(Story updated at 12:29 p.m. ET)
Membership gains in Medicare and Medicaid bolstered Aetna's third-quarter earnings, despite pressures stemming from its public exchange business. Aetna also stressed Thursday that it remains confident its multibillion-dollar merger with rival insurer Humana will close in 2017.
Hartford, Conn.-based Aetna's third-quarter net income jumped 7.8% to $603.9 million compared with the same period in 2015, and revenue was up by 5.5% year over year, totaling $15.78 billion.
The nation's third-largest insurer grew membership in Medicare and Medicaid by 97,000 members, partially offset by membership losses in its commercial segment.
“The performance on our Medicare business continues to be very strong,” Aetna CEO Mark Bertolini said Thursday during a conference call with analysts.
Aetna's total medical membership grew by 143,000 members in the last three months to 23.1 million members. Medicare Advantage and Medicare supplement membership totaled 2.03 million as of Sept. 30. Medicaid membership grew to 2.4 million members, up 47,000 members over the last three months.
Medicare premium revenue grew by more than 17% year over year, while Medicaid premium revenue jumped 13%, Bertolini said.
But despite the strong government business performance, commercial business—particularly individual and small group segments—suffered. Commercial membership declined by 64,000 members and totaled 18.7 million at the end of the quarter.
Because of losses from the plans it sold through public insurance exchanges, Aetna increased its premium deficiency reserve to $85 million during the quarter, a $20 million increase from the last quarter.
Chief Financial Officer Shawn Guertin said Thursday that Aetna expects a full-year operating loss in its individual commercial products of $350 million, “further validating our decision to reduce our 2017 exposure to the products.”
Aetna announced earlier this year that it will drastically cut back on its exchange participation for 2017 and will sell exchange plans in only four states, down from 15 this year. Bertolini said during the conference call that Aetna most likely won't jump back into the marketplace until 2020, adding that the ACA risk-adjustment mechanism needs to change or a “premium spiral” will “continue to drive premiums up, good risk out, and ultimately create a very bad risk pool for the overall mechanism.”
Aetna executives also remain confident that they will close the pending $37 billion merger with Humana after they defend the deal in court in December. The merger has been challenged by the U.S. Justice Department, which claims the tie-up would reduce competition, particularly in the Medicare Advantage markets. This summer, Aetna partnered with Humana to sell some Medicare Advantage plans to rival Molina Healthcare in an effort to clear antitrust concerns.
Aetna sees the merger as a way to mitigate top-line pressures on its business for 2017 stemming from individual market challenges and the loss of big Medicaid contracts in Missouri and Nebraska. Those two contracts will have a $750 million impact on next year's results. Aetna also may lose a major Medicaid contract in Pennsylvania, worth almost $1 billion in revenue. Pennsylvania's bids for Medicaid contracts are currently under protest.