By Caroline Humer
Oct 29 Aetna Inc on Tuesday missed analysts' expectations for third-quarter profit and said 2014 would be challenging because of the uncertain costs of the health reform law and cuts in government funding for private Medicare plans.
Aetna Chief Executive Mark Bertolini said that the state-based individual health insurance exchanges are struggling with widely reported technology problems and the effect on 2014 enrollment is yet to be seen.
Health insurance exchanges created under President Barack Obama's healthcare reform law opened on Oct. 1 but these tech issues have prevented many people from signing up on the federal marketplace for 36 states. The other 14 states and Washington D.C. are running their own exchanges, some of which have also had online issues.
Aetna said that it does not expect its individual business to grow in 2014 from 2013 but could after that.
"We continue to believe these emerging retail marketplaces can be succesful over the long term," Bertolini said.
Aetna cut its exchange footprint in the summer, pulling out of Maryland, New York and New Jersey among other states. It attributed the moves to its May acquisition of Medicaid and Medicare specialist Coventry. Combined the two companies have plans on 17 exchanges.
Bertolini said he was committed to operating earnings growth in 2014, but was uncertain about the company's ability to pass on to customers new taxes and fees related to the health reform law. He also sees growth in Medicare Advantage slowing in 2014 because of the government cuts.
The news followed disappointing financial reports during the past two weeks from competitors UnitedHealth Group Inc and WellPoint Inc, both of which drove down shares across the insurance sector.
Aetna shares, which were up more than 36 percent this year, fell about 2 percent on Tuesday to $60.61. UnitedHealth shares gained while WellPoint, Cigna Corp and Humana Inc all fell slightly.
In conference calls with investors, UnitedHealth warned of the effects of government funding cuts to private Medicare on its 2014 business, and WellPoint said that uncertainty around the technology troubled rollout of U.S. government-subsidized individual insurance made next year's results hard to predict. n
Aetna's commentary was more positive than that of UnitedHealth or WellPoint and thereby limited share losses despite the earnings miss, Wedbush Securities analyst Sarah James said.
"On the headwinds side, they really just reiterated what they have talked about before as far as Medicare pressure, which is a topic that has been well covered by all the insurers," James said.
NUMBERS FALL SHORT
Aetna said third-quarter earnings were held back because of ongoing funding cuts to Medicare Advantage, in part related to the budget sequestration earlier this year.
Excluding the costs of integration and capital losses, the company reported operating earnings of $1.50 per share. Analysts on average had expected a profit of $1.53 on that basis, compared with $1.55 a year earlier, according to Thomson Reuters I/B/E/S.
The company said it was still planning for 2013 operating earnings of $5.80 to $5.90 per share. Analysts' estimates for the year are for $5.89.
Aetna said its overall medical loss ratio, a percentage indicating the portion of premium revenue it paid out in claims, rose to 83.1 percent from 80.7 percent a year earlier.
In its Medicare business, this ratio increased to 87.8 percent from 82.5 percent. Government funding cuts and underperformance in two product offerings contributed to the higher ratio, the company said.
Aetna said medical costs were lower than expected in its commercial business, which largely provides insurance to employees. The medical loss ratio for that business rose to 80.5 percent from 79.6 percent a year earlier.
Under the health reform law, insurers must refund customers if the medical loss ratio is less than 80 percent.
Aetna said it had added 184,000 members in its healthcare business during the quarter, primarily in the commercial and private Medicare supplement sectors, to end the period with 22.2 million.
The company reported quarterly net income of $517 million, or $1.38 per share, compared with $499 million, or $1.47 per share, a year earlier.
Revenue was $13 billion, in line with analysts' expectations.