Aetna's participation in state and federal exchanges is creating a modest drag on profitability, company officials said repeatedly on a call with investors Tuesday. Despite that financial challenge, the insurer beat analysts' expectations for earnings in the second quarter and plans to expand into one additional exchange, Georgia, in 2015.
"Otherwise, our footprint will remain similar to what it was in 2014," Aetna CEO Mark Bertolini said on the second-quarter earnings call.
The Hartford, Conn.-based company sold exchange plans in 17 states this year. It added nearly 600,000 individuals to its roles through the marketplaces during the 2014 open enrollment period. But two thirds of those policies took effect in April or May. Because of that, Aetna officials indicated that they are still analyzing the financial ramifications of those new customers.
Aetna had net income of $548.8 million in the second quarter, a 2.4% increase over the comparable period in 2013. Net earnings per share for the three-month period were $1.52, up 3 cents over the prior year. The Hartford, Conn.-based company raised its operating earnings per share projection for the entire year modestly, to a range of $6.45 to $6.60. Earnings narrowly exceeded analysts' expectations.
Revenues for the quarter were $14.5 billion, up 26% from the second quarter of 2013. That increase can be partially explained by the 2013 acquisition of Medicare and Medicaid provider Coventry Health Care. The Coventry deal closed in May 2013.
Aetna added 385,000 health insurance enrollees in the second quarter of 2014, the ninth consecutive quarter of growth, bringing total membership to 23.1 million. That's a 1.7% increase over the prior quarter. That growth was spread across all sectors of Aetna's business, with additional members in Medicare, Medicaid and commercial plans. The company expects to add 300,000 more customers by the end of the year. Aetna is the third-largest insurer in the country in terms of enrollment, trailing only UnitedHealth Group and WellPoint.
Aetna's medical loss ratio for the quarter increased to 83.1%, up from 82.5% in the comparable period for 2013. The company attributed that increase in medical costs in part to the impact of the hepatitis C drug Sovaldi and to its exchange participation.
Shawn Guertin, Aetna's chief financial officer, indicated that the company is incorporating a "healthy amount" for hepatitis C costs into its 2015 rate calculations. "We continue to see that as a cost driver," Guertin said.
Aetna officials also indicated that they continue to explore possible acquisitions, even as they finish absorbing Coventry, with a particular interest in technology companies. "We have not been out of the deal market," Bertolini said. "We've still been active."
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