Aetna Inc. posted sharply higher second-quarter profit on a strong performance by its health insurance segment.

Hartford Courant

HARTFORD, Conn. | Aetna Inc. posted sharply higher second-quarter profit on a strong performance by its core health insurance segment and its exit from unprofitable Affordable Care Act health exchanges.

Optimistic about the rest of the year, Hartford-based Aetna raised its profit expectations for 2017, exceeding what analysts expected.

However, Chief Executive Officer Mark Bertolini warned about uncertainty in health insurance markets as the Republican-led Congress and President Donald Trump struggle to keep their promise to replace Obamacare.

Aetna also demonstrated it can succeed without acquiring Humana Inc., which it unsuccessfully pursued last year. Medicare Advantage products were a "primary driver of growth," accounting for a 14 percent increase in membership this year, Bertolini told investor analysts on a conference call. The products are popular private insurance offerings that handle Medicare coverage for seniors.

Medicare Advantage was a key reason why Aetna sought to pay $37 billion for Humana, which has a significant presence in Medicare Advantage markets. A federal judge blocked the deal in January.

Aetna's ability to reap profit from Medicare Advantage "really crystallizes the logic behind the strategy" to buy Humana, said Spencer Perlman, managing partner and director of health care research at Veda Partners in Bethesda, Md.

In contrast, it was unable to make a go of the Affordable Care Act Exchanges, he said. "It's never been Aetna's sweet spot," Perlman said.

Aetna announced in May it will not offer on- or off-exchange individual plans in Delaware or Nebraska in 2018. It previously announced it will not offer plans in Iowa and Virginia next year.

Aetna said its individual commercial products lost nearly $700 million between 2014 and 2016.

For the April-June period, net income of $1.2 billion, or $3.60 per share, was up 52 percent from $791 million in last year's second quarter. That beat Wall Street expectations.

Revenue of $15.52 billion was down about 3 percent from the second quarter of 2016 but still beat expectations of analysts surveyed by Bloomberg.

Aetna raised its 2017 earnings per share guidance to a range of $9.45 to $9.55, from a previous projection of $8.80 to $9. That outpaces analysts' expectations of $8.99.

Credit Suisse analyst Scott Fidel said in a note to investors that Aetna's second-quarter results exceeded a "beat and raise" performance in which a company beats Wall Street expectations and raises its guidance for earnings per share or revenue. He called it a "crush and raise."

"It's not often that we see EPS beats of the magnitude that Aetna reported this morning," he said.

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Aetna attributed the increase in earnings to a continued strong performance in its core health care segment. The business unit includes insured and self-insured medical, pharmacy, dental and behavioral health products and services.

The earnings boost also reflects a larger drop in Aetna's estimate of its exposure to costly, high-risk Obamacare customers than in the second quarter of 2016. Lower costs also accounted for the improved results.

Bertolini warned that the unresolved health care debate in Congress will have an impact, particularly toward the end of the year.

"I would say the largest issue here is uncertainty," he told analysts on a conference call.

Bertolini cited the uncertainty over cost-sharing reductions, which are federal payments to insurance companies that reduce the amount paid for deductibles, copayments and coinsurance.

Unknown are "whether or not the (cost-sharing reductions) are going to be covered" and if members of Congress "will step up to their responsibilities to the American people," Bertolini said.

The future of health insurance plans is in doubt, he said.

"You have individuals who are sitting there with coverage not knowing whether they'll have it next year," he said.

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