investing Writer
1

On October 27, health insurance provider Aetna Inc. (NYSE: AET) posted its latest quarterly earnings report, showing an 8 percent rise in profit and a 5 percent rise in revenue, as the Wall Street Journal reports.  This growth came even as the company continues to deal with struggles in its unprofitable Affordable Care Act business.
Currently, the company provides ACA plans in 15 states across the country, however in the coming year it intends to leave 11 out of those 15 states.

Despite the fact that the ACA marketplace accounted for $2.7 billion in revenue during 2016, providing coverage in these exchanges has been largely unprofitable for a number of insurance companies because of the way certain aspect of the program work.  As Chief Executive Mark T. Bertolini commented to the Wall Street Journal, right now, the pool of enrollees will produce results for insurers that are cumulatively about 10 percent to 15 percent below the break-even point.

If nothing is done, “we’re going to find ourselves in a premium spiral” in the exchanges, with rates increasing and healthy people exiting the market.

Even if changes were implemented, Bertolini went on, after their departure next year, the earliest that Aetna could conceive of re-entering the exchanges would be 2019 or 2020.
Aetna’s struggle to achieve profitability within the ACA marketplace is representative of general issues that have been plaguing the affordable care act’s implementation for quite some time now.

In order to help alleviate some of the profit-pressures imposed on them by losses is this sector, several large health insurers have announced plans to merge with Aetna, seeking to acquire Humana as MSN money reported.  Part of the motivation behind this move is the potential for cost savings that would allow insurance providers to continue or resume participation in the Affordable Care Act’s health exchanges.

The Department of Justice has announced that it opposes these mergers, stating that they will reduce competition in the market, entailing all of the dangers to consumers that monopolistic markets entail, such as higher prices and less innovation.

Compounding potential difficulties for Aetna is the fact that a number of states have begun to migrate their Medicare and Medicaid contracts to companies that do not plan to merge, such as United Health or Centene as reported by MSN Money.

These Medicaid and Medicare contracts were some of the most profitable aspects of Aetna’s business in 2016, helping to offset and overcome the losses they experienced in the ACA markets, so the possibility of losing these contracts poses a significant threat to the company.  Company CFO, Shawn Guertin, recognized these challenges facing the company as they move into 2017 during the company’s earnings call as MSN Money reports: “While we are still early in the forecasting process, we see a number of challenges in 2017.  These include the reduction in our individual public exchange footprint.”
Despite these challenges, Aetna’s executives have a positive outlook, and predict that their proposed merger deal will close in 2017, despite the DOJ’s opposition.

A version of this article appeared in the Tuesday, November 8th print edition.

Contact William at
william.moore1@student.shu.edu

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