Aetna records first-quarter loss after failed Humana merger

Aetna recorded a loss of $381 million in the first three months of 2017, thanks to costs related to its failed tie-up with insurer Humana.

Even so, Aetna's first-quarter results beat Wall Street's financial estimates despite further losses from the insurer's Affordable Care Act exchange plans.

In the first quarter of last year, Hartford, Conn.-based Aetna's profit totaled $737 million.

The failure of the $37 billion Humana merger, which was blocked by a federal judge in January for threatening to harm competition in Medicare Advantage, was expected to squeeze Aetna's bottom line.

The two insurers spent 19 months and millions of dollars in legal and financial fees preparing for the deal. When it fell through, Aetna had to pay Humana a $1 billion breakup fee, or about $630 million after taxes.

Aetna also had to fork over a $52.5 million breakup fee to Medicaid managed-care insurer Molina Healthcare, which had agreed to acquire divested Medicare Advantage assets from Aetna and Humana to satisfy Justice Department concerns.

In all, Aetna Chief Financial Officer Shawn Guertin told investors on a conference call Tuesday that the company paid about $1.2 billion in termination fees related to the failed deal.

Lower membership in the exchanges also weighed on Aetna's earnings. Aetna pulled out of exchanges in 11 states in 2017, forcing hundreds of thousands of plan members to find a new insurer. It remains in just four states.

Aetna said Tuesday that it ended the quarter with 255,000 individual commercial members, down from 964,000 at the end of 2016.

The insurer set aside $110 million in the first quarter for future losses from individual market plans, saying it believes the enrolled members will have higher costs than it thought. Aetna lost $450 million from the plans it sold on exchanges in 2016.

Along with many other health insurance companies, Aetna is still deciding if it will sell ACA exchange plans in 2018. It already announced it would pull out of Iowa's exchange next year, leaving that state with just one dominant exchange insurer: Medica.

"We continue to evaluate our footprint with a view towards significantly reducing our exposure to individual commercial products in 2018," Guertin said.

Aetna's individual business represents less than 2% of its total adjusted revenue.

Meanwhile, Medicare Advantage membership grew by 81,000 members in the quarter, compared with the same period a year ago. Medicaid membership fell by 90,000. The decline in Medicaid membership stemmed from Aetna's lost Nebraska Medicaid contract.

Total membership declined to 22.4 million, compared with 23.1 million at the same time last year.

Aetna said it collected more premiums from its government business, which includes Medicare Advantage and Medicaid, than it did from its commercial insurance business for the first time.

Lower overall membership and reduced premiums helped reduce first-quarter revenue by 3.4% to $15.2 billion over 2016.

The same factors raised the medical loss ratio to 82.6%, compared with 80.5% a year ago.