Aetna lost 169,000 total members quarter over quarter and announced it would pull out of two individual exchange states. But Wall Street cheered the health insurer's report due to the company's moderate medical costs and long-term strategy.
The Hartford, Conn.-based company still recorded a healthy bottom line of $560.1 million in the third quarter, but it was down almost 6% from $594.5 million in the same quarter of 2014. Revenue inched upward 1.5% to almost $15 billion, and Aetna has collected $45.3 billion in revenue in the first nine months of this year. Aetna raised its earnings-per-share outlook for the rest of the year to the range of $7.45 to $7.55.
Aetna had 23.5 million customers with health plans as of Sept. 30, essentially flat from the same time last year and down 169,000 people from the most recent quarter. The shift falls within Aetna's oft-repeated mantra of pursuing “margin over membership.” In essence, Aetna has focused more on charging higher premium prices and keeping medical costs down, even if that results in some people and companies fleeing the Aetna brand.
Medical claims were held down across the board. The overall medical-loss ratio among Aetna's commercial and government plans was 81.1%, lower than the 82.3% ratio recorded in third quarter of last year.
Membership losses were most evident in Aetna's individual business, which includes policies sold on the Affordable Care Act's public exchanges. Aetna had 1.1 million individual members, down 100,000 from the most recent quarter, Aetna Chief Financial Officer Shawn Guertin said on an earnings call Thursday. A company spokeswoman broke down the 1.1 million individual members into 815,000 on-exchange enrollees and 280,000 off-exchange enrollees.
Because of higher medical costs associated with exchange members, Aetna will not sell exchange plans in the District of Columbia, Kansas and Utah in 2016. The company will start selling plans in Kentucky, putting its exchange presence in 15 states.
Aetna CEO Mark Bertolini emphasized, however, that pulling out of two states does not diminish the company's long-term investment in the exchanges. “We think it's way too early to call it quits,” he said.
Competitor Anthem similarly lost scores of people from its individual business, especially the exchanges, as many people have chosen lower-priced alternatives. CEO Joseph Swedish said the individual market had a lot of “unsustainable pricing.”
Bertolini said for the most part, he's seen rational pricing, and some plans with lower premiums may better contain costs. But he viewed the ACA's struggling co-op program as flawed, even though it initially signed up a lot of people.
“What we saw with the co-ops was the immaturity of that model and the anticipation that they could somehow hold the big health plans honest by pricing at a level that captured a lot of membership,” Bertolini said Thursday. “We knew that was going to be troublesome and unsustainable.”
Aetna continued to lose commercial members, both among large, fully insured employers and self-funded companies. Executives foresee more “volume attrition” on the commercial side in 2016 as well.
The government business was Aetna's primary area of growth. Aetna covers 1.25 million Medicare Advantage seniors, 534,000 people with traditional Medicare supplement plans and more than 2.2 million managed Medicaid enrollees.
If the federal government approves Aetna's pending acquisition of Humana, Aetna would become the largest Medicare Advantage insurer in the country.