HARTFORD, Conn. _ Aetna Inc. reported Tuesday second-quarter profit that beat Wall Street estimates as the Hartford-based insurer announced it will withdraw expansion plans for Affordable Care Act exchanges in response to steep financial losses and is considering future participation in its current 15-state footprint.
Chief Executive Mark Bertolini said he is pleased with Aetna's overall results, but following an updated 2016 projection of individual products and "significant structural challenges" facing the Affordable Care Act exchanges, he said Aetna intends to withdraw all of its 2017 public exchange expansion plans.
Aetna's share price jumped 1 percent in morning trading, to $115.66.
Bertolini told investor analysts on a conference call that Aetna expects a loss of more than $300 million in Affordable Care Act business this year. Aetna had previously said it was a break-even operation.
"We are evaluating our footprint as it exists today to understand what solutions we can put forward to either fix the business or exit the business," he said.
The U.S. Department of Health and Human Services said the health insurance marketplace will continue to thrive "as a place where insurers compete for business and consumers have access to a range of affordable coverage options."
The Affordable Care Act changed the insurance market competition from avoiding patients with pre-existing conditions to competing on cost and quality, HHS spokeswoman Marjorie Connolly said.
"It's no surprise that insurers are adapting to these changes at different rates," she said.
UnitedHealth Group, the nation's biggest health insurer, announced in April it will cut its participation in public health insurance exchanges to a handful of states next year after expanding to nearly three dozen for this year. It said it expects to lose $650 million this year on its exchange business, up from its previous projection for $525 million. The insurer lost $475 million in 2015.
Jefferies analyst David Windley said all publicly traded managed care companies have acknowledged health care losses and declining margins related to the health exchanges. Policymakers in government and the industry see the problem as too few healthy people in the insurance pool and poor enforcement of eligibility.
Bertolini warned that the problems "could get a lot worse" unless eligibility and risk adjustment problems are addressed.
As recently as May, Aetna said it would sell Affordable Care Act health insurance in 15 states.
"Our strategy has always been to participate on the exchanges in a manner that will allow us to gain enough membership to learn how best to provide affordable health care coverage for previously uninsured Americans," Bertolini told investor analysts. "At the same time we are committed to being good stewards of our balance sheet in managing the financial risks and level of investment associated with this opportunity."
Aetna posted profit for the quarter of $790.8 million, or $2.23 per share. Earnings, adjusted for one-time gains and costs, were $2.21 per share.
The results exceeded Wall Street expectations. The average estimate of 12 analysts surveyed by Zacks Investment Research was for earnings of $2.11 per share.
The health insurer posted revenue of $15.9 billion in the period, also exceeding Street forecasts. Nine analysts surveyed by Zacks expected $15.74 billion.
Aetna expects full-year earnings in the range of $7.90 to $8.10 per share.
Bertolini brushed aside a question from an analyst about whether Aetna is linking its re-evaluation of its role in public health exchanges with the Justice Department's opposition to its proposed $37 billion acquisition of Humana Inc. The Justice Department announced July 21 it's going to court to halt the deal and a separate $54 billion proposed acquisition of Cigna Corp. by Anthem.
The federal government says both deals would rob consumers of competition.
Bertolini called the public health exchange issue a "balance sheet discussion" separate from the Humana deal.
Windley said Aetna can make a strong financial case to withdraw from the public exchanges, but also may use its future participation in the exchanges in bargaining over its purchase of Humana.
"I believe they want the Humana deal badly enough they'd be willing to negotiate around that," he said.
Bertolini pushed back on that argument, telling investor analysts that combining Aetna and Humana will benefit consumers, particularly those who are eligible for Medicare.
"The DOJ action ignores the simple fact that there is robust competition in Medicare as evidenced by all Medicare eligibles are free to choose between traditional fee-for-service and Medicare Advantage," he said.
About 70 percent of Medicare population chooses traditional Medicare," Bertolini said.
Aetna and Humana announced Tuesday they are selling $117 million in Medicare Advantage business to Molina Healthcare Inc. of Long Beach, Calif. The transactions are subject to the completion of Aetna's proposed acquisition of Humana and state and federal approval and other issues.
Molina is expected to gain approximately 290,000 Medicare Advantage members in 21 states, preserving competition for seniors choosing to receive Medicare coverage through Medicare Advantage plans, Aetna and Humana said. The two companies expect their divestiture to address concerns raised by the U.S. Department of Justice.
