AET Aetna Inc. (delisted)

By Anna Wilde Mathews and Anne Steele 

Aetna Inc.'s enrollment in Affordable Care Act plans grew more than the company expected in the first quarter, but the insurer said it is still on track to roughly break even on the business this year, adding to the mixed signals from the industry about the direction of the health-law exchanges.

During an earnings call Thursday, during which the company reported better-than-projected results, Aetna Chief Executive Mark T. Bertolini said Aetna still saw its position in the ACA marketplaces as a "good investment." But he also made pointed comments about the need for changes to the law to ensure a sustainable business. Without those, "We will see the dynamics of the market get tougher," he said. Though Aetna has been careful in its approach to the exchanges, "at some point, unless we make these kinds of changes, the market will be challenged."

Aetna's stance, and Mr. Bertolini's remarks, were similar in tone to those a day earlier from rival Anthem Inc., which also saw greater enrollment than expected and said it still projected a slim profit on its exchange business for this year, while urging tweaks to the ACA. Insurers' positions about the exchange business are being closely watched after UnitedHealth Group Inc.'s announcement that, amid deepening losses, it would withdraw from all but a handful of the 34 states where it was offering exchange plans.

Aetna's enrollment in individual plans grew to about 1.2 million, an increase of about 200,000 from the end of last year, and 911,000 of those people signed up through the ACA marketplaces. The insurer said the demographics of the new customers, many of whom are in southeastern states such as North Carolina, Georgia and Florida, were similar to what it had seen in the past.

Aetna had previously said it aimed to break even on ACA plans this year, while targeting profits in future years. Though the company said it thought it was on a path to achieve its 2016 goal, it warned that it had "low visibility" at this point in the year.

Mr. Bertolini said the phasing out next year of two programs designed to stabilize the ACA marketplaces would push up the prices of exchange plans by about 6% i in 2017. But, in an interview, Aetna Chief Financial Officer Shawn M. Guertin said the suspension of an ACA tax on insurers could mitigate that, bringing rates down by roughly 3%. Mr. Guertin declined to say whether Aetna would change the number of states where it offered exchange plans -- now 15 -- but said the insurer has taken a "risk mitigation" approach..

Aetna reported that its overall profit fell 6.5% in the first quarter, as a key measure of the company's medical costs rose and membership fell. Still, the company boosted its outlook for the year. Aetna projects 2016 operating earnings per share of $7.90 to $8.10, up from previous guidance of at least $7.75 a share and straddling analysts' initial estimates for $8.05 a share, according to Thomson Reuters.

The company said its overall medical membership fell 2.9% to 22.99 million at the end of the quarter. Medicaid membership jumped 11% to 2.3 million, while Medicare Advantage membership grew 8.5% to 1.3 million.

Aetna's medical-loss ratio, which measures the share of premiums used to pay patient medical costs, rose to 80.5% from 79.1%. The ratio rose more for its government-based business, to 83.4% from 81.3%, than its commercial members, to 77.8% from 77.4%. The increase on the commercial side was tied to the day added by the leap-year calendar.

Overall, for the quarter ended March 31, Aetna reported earnings of $726.6 million, or $2.06 a share, down from $777.5 million, or $2.20 a share, a year ago. Operating earnings fell to $2.30 from $2.39 a share. Operating revenue, which excludes net realized capital gains and losses, climbed 4% to $15.69 billion.

Analysts had forecast $2.23 a share on $15.45 billion in revenue.

Aetna in early July agreed to buy Humana Inc., part of a rapid-fire reconfiguration of the U.S. health-insurance industry's top ranks. The $34 billion deal needs to win approval from the federal Justice Department's antitrust officials, as well as from states.

On Thursday, the company said it is on track to close its acquisition of Humana in the second half of the year, having obtained about two-thirds of the state approvals required to close the transaction.

Shares of Aetna were up slightly in midday trading, at about $115.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

April 28, 2016 14:53 ET (18:53 GMT)

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