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Aetna to lose money on Obamacare exchanges, CEO says

Source: Reuters - Thu, 6 Feb 2014 20:40 GMT
Author: Reuters
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By Caroline Humer

Feb 6 (Reuters) - Aetna Inc, the third-largest U.S. health insurer, said on Thursday it expects to lose money on the Obamacare exchanges even as demand for these insurance plans has picked up over the past few weeks.

President Barack Obama's healthcare reform law, often called Obamacare, created online insurance exchanges where individuals can buy health coverage with income-based government subsidies. The exchanges opened on Oct. 1 to sell plans for coverage effective Jan. 1, but technology issues delayed enrollment for the first few months.

Chief Executive Officer Mark Bertolini said the demographics of the new members were "a little skewed" toward an older, higher-cost population. He said the financial risks of the business were manageable but that Aetna's 2014 profit outlook was based on losses from the new plans.

"We expect the business to lose money in the first year," Bertolini told investors during a conference call. He said Aetna had signed up 135,000 paid members through the end of January.

The company also reported higher fourth-quarter earnings and revenue.

Aetna, which is operating on the exchanges in 17 states, is considering where it will offer Obamacare plans in 2015, and at what price, as it gathers information on the health of the new members.

The company has been looking at these members' pharmacy records as well as the health records of previous Aetna customers to understand what its costs from Obamacare will be.

The website problems and the extension of some old health plans into 2014 have shrunk the pool of applicants for the exchange plans and diverted younger and healthier people.

HealthCare.gov, which sells insurance in 36 states, began working better in December, and about 3 million people had signed up through that site and in the 14 states running their own websites as of late January, the government has said.

About 6 million people are expected to sign up for 2014 on the exchanges, the Congressional Budget Office said earlier this week, cutting its outlook by about 1 million.

Another factor in 2015 pricing is the size of the network of doctors and hospitals. These networks have come under scrutiny as individuals have begun to realize their new plans may exclude their desired hospital or doctor.

The Centers for Medicare and Medicaid Services, which oversee the exchanges, this week outlined new expectations for 2015 network disclosures and standards that may be tougher for insurers to meet.

Aetna Chief Financial Officer Shawn Guertin said in an interview that he did not believe the administration was asking for larger networks in 2015 than the insurers use in 2014.

"I don't think we can conclude that yet from this letter," Guertin said. "This is not a new issue ... It's a longstanding issue of balancing access with affordability."

White House spokesman Jay Carney told reporters on Thursday that the Affordable Care Act includes measures to make sure consumers have a choice in providers, but added that Health and Human Services (HHS) was working on additional measures.

"For 2015, HHS plans to have even more aggressive efforts in place to ensure that consumers have good networks of doctors, community providers and specialists," Carney said.

Smaller networks are less expensive for insurers because they are able to keep tighter control on costs.

For 2014 coverage, Aetna said it had received about 200,000 enrollment applications in all, but only about 70 percent have paid. Competitor Humana Inc reported a similar enrollment number on Wednesday, WellPoint Inc said last month that it had received 400,000 enrollment applications.

UnitedHealth Group Inc, the largest U.S. insurer, is only selling on a few exchanges and has not reported enrollment.

Cigna Corp reports its quarterly earnings on Friday.

MEDICARE GROWTH

The individual business represents about 3 percent of Aetna's total medical membership, which reached 22.2 million at the end of 2013.

About 18 million of the customers are in Aetna's corporate health plan business, and the company has a growing private Medicare business. About 150 million people in the United States have employer-based healthcare.

Aetna said it expected to add 110,000 new private Medicare customers in the first quarter. Government-paid healthcare programs, like Medicare for older people, are growing fast as baby boomers age into the program.

Both earnings and revenue were helped by the more than $5 billion acquisition of Coventry Healthcare in 2013.

Aetna reported net income of $369 million, or $1 per share, up from $190 million, or 56 cents per share, a year earlier.

Excluding acquisition-related costs, a charge for increasing liability for life insurance claims, and other items, earnings were $1.34 per share, compared with analysts' expectations of $1.36, according to Thomson Reuters I/B/E/S.

Shares of Aetna were down 0.3 percent at $67.96 in afternoon trading.

Revenue rose 33 percent to $13.18 billion, above analysts' average estimate of $13.14 billion.

In Aetna's largest commercial business, which includes corporate as well as individual plans, the ratio of healthcare spending to premium revenue fell from a year earlier, to 81.7 percent from 83.4 percent.

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