- Net income (1) per
share was $1.70 for the third quarter of 2016
- Operating earnings (2)
per share was $2.07 for the third quarter of 2016
- Medical membership totaled 23.1
million at September 30, 2016
- Total revenue was $15.8 billion for
the third quarter of 2016
- Aetna now projects full-year 2016
net income per share of $6.89 to $6.99 (4)
- Aetna now projects full-year 2016
operating earnings per share of $7.95 to $8.05 (4)
Aetna (NYSE: AET) announced third quarter 2016 net income (1) of
$603.9 million, or $1.70 per share. Operating earnings (2) for the
third quarter of 2016 were $734.3 million, or $2.07 per share.
Third-Quarter Financial Results at a Glance
(Millions, except per share results)
2016 2015 Change Total revenue $
15,781.5 $ 14,953.0 6 % Operating revenue (3) 15,736.9 14,986.1 5 %
Net income (1) 603.9 560.1 8 % Operating earnings (2) 734.3 668.6
10 % Per share results: Net income (1) $ 1.70 $ 1.59 7 %
Operating earnings (2) 2.07 1.90 9 % Weighted average common
shares - diluted 354.3 352.5
“Our third-quarter performance is a testament to our long-term
strategy, which we expect will drive solid operating results for
the remainder of 2016 and beyond,” said Mark T. Bertolini, Aetna
chairman and CEO. “We will continue to sharpen our focus on
participation in key industry growth drivers, while helping lead
the move to value-based care and transforming Aetna into a more
consumer-centric company.”
“Solid performance among our core businesses and a focus on
managing general and administrative expenses have once again offset
pressure from our ACA-compliant products, resulting in a strong
third quarter for the company and our shareholders,” said Shawn M.
Guertin, Aetna executive vice president and chief financial
officer. “Operating results in our Government business in
particular remain robust, and recently released data show that
among peers Aetna has the highest percentage of Medicare members
enrolled in plans with an overall 2017 rating of four stars or
higher.” (5)
Total company results
- Net income (1) was $603.9
million for the third quarter of 2016 compared with $560.1 million
for the third quarter of 2015. The increase in net income was
primarily due to the increase in operating earnings described below
and net realized capital gains for the third quarter of 2016
compared with net realized capital losses for the third quarter of
2015, partially offset by an increase in transaction and
integration-related costs (2) in 2016.
- Operating earnings (2)
were $734.3 million for the third quarter of 2016 compared with
$668.6 million for the third quarter of 2015. The increase in
operating earnings was primarily due to higher fees and other
revenue in Aetna's Health Care segment and lower general and
administrative expenses.
- Total revenue and operating
revenue (3) were $15.8 billion and $15.7 billion for the
third quarter of 2016, respectively, and both $15.0 billion for the
third quarter of 2015. The increase in total revenue and operating
revenue was primarily due to higher Health Care premium yields and
membership growth in Aetna's Government business, partially offset
by membership declines in Aetna's Commercial Insured products.
- Total operating expenses and
adjusted operating expenses (2) were each $2.8 billion
for the third quarter of 2016. The total company expense ratio was
17.9 percent and 18.9 percent for the third quarters of 2016 and
2015, respectively. The adjusted operating expense ratio (6) was
17.6 percent and 18.6 percent for the third quarters of 2016 and
2015, respectively. The improvement in both ratios during 2016 was
primarily due to the increase in total revenue and operating
revenue described above and the execution of Aetna's expense
management initiatives.
- After-tax net income margin was
3.8 percent and 3.7 percent for the third quarters of 2016 and
2015, respectively. Pretax operating margin (7) was 8.5 percent and
8.4 percent for the third quarters of 2016 and 2015,
respectively.
- Total debt to consolidated
capitalization ratio (10) was 53.1 percent at
September 30, 2016 compared with 32.6 percent at
December 31, 2015. The total debt to consolidated
capitalization ratio at September 30, 2016 reflects the
issuance of $13 billion of senior notes to partially fund the
proposed acquisition (the "Humana Acquisition") of Humana Inc
("Humana").
- Days claims payable (10)
was 57 days at September 30, 2016, a sequential increase of
less than one day compared to June 30, 2016 and a three day
increase compared to September 30, 2015. The year over year
increase was primarily due to increased claim processing
times.
- Effective tax rate remained
relatively flat at 44.4 percent for the third quarter of 2016
compared with 45.0 percent for the third quarter of 2015.
Health Care segment results
Health Care, which provides a full range of insured and
self-insured medical, pharmacy, dental and behavioral health
products and services, reported:
- Net income (1) was $687.9 million for
the third quarter of 2016 compared with $585.4 million for the
third quarter of 2015. The increase in net income primarily
reflects the increase in operating earnings described below and net
realized capital gains for the third quarter of 2016 compared with
net realized capital losses for the third quarter of 2015.
- Operating earnings (2) were $752.5
million for the third quarter of 2016 compared with $675.4 million
for the third quarter of 2015. Operating earnings increased
primarily due to higher underwriting margins in Aetna's Government
business, higher fees and other revenue primarily due to higher
average fee yields and lower general and administrative expenses.
The increase was partially offset by lower underwriting margins in
Aetna's Commercial business, primarily in Aetna's Small Group and
Individual Commercial products.
- Total revenue and operating revenue (3)
were both $15.1 billion for the third quarter of 2016 and both
$14.3 billion for the third quarter of 2015. The increase in total
revenue and operating revenue was primarily due to higher premium
yields and membership growth in Aetna's Government business,
partially offset by membership losses in Aetna's Commercial Insured
products.
- Medical membership at September 30,
2016 increased by 143 thousand compared with June 30, 2016,
primarily reflecting increases in Aetna's Commercial ASC
products.
- Medical benefit ratios ("MBRs") for the
three and nine months ended September 30, 2016 and 2015 were
as follows:
Three Months
Ended September 30, Nine Months Ended September 30,
2016 2015 Change
2016 2015 Change
Commercial 83.8 % 80.7 % 3.1 pts. 81.7 %
80.0 % 1.7 pts. Government 80.1 % 81.6
% (1.5 ) pts. 81.6 % 81.0 % .6
pts. Total Health Care 82.0 % 81.1 % .9
pts. 81.7 % 80.5 % 1.2 pts.
- Aetna's third quarter 2016 Commercial
MBR increased over the third quarter of 2015 primarily due to
higher medical costs in Aetna's ACA compliant products, including a
$20 million incremental premium deficiency reserve recorded during
the third quarter of 2016 related to anticipated future losses for
the 2016 coverage year in Aetna's Individual Commercial
products.
- Aetna's third quarter 2016 Government
MBR decreased as compared to the third quarter of 2015 primarily
due to improved performance in Aetna's Medicare products.
- In the third quarter of 2016, Aetna
experienced favorable development of prior-period health care cost
estimates in its Commercial, Medicaid and Medicare products,
primarily attributable to second-quarter 2016 performance.
- Prior-years' health care costs payable
estimates developed favorably by $717.3 million and $769.0 million
during the first nine months of 2016 and 2015, respectively. This
development is reported on a basis consistent with the prior years'
development reported in the health care costs payable table in
Aetna's annual audited financial statements and does not directly
correspond to an increase in 2016 operating results.
Group Insurance segment results
Group Insurance, which includes group life, disability and
long-term care products, reported:
- Net income (1) was $22.4 million for
the third quarter of 2016 compared with $22.8 million for the third
quarter of 2015. Operating earnings (2) were $19.1 million for the
third quarter of 2016 compared with $25.6 million for the third
quarter of 2015. Net income and operating earnings decreased
primarily due to higher operating expenses and lower net investment
income. The decrease in net income was substantially offset by net
realized capital gains for the third quarter of 2016 compared with
net realized capital losses for the third quarter of 2015.
- Total revenue was $621.3 million for
the third quarter of 2016 compared with $609.8 million for the
third quarter of 2015. Total revenue increased primarily due to net
realized capital gains for the third quarter of 2016 compared with
net realized capital losses for the third quarter of 2015.
Operating revenue (3) was $616.1 million for the third quarter of
2016 compared with $614.1 million for the third quarter of
2015.
Large Case Pensions segment results
Large Case Pensions, which manages a variety of discontinued and
other retirement and savings products, primarily for qualified
pension plans, reported:
- Net income (1) was $7.2 million for the
third quarter of 2016 compared with $0.6 million for the third
quarter of 2015. Net income increased primarily due to net realized
capital gains for the third quarter of 2016 compared with net
realized capital losses for the third quarter of 2015. Operating
earnings were $5.0 million for the third quarter of 2016 compared
with $4.4 million for the third quarter of 2015.
- Total revenue was $70.5 million and
$62.4 million for the third quarters of 2016 and 2015,
respectively. Total revenue increased primarily due to net realized
capital gains for the third quarter of 2016 compared with net
realized capital losses for the third quarter of 2015. Operating
revenue (3) was $67.0 million and $68.2 million for the third
quarters of 2016 and 2015, respectively.
Aetna's conference call to discuss third-quarter 2016 results
will begin at 8:30 a.m. ET today. The public may access the
conference call through a live audio webcast available on Aetna's
Investor Information website at www.aetna.com/investor. Financial,
statistical and other information, including GAAP reconciliations,
related to the conference call also will be available on Aetna's
Investor Information website.
The conference call also can be accessed by dialing
1-877-709-8150, or +1-201-689-8354 for international callers. The
company suggests participants dial in approximately 10 minutes
before the call. No access code is required. Individuals who dial
in will be asked to identify themselves and their affiliations.
A replay of the call may be accessed through Aetna's Investor
Information link on the Internet at www.aetna.com or by dialing
1-877-660-6853, or +1-201-612-7415 for international callers. The
replay conference ID is 13646253. Telephone replays will be
available until 11 p.m. ET on November 10, 2016.
About Aetna
Aetna is one of the nation's leading diversified health care
benefits companies, serving an estimated 46.7 million people with
information and resources to help them make better informed
decisions about their health care. Aetna offers a broad range of
traditional, voluntary and consumer-directed health insurance
products and related services, including medical, pharmacy, dental,
behavioral health, group life and disability plans, and medical
management capabilities, Medicaid health care management services,
workers' compensation administrative services and health
information technology products and services. Aetna's customers
include employer groups, individuals, college students, part-time
and hourly workers, health plans, health care providers,
governmental units, government-sponsored plans, labor groups and
expatriates. For more information, see https://www.aetna.com/ and
learn about how Aetna is helping to build a healthier world.
@AetnaNews
Consolidated Statements of Income (Unaudited)
For the Three Months For the Nine
Months Ended September 30, Ended September 30,
(Millions) 2016
2015 2016 2015 Revenue:
Health care premiums $ 13,524.8 $ 12,834.8 $ 40,623.3
$ 38,711.4 Other premiums 548.5 543.5 1,635.8 1,627.5 Fees and
other revenue 1,455.0 1,394.5 4,395.5 4,278.5 Net investment income
218.4 213.3 687.1 693.6 Net realized capital gains (losses)
34.8 (33.1 ) 85.5
(23.0 ) Total revenue 15,781.5
14,953.0 47,427.2 45,288.0
Benefits and expenses: Health care costs 11,091.8
10,409.5 33,171.6 31,146.3 Current and future benefits 534.9 528.8
1,589.3 1,596.1 Operating expenses: Selling expenses 408.6 393.0
1,245.4 1,213.6 General and administrative expenses
2,422.1 2,436.1 7,232.0
7,231.5 Total operating expenses 2,830.7 2,829.1
8,477.4 8,445.1 Interest expense 189.2 97.6 414.7 257.4
Amortization of other acquired intangible assets 61.4 65.1 187.0
192.0 Reduction of reserve for anticipated future losses on
discontinued products — —
(128.5 ) — Total benefits and expenses
14,708.0 13,930.1
43,711.5 41,636.9 Income before income
taxes 1,073.5 1,022.9 3,715.7 3,651.1 Income taxes
476.3 460.5 1,587.6
1,577.8 Net income including non-controlling
interests 597.2 562.4
2,128.1 2,073.3 Less: Net (loss) income
attributable to non-controlling interests (6.7 ) 2.3
(3.5 ) 3.9 Net income attributable to
Aetna $ 603.9 $ 560.1
$ 2,131.6 $ 2,069.4
Consolidated Balance Sheets
(Unaudited) (Millions)
At September 30,2016
At December 31,2015
Assets: Current assets: Cash and cash equivalents $ 19,066.2
$ 2,524.3 Investments 2,982.2 3,014.8 Premiums receivable, net
2,126.7 1,753.1 Other receivables, net 2,942.6 2,443.2 Accrued
investment income 231.7 227.7 Income taxes receivable — 260.4 Other
current assets 2,594.0 2,509.5
Total current assets 29,943.4
12,733.0 Long-term investments 22,756.1 21,664.8
Reinsurance recoverables 728.3 723.9 Goodwill 10,636.8 10,636.8
Other acquired intangible assets, net 1,502.3 1,688.3 Property and
equipment, net 597.0 629.7 Other long-term assets 1,401.0 1,269.9
Separate Accounts assets 4,317.7
4,035.1 Total assets $ 71,882.6
$ 53,381.5 Liabilities and shareholders’
equity: Current liabilities: Health care costs payable $ 6,873.1 $
6,305.7 Future policy benefits 653.6 671.8 Unpaid claims 764.8
772.3 Unearned premiums 1,843.0 549.2 Policyholders’ funds 2,602.6
2,262.5 Current portion of long-term debt 640.1 — Income taxes
payable 242.5 — Accrued expenses and other current liabilities
5,715.8 4,920.0 Total
current liabilities 19,335.5
15,481.5 Future policy benefits 5,992.9 6,268.2 Unpaid
claims 1,710.6 1,655.6 Policyholders’ funds 948.1 885.6 Long-term
debt, less current portion 20,022.1 7,785.4 Deferred income taxes
243.1 177.4 Other long-term liabilities 968.1 914.1 Separate
Accounts liabilities 4,317.7
4,035.1 Total liabilities 53,538.1
37,202.9 Shareholders’ equity: Common
stock and additional paid-in capital 4,699.3 4,647.2 Retained
earnings 14,666.0 12,797.4 Accumulated other comprehensive loss
(1,081.6 ) (1,330.3 ) Total Aetna
shareholders’ equity 18,283.7
16,114.3 Non-controlling interests 60.8
64.3 Total equity
18,344.5 16,178.6 Total liabilities and equity
$ 71,882.6 $ 53,381.5
Consolidated Statements of Cash Flows
(Unaudited) Nine Months Ended
September 30, (Millions)
2016 2015 Cash flows from operating
activities: Net income including non-controlling interests $
2,128.1 $ 2,073.3 Adjustments to reconcile net income to net cash
provided by operating activities: Net realized capital (gains)
losses (85.5 ) 23.0 Depreciation and amortization 510.8 499.0 Debt
fair value amortization (22.2 ) (22.7 ) Amortization of interest
rate hedges 11.9 4.4 Equity in losses (earnings) of affiliates, net
1.4 (34.1 ) Stock-based compensation expense 147.4 138.5 Reduction
of reserve for anticipated future losses on discontinued products
(128.5 ) — Amortization of net investment premium 62.1 61.2 Changes
in assets and liabilities: Accrued investment income (4.0 ) (2.5 )
Premiums due and other receivables (575.8 ) (681.6 ) Income taxes
386.9 270.2 Other assets and other liabilities 332.4 89.9 Health
care and insurance liabilities 1,856.0
337.0 Net cash provided by operating activities
4,621.0 2,755.6 Cash
flows from investing activities: Proceeds from sales and maturities
of investments 10,746.6 9,066.2 Cost of investments (10,875.6 )
(9,514.2 ) Additions to property, equipment and software (196.9 )
(287.0 ) Cash used for acquisitions, net of cash acquired
— (20.6 ) Net cash used for investing
activities (325.9 ) (755.6 ) Cash flows
from financing activities: Issuance of long-term debt 12,885.7 —
Repayment of long-term debt — (228.8 ) Net repayment of short-term
debt — (500.0 ) Deposits and interest credited to investment
contracts net of (withdrawals) .4 (35.5 ) Common shares issued
under benefit plans, net (103.1 ) (106.1 ) Stock-based compensation
tax benefits — 39.1 Settlements from repurchase agreements — (201.7
) Common shares repurchased — (296.3 ) Dividends paid to
shareholders (262.7 ) (261.5 ) Net payment on interest rate
derivatives (273.5 ) (23.7 ) Distributions, non-controlling
interests — (9.4 ) Net cash
provided by (used for) financing activities
12,246.8 (1,623.9 ) Net increase in cash and cash
equivalents 16,541.9 376.1 Cash and cash equivalents, beginning of
period 2,524.3 1,420.4
Cash and cash equivalents, end of period $
19,066.2 $ 1,796.5
Reconciliation of Certain Reported Amounts to the Most Directly
Comparable GAAP Measure For the Three
Months For the Nine Months Ended September 30,
Ended September 30, (Millions) 2016
2015 2016 2015 Net income
(1) (GAAP measure) $ 603.9 $ 560.1 $ 2,131.6 $ 2,069.4 Transaction
and integration-related costs 164.0 62.3 333.1 138.6 Reduction of
reserve for anticipated future losses on discontinued products — —
(128.5 ) — Litigation-related proceeds — — — (109.6 ) Amortization
of other acquired intangible assets 61.4 65.1 187.0 192.0 Net
realized capital (gains) losses (34.8 ) 33.1 (85.5 ) 23.0 Income
tax benefit (60.2 ) (52.0 ) (99.0 )
(78.4 ) Operating earnings (2) $ 734.3 $ 668.6
$ 2,338.7 $ 2,235.0
Weighted average common shares - basic 351.4
349.2 351.1 349.2
Weighted average common shares - diluted 354.3
352.5 354.1 352.5
Per
Common Share
Net income (1) (GAAP measure) $ 1.70 $ 1.59 $ 6.02 $ 5.87
Transaction and integration-related costs .46 .18 .94 .39 Reduction
of reserve for anticipated future losses on discontinued products —
— (.37 ) — Litigation-related proceeds — — — (.31 ) Amortization of
other acquired intangible assets .18 .19 .53 .54 Net realized
capital (gains) losses (.10 ) .09 (.24 ) .07 Income tax benefit
(.17 ) (.15 ) (.28 ) (.22 ) Operating
earnings (2) $ 2.07 $ 1.90 $
6.60 $ 6.34
Health Care, Group
Insurance and Corporate Financing Operating Cash Flows as a
Percentage of Operating Earnings For the Nine
Months Ended September 30, (Millions)
2016 2015 Net cash provided by
operating activities (GAAP measure) $ 4,621.0 $ 2,755.6 Less: Net
cash used for operating activities: Large Case Pensions
(185.8 ) (451.4 ) Net cash provided by operating
activities: Health Care, Group Insurance and Corporate Financing
(A) 4,806.8 3,207.0 Net income: Health
Care, Group Insurance and Corporate Financing (1) (GAAP Measure)
(B) 2,032.8 2,060.7 Transaction and integration-related costs 333.1
138.6 Litigation-related proceeds — (109.6 ) Amortization of other
acquired intangible assets 187.0 192.0 Net realized capital (gains)
losses (75.9 ) 16.9 Income tax benefit (147.4 )
(76.3 ) Operating earnings: Health Care, Group Insurance and
Corporate Financing (C) $ 2,329.6 $ 2,222.3
Operating Cash Flow as a Percentage of Income
Ratios: Operating cash flow as a percentage of net income (1)
(GAAP Measure) (A)/(B) 236.5 % 155.6 % Operating cash flow as a
percentage of operating earnings (2) (A)/(C) 206.3 % 144.3 %
Segment Information (8)
For the Three Months For the Nine
Months Ended September 30, Ended September 30,
(Millions) 2016 2015
2016 2015 Health Care: Total revenue
(GAAP measure) $ 15,089.7 $ 14,280.8 $ 45,327.5 $ 43,184.5 Interest
income on proceeds of transaction-related debt (9.8 ) — (12.4 ) —
Litigation-related proceeds — — — (109.6 ) Net realized capital
(gains) losses (26.1 ) 23.0 (50.5 )
22.3 Operating revenue (3) (excludes net realized
capital gains (losses) and other items) $ 15,053.8
$ 14,303.8 $ 45,264.6 $ 43,097.2
Commercial Medical Benefit Ratio: Premiums (GAAP
measure) $ 6,952.0 $ 7,166.8 $
20,967.0 $ 21,608.6 Health care costs (GAAP
measure) $ 5,829.0 $ 5,786.9 $
17,127.5 $ 17,286.5 Commercial MBR 83.8
% 80.7 % 81.7 % 80.0 % Government Medical Benefit Ratio:
Premiums (GAAP measure) $ 6,572.8 $ 5,668.0
$ 19,656.3 $ 17,102.8 Health
care costs (GAAP measure) $ 5,262.8 $ 4,622.6
$ 16,044.1 $ 13,859.8
Government MBR 80.1 % 81.6 % 81.6 % 81.0 % Total Medical
Benefit Ratio: Premiums (GAAP measure) $ 13,524.8
$ 12,834.8 $ 40,623.3 $ 38,711.4
Health care costs (GAAP measure) $ 11,091.8
$ 10,409.5 $ 33,171.6 $ 31,146.3
Total MBR 82.0 % 81.1 % 81.7 % 80.5 % Net
income (1) (GAAP measure) $ 687.9 $ 585.4 $ 2,167.7 $ 2,065.9
Transaction and integration-related costs 54.3 44.0 156.0 120.3
Litigation-related proceeds — — — (109.6 ) Amortization of other
acquired intangible assets 61.3 65.1 186.8 191.9 Net realized
capital (gains) losses (26.1 ) 23.0 (50.5 ) 22.3 Income tax benefit
(24.9 ) (42.1 ) (94.2 ) (71.8 )
Operating earnings (2) $ 752.5 $ 675.4
$ 2,365.8 $ 2,219.0
Segment Information continued (8)
For the Three Months For the Nine
Months Ended September 30, Ended September 30,
(Millions) 2016 2015
2016 2015 Group Insurance: Total
revenue (GAAP measure) $ 621.3 $ 609.8 $ 1,880.4 $ 1,865.4 Net
realized capital (gains) losses (5.2 ) 4.3
(25.4 ) (5.4 ) Operating revenue (3) (excludes net
realized capital (gains) losses) $ 616.1 $
614.1 $ 1,855.0 $ 1,860.0
Net income (1) (GAAP measure) $ 22.4 $ 22.8 $ 106.7 $ 117.7
Amortization of other acquired intangible assets .1 — .2 .1 Net
realized capital (gains) losses (5.2 ) 4.3 (25.4 ) (5.4 ) Income
tax expense (benefit) 1.8 (1.5 ) 8.8
1.9 Operating earnings (2) $ 19.1
$ 25.6 $ 90.3 $ 114.3
Large Case Pensions: Total revenue (GAAP
measure) $ 70.5 $ 62.4 $ 219.3 $ 238.1 Net realized capital (gains)
losses (3.5 ) 5.8 (9.6 ) 6.1
Operating revenue (3) (excludes net realized capital (gains)
losses) $ 67.0 $ 68.2 $ 209.7
$ 244.2 Net income (1) (GAAP measure) $
7.2 $ .6 $ 98.8 $ 8.7 Reduction of reserve for anticipated future
losses on discontinued products — — (128.5 ) — Net realized capital
(gains) losses (3.5 ) 5.8 (9.6 ) 6.1 Income tax expense (benefit)
1.3 (2.0 ) 48.4 (2.1 )
Operating earnings (2) $ 5.0 $ 4.4
$ 9.1 $ 12.7
Corporate
Financing: (9) Net loss (1) (GAAP measure) $ (113.6 ) $
(48.7 ) $ (241.6 ) $ (122.9 ) Transaction-related costs 109.7 18.3
177.1 18.3 Income tax benefit (38.4 ) (6.4 )
(62.0 ) (6.4 ) Operating loss (2) $ (42.3 ) $
(36.8 ) $ (126.5 ) $ (111.0 )
Total
Company: Total revenue (GAAP measure) (A) $ 15,781.5 $ 14,953.0
$ 47,427.2 $ 45,288.0 Interest income on proceeds of
transaction-related debt (9.8 ) — (12.4 ) — Litigation-related
proceeds — — — (109.6 ) Net realized capital (gains) losses
(34.8 ) 33.1 (85.5 ) 23.0
Operating revenue (3) (excludes net realized capital gains and
other items) (B) $ 15,736.9 $ 14,986.1
$ 47,329.3 $ 45,201.4 Total
operating expenses (GAAP measure) (C) $ 2,830.7 $ 2,829.1 $ 8,477.4
$ 8,445.1 Transaction and integration-related costs (64.0 )
(44.0 ) (168.4 ) (120.3 ) Adjusted operating
expenses (D) $ 2,766.7 $ 2,785.1
$ 8,309.0 $ 8,324.8
Operating
Expense Ratios: Total company expense ratio (C)/(A) (GAAP
measure) 17.9 % 18.9 % 17.9 % 18.6 % Adjusted operating expense
ratio (6) (D)/(B) 17.6 % 18.6 % 17.6 % 18.4 %
Operating Margins For
the Three Months For the Nine Months Ended September
30, Ended September 30, (Millions)
2016 2015 2016
2015 Reconciliation to Income Before Income Taxes:
Income before income taxes (GAAP measure) $ 1,073.5 $ 1,022.9 $
3,715.7 $ 3,651.1 Interest expense * 79.4 79.3 237.6 239.1
Transaction and integration-related costs 164.0 62.3 333.1 138.6
Reduction of reserve for anticipated future losses on discontinued
products — — (128.5 ) — Litigation-related proceeds — — — (109.6 )
Amortization of other acquired intangible assets 61.4 65.1 187.0
192.0 Net realized capital (gains) losses (34.8 )
33.1 (85.5 ) 23.0 Operating earnings
(2) before income taxes, excluding interest expense (A) $
1,343.5 $ 1,262.7 $ 4,259.4
$ 4,134.2
Reconciliation to Net Income:
Net income (1) (GAAP measure) (B) $ 603.9 $ 560.1 $ 2,131.6 $
2,069.4 Interest expense * 79.4 79.3 237.6 239.1 Transaction and
integration-related costs 164.0 62.3 333.1 138.6 Reduction of
reserve for anticipated future losses
on discontinued products
— — (128.5 ) — Litigation-related proceeds — — — (109.6 )
Amortization of other acquired intangible assets 61.4 65.1 187.0
192.0 Net realized capital (gains) losses (34.8 ) 33.1 (85.5 ) 23.0
Income tax benefit (88.0 ) (79.7 ) (182.2 )
(162.1 ) Operating earnings (2) excluding interest expense,
net of tax $ 785.9 $ 720.2 $
2,493.1 $ 2,390.4
Reconciliation to
Total Revenue: Total revenue (GAAP measure) (C) $ 15,781.5 $
14,953.0 $ 47,427.2 $ 45,288.0 Interest income on proceeds of
transaction-related debt (9.8 ) — (12.4 ) — Litigation-related
proceeds — — — (109.6 ) Net realized capital (gains) losses
(34.8 ) 33.1 (85.5 ) 23.0
Operating revenue (3) (excludes net realized capital gains and
other items) (D) $ 15,736.9 $ 14,986.1
$ 47,329.3 $ 45,201.4
Net
Income and Operating Margins: After-tax net income margin
(B)/(C) (GAAP measure) 3.8 % 3.7 % 4.5 % 4.6 % Pretax operating
margin (7) (A)/(D) 8.5 % 8.4 % 9.0 % 9.1 %
*Interest expense for the three and nine
months ended September 30, 2016 and 2015 excludes costs associated
with the term loan credit agreement (the “Term Loan Agreement”)
executed in connection with the Humana Acquisition. Interest
expense for the nine months ended September 30, 2016 and the
three and nine months ended September 30, 2015 excludes costs
associated with bridge credit agreement (the “Bridge Credit
Agreement”) executed in connection with the Humana Acquisition.
Interest expense for the three and nine months ended September 30,
2016 also excludes the negative cost of carry on
transaction-related debt incurred in connection with the Humana
Acquisition. These costs are included within transaction and
integration-related costs.
(1) Net income (loss) refers to net income (loss) attributable
to Aetna reported in Aetna's Consolidated Statements of Income in
accordance with U.S. generally accepted accounting principles
("GAAP"). Unless otherwise indicated, all references in this press
release to net income (loss) and net income per share exclude
amounts attributable to non-controlling interests.
(2) Non-GAAP financial measures such as operating earnings,
operating earnings per share, adjusted operating expenses,
operating revenue, operating cash flow as a percentage of operating
earnings, adjusted operating expense ratio and pretax operating
margin exclude from the relevant GAAP metrics, as applicable:
- Amortization of other acquired
intangible assets;
- Net realized capital gains or losses;
and
- Other items, if any, that neither
relate to the ordinary course of Aetna's business nor reflect
Aetna's underlying business performance.
Although the excluded items may recur, management believes that
non-GAAP financial measures Aetna discloses, including those
described above, provide a more useful comparison of Aetna's
underlying business performance from period to period. Operating
earnings is the measure reported to the Chief Executive Officer for
purposes of assessing financial performance and making operating
decisions, such as the allocation of resources among Aetna's
business segments. The non-GAAP financial measures Aetna discloses,
including those described above, should not be considered a
substitute for, or superior to, financial measures determined or
calculated in accordance with GAAP.
For the periods covered in this press release, the following
items are excluded from operating earnings, adjusted operating
expenses and operating revenue, as applicable, because Aetna
believes they neither relate to the ordinary course of Aetna's
business nor reflect Aetna's underlying business performance:
- Aetna incurred transaction and
integration-related costs during the three and nine months ended
September 30, 2016 and 2015 related to the acquisitions of
Coventry Health Care, Inc. (“Coventry”) and bswift LLC ("bswift")
and the Humana Acquisition. Transaction costs include advisory,
legal and other professional fees which are not deductible for tax
purposes and are reflected in Aetna's GAAP Consolidated Statements
of Income in general and administrative expenses, as well as the
cost of the Bridge Credit Agreement and the Term Loan Agreement
executed in connection with the Humana Acquisition, which are
reflected in Aetna's GAAP Consolidated Statements of Income in
interest expense. Transaction costs also include the negative cost
of carry associated with the debt financing that Aetna obtained in
June 2016 for the Humana Acquisition. Prior to the closing of the
Humana Acquisition, the negative cost of carry associated with the
June 2016 debt financing is excluded from operating earnings. The
components of the negative cost of carry are reflected in Aetna's
GAAP Consolidated Statements of Income in interest expense and net
investment income. On and after the closing of the Humana
Acquisition, the interest expense and net investment income
associated with the June 2016 debt financing no longer will be
excluded from operating earnings.
- In 1993, Aetna discontinued the sale of
fully guaranteed large case pensions products and established a
reserve for anticipated future losses on these products, which
Aetna reviews quarterly. During the nine months ended September 30,
2016, Aetna reduced the reserve for anticipated future losses on
discontinued products. Aetna believes excluding any changes in the
reserve for anticipated future losses on discontinued products from
operating earnings provides more useful information as to Aetna's
continuing products and is consistent with the treatment of the
operating results of these discontinued products, which are
credited or charged to the reserve and do not affect Aetna's
operating results.
- In the nine months ended September 30,
2015, Aetna received proceeds, net of legal costs, in connection
with a litigation settlement. These net proceeds were recorded in
fees and other revenue in Aetna's GAAP Consolidated Statements of
Income.
- Other acquired intangible assets relate
to Aetna's acquisition activities and are amortized over their
useful lives. However, this amortization does not directly relate
to the underwriting or servicing of products for customers and is
not directly related to the core performance of Aetna's business
operations.
- Net realized capital gains and losses
arise from various types of transactions, primarily in the course
of managing a portfolio of assets that support the payment of
liabilities. However, these transactions do not directly relate to
the underwriting or servicing of products for customers and are not
directly related to the core performance of Aetna's business
operations.
- The corresponding tax benefit or
expense related to the items excluded from operating earnings
discussed above. The tax benefit or expense was calculated
utilizing the appropriate tax rate for each individual item
excluded from operating earnings.
For a reconciliation of these items to financial measures
calculated under GAAP, refer to the tables on pages 10 through 13
of this press release.
(3) Operating revenue excludes net realized capital gains and
losses, litigation-related proceeds and interest income on the
proceeds of the transaction-related June 2016 debt as noted in (2)
above. Refer to the tables on pages 11 through 13 of this press
release for a reconciliation of operating revenue to total revenue
calculated under GAAP.
(4) Projected full-year 2016 net income and operating earnings
per share reflect approximately 354 million weighted average
diluted shares. Projected full-year 2016 operating earnings per
share exclude from net income estimated amortization of other
acquired intangible assets, projected integration-related costs
related to the Coventry and bswift acquisitions and the Humana
Acquisition, projected transaction-related costs (including
projected litigation costs) related to the Humana Acquisition,
projected net realized capital gains and losses, other items, if
any, that neither relate to the ordinary course of Aetna's business
nor reflect Aetna's underlying business performance and the
corresponding tax benefit or expense related to the items excluded
from operating earnings per share discussed above. Amortization of
other acquired intangible assets relates to Aetna's acquisition
activities, including Coventry, InterGlobal and bswift. The table
below reconciles projected 2016 operating earnings per share to
projected 2016 net income per share:
Reconciliation of Projected 2016 Net Income Per Share to
Projected 2016 Operating Earnings Per Share Projected
net income per share (GAAP measure)
$
6.89 - 6.99
Transaction and integration-related costs 1.47 Reduction of reserve
for anticipated future losses on discontinued products (.36 )
Amortization of other acquired intangible assets .70 Net realized
capital gains (.24 ) Income tax benefit (.51 )
Projected operating earnings per share
$
7.95 - 8.05
Aetna will experience net realized capital gains or net realized
capital losses during the remainder of 2016, however Aetna cannot
project the amount of such future gains or losses. Therefore, Aetna
has assumed no net realized capital gains or losses after
September 30, 2016 for purposes of projecting net income and
net income per share. Aetna's annual net realized capital gains or
losses ranged from a net realized capital loss of $64.5 million to
a net realized capital gain of $80.4 million during calendar years
2013 through 2015.
(5) Among publicly traded companies with more than 250,000
Medicare Advantage enrollees. Based on Medicare membership at
September 1, 2016.
(6) The adjusted operating expense ratio excludes net realized
capital gains and losses and other items, if any, that are excluded
from operating revenue or adjusted operating expenses, as noted in
(2) above. For a reconciliation of this metric to the comparable
GAAP measure for the periods covered by this press release, refer
to page 12 of this press release.
(7) In order to provide useful information regarding Aetna's
profitability on a basis comparable to others in the industry,
without regard to financing decisions, income taxes or amortization
of other acquired intangible assets (each of which may vary for
reasons not directly related to the performance of the underlying
business), Aetna's pretax operating margin is based on operating
earnings excluding interest expense and income taxes. Management
also uses pretax operating margin to assess Aetna's performance,
including performance versus competitors.
(8) Operating revenue and adjusted operating expense information
is presented before income taxes. Operating earnings information is
presented net of income taxes.
(9) Aetna's Corporate Financing segment is not a business
segment. It is added to Aetna's business segments to reconcile
segment reporting to Aetna's consolidated results. The net loss of
the Corporate Financing segment includes interest expense on
Aetna's outstanding debt and the financing components of Aetna's
pension and other postretirement employee benefit plan expenses
(benefits). As described in (2) above, the operating earnings of
the Corporate Financing segment exclude other items, if any, that
neither relate to the ordinary course of Aetna's business nor
reflect Aetna's underlying business performance.
(10) Days Claims Payable is calculated by dividing the health
care costs payable at each quarter end by the average health care
costs per day in each respective quarter. The Total Debt to
Consolidated Capitalization Ratio is calculated by dividing total
long-term debt and short-term debt ("Total Debt") by the sum of
Total Debt and total Aetna shareholders' equity.
Cautionary Statement Regarding Forward-Looking
StatementsThis press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. You can generally identify
forward-looking statements by the use of forward-looking
terminology such as “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “explore,” “evaluate,” “intend,” “may,”
“might,” “plan,” “potential,” “predict,” “project,” “seek,”
“should,” or “will,” or the negative thereof or other variations
thereon or comparable terminology. These forward-looking
statements are only predictions and involve known and unknown risks
and uncertainties, many of which are beyond Aetna’s and Humana’s
control.
Statements in this press release regarding Aetna that are
forward-looking, including Aetna’s projections as to net income per
share, operating earnings per share, transaction and
integration-related costs, amortization of other acquired
intangible assets, the income tax benefit related to items excluded
from operating earnings, weighted average dilutive shares, future
operating results, its ability to help lead the move to value-based
care, and its ability to transform are based on management’s
estimates, assumptions and projections, and are subject to
significant uncertainties and other factors, many of which are
beyond Aetna’s and Humana’s control. Important risk factors could
cause actual future results and other future events to differ
materially from those currently estimated by management, including,
but not limited to: the profitability of Aetna’s and Humana’s
public health insurance exchange and ACA compliant small group
products, where membership has had and may continue to have more
adverse health status and/or higher medical benefit utilization
than Aetna and/or Humana projected; unanticipated increases in
medical costs (including increased intensity or medical utilization
as a result of flu or otherwise; changes in membership mix to
higher cost or lower-premium products or membership adverse
selection; medical cost increases resulting from unfavorable
changes in contracting or re-contracting with providers (including
as a result of provider consolidation and/or integration);
increased pharmacy costs (including in Aetna’s and/or Humana’s
public health insurance exchange products)); uncertainty related to
Aetna’s and Humana’s accruals for the ACA's reinsurance, risk
adjustment and risk corridor programs (“3R’s”); uncertainty related
to the funding for and final reconciliations with respect to the
ACA's risk management and subsidy programs; the implementation of
health care reform legislation, including collection of ACA fees,
assessments and taxes through increased premiums; adverse
legislative, regulatory and/or judicial changes to or
interpretations of existing health care reform legislation and/or
regulations (including those relating to minimum medical loss ratio
(“MLR”) rebates); the implementation of public health insurance
exchanges; Aetna’s and Humana’s ability to offset Medicare
Advantage and PDP rate pressures; the timing to consummate Aetna’s
proposed acquisition of Humana (the “Humana Acquisition”); the
resolution of the Department of Justice litigation relating to the
Humana Acquisition; the timing to consummate the proposed
divestitures of certain of Aetna’s and Humana’s Medicare Advantage
assets (collectively, the “Divestitures”); the risk that a
condition to closing of the Humana Acquisition and/or the
Divestitures may not be satisfied; the risk that a regulatory
approval that may be required for Aetna's 2017 public health
insurance exchange products or off-exchange individual products,
the Humana Acquisition and/or the Divestitures is delayed, is not
obtained or is obtained subject to conditions that are not
anticipated; the outcome of various litigation matters related to
the Humana Acquisition; Aetna’s ability to achieve the synergies
and value creation projected to be realized following the
completion of the Humana Acquisition; Aetna’s ability to promptly
and effectively integrate Humana’s businesses; the diversion of
management time on Humana Acquisition-related and/or
Divestiture-related issues; and changes in Aetna’s and Humana’s
future cash requirements, capital requirements, results of
operations, financial condition and/or cash flows. Health care
reform will continue to significantly impact Aetna’s business
operations and financial results, including Aetna’s pricing and
medical benefit ratios. Key components of the legislation will
continue to be phased in through 2020, and Aetna will be required
to dedicate material resources and incur material expenses during
2016 to implement health care reform. Significant parts of the
legislation, including aspects of public health insurance
exchanges, nondiscrimination requirements, reinsurance, risk
corridor and risk adjustment, continue to evolve through the
promulgation of regulations and guidance at the federal level. In
addition, pending efforts in the U.S. Congress to amend or restrict
funding for various aspects of health care reform and pending
litigation challenging aspects of the law continue to create
additional uncertainty about the ultimate impact of health care
reform. As a result, many of the impacts of health care reform will
not be known for the next several years. Other important risk
factors include: adverse changes in health care reform and/or other
federal or state government policies or regulations as a result of
health care reform or otherwise (including legislative, judicial or
regulatory measures that would affect Aetna’s and/or Humana’s
business model, restrict funding for or amend various aspects of
health care reform, limit Aetna’s and/or Humana’s ability to price
for the risk it assumes and/or reflect reasonable costs or profits
in its pricing, such as mandated minimum medical benefit ratios, or
eliminate or reduce ERISA pre-emption of state laws (increasing
Aetna’s and/or Humana’s potential litigation exposure)); adverse
and less predictable economic conditions in the U.S. and abroad
(including unanticipated levels of, or increases in the rate of,
unemployment); reputational or financial issues arising from
Aetna’s and/or Humana’s social media activities, data security
breaches, other cybersecurity risks or other causes; Aetna’s
ability to diversify Aetna’s sources of revenue and earnings
(including by developing, operating and expanding Aetna's consumer
business and expanding Aetna’s foreign operations), transform
Aetna’s business model, develop new products and optimize Aetna’s
business platforms; the success of Aetna’s Healthagen® (including
Accountable Care Solutions and health information technology)
initiatives; adverse changes in size, product or geographic mix or
medical cost experience of membership; managing executive
succession and key talent retention, recruitment and development;
failure to achieve and/or delays in achieving desired rate
increases and/or profitable membership growth due to regulatory
review or other regulatory restrictions, the difficult economy
and/or significant competition, especially in key geographic areas
where membership is concentrated, including successful protests of
business awarded to Aetna and/or Humana; failure to adequately
implement health care reform; the outcome of various litigation and
regulatory matters, including audits, challenges to Aetna’s and/or
Humana’s minimum MLR rebate methodology and/or reports, guaranty
fund assessments, intellectual property litigation and litigation
concerning, and ongoing reviews by various regulatory authorities
of, certain of Aetna’s and/or Humana’s payment practices with
respect to out-of-network providers, other providers and/or life
insurance policies; Aetna’s ability to integrate, simplify, and
enhance Aetna’s existing products, processes and information
technology systems and platforms to keep pace with changing
customer and regulatory needs; Aetna’s ability to successfully
integrate Aetna’s businesses (including Humana, Coventry, bswift
LLC and other businesses Aetna may acquire in the future) and
implement multiple strategic and operational initiatives (including
the Divestitures) simultaneously; Aetna’s and/or Humana’s ability
to manage health care and other benefit costs; adverse program,
pricing, funding or audit actions by federal or state government
payors, including as a result of sequestration and/or curtailment
or elimination of the Centers for Medicare & Medicaid Services’
("CMS") star rating bonus payments; Aetna's and/or Humana's ability
to maintain and/or enhance its CMS star ratings; Aetna’s ability to
reduce administrative expenses while maintaining targeted levels of
service and operating performance; failure by a service provider to
meet its obligations to Aetna or Humana; Aetna’s and Humana’s
ability to develop and maintain relationships (including
collaborative risk-sharing agreements) with providers while taking
actions to reduce medical costs and/or expand the services each
company offers; Aetna’s ability to demonstrate that Aetna’s
products and processes lead to access to quality affordable care by
Aetna’s members; Aetna’s and/or Humana’s ability to maintain their
relationships with third-party brokers, consultants and agents who
sell their products; increases in medical costs or Group Insurance
claims resulting from any epidemics, acts of terrorism or other
extreme events; changes in medical cost estimates due to the
necessary extensive judgment that is used in the medical cost
estimation process, the considerable variability inherent in such
estimates, and the sensitivity of such estimates to changes in
medical claims payment patterns and changes in medical cost trends;
a downgrade in Aetna’s financial ratings; and adverse impacts from
any failure to raise the U.S. Federal government’s debt ceiling or
any sustained U.S. Federal government shut down. For more
discussion of important risk factors that may materially affect
Aetna, please see the risk factors contained in Aetna’s 2015 Annual
Report on Form 10-K (“Aetna’s 2015 Annual Report”) and Aetna's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016
("Aetna's June 2016 Quarterly Report"), each on file with the
Securities and Exchange Commission ("SEC"), and Aetna’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016
(“Aetna’s September 2016 Quarterly Report”), when filed with the
SEC. For more discussion of important risk factors that may
materially affect Humana, please see the risk factors contained in
Humana’s 2015 Annual Report on Form 10-K (“Humana’s 2015 Annual
Report”) and Humana's Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K filed or furnished during 2016, each on file
with the SEC. You should also read Aetna’s 2015 Annual Report and
Aetna's June 2016 Quarterly Report, each on file with the SEC, and
Aetna’s September 2016 Quarterly Report, when filed with the SEC,
for a discussion of Aetna’s historical results of operations and
financial condition. You should also read Humana’s 2015 Annual
Report, Humana's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2016, each on file with the SEC, and Humana’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2016, when filed with the SEC, for a discussion of Humana’s
historical results of operations and financial condition.
No assurances can be given that any of the events anticipated by
the forward-looking statements will transpire or occur, or if any
of them do occur, what impact they will have on the results of
operations, financial condition or cash flows of Aetna or Humana.
Aetna does not assume any duty to update or revise forward-looking
statements, whether as a result of new information, future events
or otherwise, as of any future date.
Supplementary Information
Membership
September 30, 2016
June 30, 2016 December 31, 2015 September 30,
2015 (Thousands) Insured ASC
Total Insured ASC
Total Insured ASC
Total Insured ASC
Total Medical Membership: Commercial 5,596 13,064
18,660 5,667 12,947 18,614 5,777 13,593 19,370 5,889 13,614 19,503
Medicare Advantage 1,364 — 1,364 1,344 — 1,344 1,251 — 1,251 1,246
— 1,246 Medicare Supplement 667 — 667 637 — 637 566 — 566 534 — 534
Medicaid 1,629 801 2,430 1,592
791 2,383 1,529 771 2,300 1,461
762 2,223 Total Medical Membership 9,256
13,865 23,121 9,240 13,738
22,978 9,123 14,364 23,487 9,130
14,376 23,506
Dental Membership: Total Dental
Membership 5,940 8,393 14,333 5,926
8,393 14,319 6,243 8,391 14,634
6,215 8,428 14,643
Pharmacy Benefit
Management Membership: Commercial 9,610 9,598 10,237 10,434
Medicare Prescription Drug Plan (stand-alone) 2,031 1,967 1,466
1,443 Medicare Advantage Prescription Drug Plan 952 943 863 861
Medicaid 2,719
2,657 2,587
2,568 Total Pharmacy Benefit
Management Services Membership 15,312
15,165 15,153
15,306
Days Claims Payable
September 30, 2016
June 30, 2016 March 31, 2016
December 31, 2015 September 30, 2015 Days
Claims Payable 57.0 56.2 57.3 54.9 54.3
Statements of Income by Segment (Unaudited)
Health Group Large
Case Corporate (Millions)
Care Insurance
Pensions Financing Total For
the three months ended September 30, 2016 Revenue:
Health care premiums $ 13,524.8 $ — $ — $ — $ 13,524.8 Other
premiums — 536.0 12.5 — 548.5 Fees and other revenue 1,425.1 27.7
2.2 — 1,455.0 Net investment income 113.7 52.4 52.3 — 218.4 Net
realized capital gains 26.1 5.2
3.5 — 34.8 Total
revenue 15,089.7 621.3
70.5 — 15,781.5
Benefits and expenses: Health care costs 11,091.8 — — —
11,091.8 Current and future benefits — 473.9 61.0 — 534.9 Operating
expenses: Selling expenses 376.7 31.9 — — 408.6 General and
administrative expenses 2,345.1
88.3 3.1 (14.4 ) 2,422.1
Total operating expenses
2,721.8 120.2 3.1 (14.4 ) 2,830.7 Interest expense — — — 189.2
189.2 Amortization of other acquired intangible assets
61.3 .1 — —
61.4 Total benefits and expenses
13,874.9 594.2 64.1 174.8
14,708.0 Income (loss) before income taxes
1,214.8 27.1 6.4 (174.8 ) 1,073.5 Income tax expense (benefit)
533.4 4.7 (.6 )
(61.2 ) 476.3 Net income (loss) including
non-controlling interests 681.4 22.4
7.0 (113.6 ) 597.2 Less:
Net loss attributable to non-controlling interests (6.5 )
— (.2 ) — (6.7 ) Net
income (loss) attributable to Aetna $ 687.9
$ 22.4 $ 7.2 $ (113.6 )
$ 603.9
For the three months ended
September 30, 2015 Revenue: Health care premiums $
12,834.8 $ — $ — $ — $ 12,834.8 Other premiums — 532.7 10.8 — 543.5
Fees and other revenue 1,367.5 24.8 2.2 — 1,394.5 Net investment
income 101.5 56.6 55.2 — 213.3 Net realized capital losses
(23.0 ) (4.3 ) (5.8 ) —
(33.1 ) Total revenue 14,280.8
609.8 62.4 —
14,953.0
Benefits and expenses: Health care costs
10,409.5 — — — 10,409.5 Current and future benefits — 466.8 62.0 —
528.8 Operating expenses: Selling expenses 361.5 31.5 — — 393.0
General and administrative expenses 2,372.4
83.2 3.2 (22.7 )
2,436.1 Total operating expenses 2,733.9 114.7 3.2 (22.7 )
2,829.1 Interest expense — — — 97.6 97.6 Amortization of other
acquired intangible assets 65.1 —
— — 65.1 Total
benefits and expenses 13,208.5
581.5 65.2 74.9 13,930.1
Income (loss) before income taxes 1,072.3 28.3 (2.8 ) (74.9
) 1,022.9 Income tax expense (benefit) 484.4
5.5 (3.2 ) (26.2 ) 460.5
Net income (loss) including non-controlling interests
587.9 22.8 .4
(48.7 ) 562.4 Less: Net income (loss) attributable to
non-controlling interests 2.5 —
(.2 ) — 2.3 Net income (loss)
attributable to Aetna $ 585.4 $
22.8 $ .6 $ (48.7 ) $ 560.1
Statements of Income by Segment
(Unaudited) Health Group
Large Case Corporate (Millions)
Care Insurance
Pensions Financing Total For
the nine months ended September 30, 2016 Revenue: Health
care premiums $ 40,623.3 $ — $ — $ — $ 40,623.3 Other premiums —
1,603.6 32.2 — 1,635.8 Fees and other revenue 4,309.3 79.5 6.7 —
4,395.5 Net investment income 344.4 171.9 170.8 — 687.1 Net
realized capital gains 50.5 25.4
9.6 — 85.5 Total
revenue 45,327.5 1,880.4
219.3 — 47,427.2
Benefits and expenses: Health care costs 33,171.6 — — —
33,171.6 Current and future benefits — 1,394.5 194.8 — 1,589.3
Operating expenses: Selling expenses 1,150.0 95.4 — — 1,245.4
General and administrative expenses 7,003.9
261.6 9.5 (43.0 )
7,232.0 Total operating expenses 8,153.9 357.0 9.5 (43.0 )
8,477.4 Interest expense — — — 414.7 414.7 Amortization of other
acquired intangible assets 186.8 .2 — — 187.0 Reduction of reserve
for anticipated future losses on discontinued products
— — (128.5 ) —
(128.5 ) Total benefits and expenses
41,512.3 1,751.7 75.8
371.7 43,711.5 Income (loss) before
income taxes 3,815.2 128.7 143.5 (371.7 ) 3,715.7 Income tax
expense (benefit) 1,650.2 22.0
45.5 (130.1 ) 1,587.6 Net
income (loss) including non-controlling interests 2,165.0
106.7 98.0 (241.6 )
2,128.1 Less: Net loss attributable to
non-controlling interests (2.7 ) — (.8 )
— (3.5 ) Net income (loss) attributable to
Aetna $ 2,167.7 $ 106.7
$ 98.8 $ (241.6 ) $ 2,131.6
For the nine months ended September 30, 2015
Revenue: Health care premiums $ 38,711.4 $ — $ — $ — $
38,711.4 Other premiums — 1,599.6 27.9 — 1,627.5 Fees and other
revenue 4,193.5 78.0 7.0 — 4,278.5 Net investment income 301.9
182.4 209.3 — 693.6 Net realized capital (losses) gains
(22.3 ) 5.4 (6.1 ) —
(23.0 ) Total revenue 43,184.5
1,865.4 238.1 —
45,288.0
Benefits and expenses: Health care
costs 31,146.3 — — — 31,146.3 Current and future benefits — 1,372.7
223.4 — 1,596.1 Operating expenses: Selling expenses 1,123.9 89.7 —
— 1,213.6 General and administrative expenses
7,038.5 252.0 9.3 (68.3 )
7,231.5 Total operating expenses 8,162.4 341.7 9.3
(68.3 ) 8,445.1 Interest expense — — — 257.4 257.4 Amortization of
other acquired intangible assets 191.9 .1
— — 192.0 Total
benefits and expenses 39,500.6
1,714.5 232.7 189.1
41,636.9 Income (loss) before income taxes 3,683.9 150.9 5.4
(189.1 ) 3,651.1 Income tax expense (benefit)
1,615.8 33.2 (5.0 ) (66.2 )
1,577.8 Net income (loss) including non-controlling
interests 2,068.1 117.7 10.4
(122.9 ) 2,073.3 Less: Net income
attributable to non-controlling interests 2.2 —
1.7 — 3.9 Net
income (loss) attributable to Aetna $ 2,065.9
$ 117.7 $ 8.7 $ (122.9 )
$ 2,069.4
Roll Forward of Health
Care Costs Payable Nine Months Ended
September 30, (Millions) 2016
2015 Health care costs payable, beginning of period $
6,305.7 $ 5,621.1 Less: reinsurance recoverables 4.1
5.8 Health care costs payable, beginning of period,
net 6,301.6 5,615.3 Add: Components of incurred health care costs:
Current year 33,803.9 31,915.3 Prior years (a) (717.3 )
(769.0 )
Total incurred health care costs (b)
33,086.6 31,146.3 Less: Claims paid Current year 27,381.2
26,062.7 Prior years 5,221.6 4,554.1
Total claims paid 32,602.8 30,616.8 Health care costs
payable, end of period, net 6,785.4 6,144.8 Add: premium deficiency
reserve 85.0 — Add: reinsurance recoverables 2.7
2.8 Health care costs payable, end of period $
6,873.1 $ 6,147.6 Health care costs
payable: Incurred but not reported claims $ 5,878.7 $ 5,203.7 Other
claims 994.4 943.9 Total health care
costs payable $ 6,873.1 $ 6,147.6
(a) Negative amounts reported for incurred health care costs
related to prior years result from claims being settled for less
than originally estimated.(b) Total incurred health care costs
exclude from the table above $85 million related to the premium
deficiency reserve recorded during the nine months ended September
30, 2016 on Aetna's Individual Commercial products.
Health Care Reform's Reinsurance, Risk Adjustment and Risk
Corridor (the “3Rs”) (c)
Net Receivable (Payable)
At September 30, 2016 At December 31, 2015
(Millions) Reinsurance Risk
Adjustment Risk Corridor (d)
Reinsurance Risk Adjustment Risk
Corridor Current (e) $ 132.9 $ (555.1 ) $ (53.9 )
$ 394.5 $ (710.2 ) $ (8.1 ) Long-term 10.1
49.1 — — —
— Total net receivable (payable) $
143.0 $ (506.0 ) $ (53.9 ) $ 394.5
$ (710.2 ) $ (8.1 )
(c) Aetna participates in certain public health insurance
exchanges established pursuant to the Patient Protection and
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010 (as amended, collectively, “Health Care
Reform” or the “ACA”). Under regulations established by the U.S.
Department of Health and Human Services (“HHS”), HHS pays Aetna a
portion of the premium and a portion of the health care costs for
low-income individual Public Exchange members. In addition, HHS
administers the 3Rs risk management programs.(d) At
September 30, 2016, Aetna estimates that it is entitled to
receive a total of $377 million from HHS under the three-year ACA
risk corridor program for the 2014 through 2016 program years. At
September 30, 2016, Aetna did not record any ACA risk corridor
receivables related to the 2016 or 2015 program years or any amount
in excess of the prorated 12.6% HHS funding amount received for the
2014 program year, because payments from HHS are uncertain.(e) At
September 30, 2016, $41.7 million of ACA reinsurance receivables
and $35.4 million of ACA risk adjustment receivables related to the
respective 2015 programs. The remainder of the net balances related
to the respective 2016 programs.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161027005713/en/
Media Contact:T.J. Crawford,
212-457-0583crawfordt2@aetna.comorInvestor Contact:Joe
Krocheski, 860-273-0896krocheskij@aetna.com
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