MOH Molina Healthcare Inc

Aetna Inc. posted better-than-expected profit and revenue growth in the most recent quarter but said it dropped plans to further expand its Affordable Care Act business next year and will review how it will continue—if at all—in existing states.

"While we are pleased with our overall results, in light of updated 2016 projections for our individual products and the significant structural challenges facing the public exchanges, we intend to withdraw all of our 2017 public exchange expansion plans, and are undertaking a complete evaluation of future participation in our current 15-state footprint," said Chief Executive Mark Bertolini.

Chief Financial Officer Shawn Guertin said Aetna delivered solid top-line and bottom-line results in the second quarter, "despite the challenges in our ACA compliant products."

"Our financial position, capital structure, and liquidity are all strong, and bolstered by core businesses that continue to produce bottom-line growth," he said.

In the June quarter, Aetna's overall medical membership fell 2.9% to 22.98 million. Medicaid membership popped 12% to 2.4 million, while Medicare Advantage membership grew 9% to 1.3 million.

Aetna's medical-benefit ratio, a key measure of the amount of premiums used to pay patient medical costs, rose to 82.4% from 81.1%. The ratio rose more for its commercial members, to 83.4% from 81.8%, than its government-based business, 81.4% from 80.3%.

In all for the quarter, Aetna reported earnings of $790.8 million, or $2.23 a share, up from $731.8 million, or $2.08 a share, a year earlier.

Operating earnings rose to $2.21 a share from $2.05 a share. Operating revenue, which excludes net realized capital gains and losses, grew 5.1% to $15.9 billion. Analysts had forecast $2.12 a share on $15.69 billion in revenue.

Aetna reaffirmed its 2016 operating earnings guidance for $7.90 to $8.10 a share.

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 consolidation momentum is being fed by a desire to diversify and cut costs following changes brought by the Affordable Care Act. The deal to buy Humana would boost Hartford, Conn.-based Aetna's Medicare business and give it scale to thrive as the industry consolidates.

But late last month, the Justice Department filed a pair of lawsuits in a Washington, D.C., federal court challenging Anthem Inc.'s proposed acquisition of Cigna Corp. and Aetna's planned combination with Humana, alleging the mergers would harm consumers, employers and health-care providers with an unacceptable reduction in competition.

On Tuesday, Aetna and Humana together announced they agreed to sell separate Medicare Advantage assets to Molina Healthcare Inc. for about $117 million in cash. The pair of transactions are subject to the completion of the merger.

The deals give Molina about 290,000 Medicare Advantage members in 21 states, "preserving robust competition for seniors choosing to receive Medicare coverage through Medicare Advantage plans and addressing a key concern of the U.S. Department of Justice in its challenge to the Aetna-Humana transaction," the companies said in a statement.

Mr. Bertolini said they believe these divestitures taken together would address the Justice Department's "perceived competitive concerns."

Humana is set to report second-quarter results tomorrow.

Shares of Aetna, inactive premarket, have risen 5.9% so far this year.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

August 02, 2016 07:25 ET (11:25 GMT)

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