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Health insurer earnings: 7 takeaways

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Aetna Inc. (NYSE:AET) — an insurer that’s been working with commercial agents and brokers since Abraham Lincoln was a trial lawyer — today reported that its third-quarter earnings were fine, but that it’s starting to like the idea of getting cash from the new federal “three R’s” 

Centene Corp. (NYSE:CNC) — an insurer that’s much more familiar to state government Medicaid program managers than to insurance producers — also reported third-quarter earnings.

Marsh & McLennan Companies Inc. (NYSE:MMC), a big commercial broker, also came out with earnings. Just as executives from Aetna and Centene talked during conference calls with analysts about their views on the new Patient Protection and Affordable Care Act (PPACA) public exchange system, Marsh executives talked during their company’s analyst call about the performance of their private exchange program.

Why should you, an insurance producer, care about the earnings reports?

Because the companies may be giving clues in the earnings releases and conference calls about where their health insurance operations may be heading — and where Wall Street investors might make the companies head, whether company executives want to move in that direction or not.

Here are six possible takeaways from morning’s batch of earnings reports and calls.


1. Commercial health insurance companies are sticking around

Aetna reported $595 million in net income for the quarter on $15 billiion in revenue, up from $519 million in net income on $13 billion in revenue for the third quarter of 2013.

The company ended the quarter providing or administering health coverage for 24 million people, up from 22 million people a year earlier, and enrollment grew in every enrollee category, including the commercial plan category.

Centene — a major player in the government plan market that now sells commercial qualified health plans (QHPs) through the PPACA exchanges in Arkansas, Florida, Georgia, Indiana, Massachusetts, Mississippi, Ohio, Texas and Washington state — is reporting $79 million in net income for the latest quarter on $4.4 billion in revenue, up from $49 million in net income on $2.7 billion in revenue for the comparable quarter in 2013.

Aetna says it has about 600,000 QHP enrollees, and Centene says it has about 76,000.

Neither company is saying anything about any major changes in its health insurance operations.

A man looking at a chalkboard full of question marks

2. The insurers are still not sure what to say about the overall performance of the PPACA public exchanges

Neither Aetna nor Centene has published detailed figures on the performance of PPACA-compliant major medical coverage, PPACA-compliant individual coverage, or exchange QHP business.

During Aetna’s call, Aetna Chairman Mark Bertolini described the exchange QHP block as producing a “modest loss year-to-date” but starting to make a “modest amount of money.”

Elevator riders with blank stares on their faces

3. The big brokers with private exchanges seem to be comfortable with the performance of those exchanges but aren’t rushing to talk about private exchange revenue or profit contributions

During the Marsh call, Julio Portalatin, head of the company’s Mercer benefits unit, said the unit’s private exchange program has the potential to be a big business. But, in the near term, he said, “We’re not expecting significant contributions to earnings.” 

Eventually, he said, Mercer hopes the private exchange will have margins roughly in line with the company’s current health brokerage business margins.

One happy baby with two unhappy babies.

4. Some insurers may be a lot happier than others about public exchange enrollee claims experience

Aetna executives implied that the benefits ratio for exchange QHP enrollees was a “little bit worse” than expected.

Executives at Centene — which is used to dealing with low-income Medicaid program enrollees and other low-income enrollees; said they think exchange QHP claims are in line with expectations.  


5. Some insurers may put more trust than others in the predictability of the new PPACA exchange programs

Centene said it does not have any figures on how much cash it hopes to get out of the big three PPACA risk-management programs — a temporary reinsurance program, a temporary “risk corridors” underwriting margin buffer program, and a permanent risk-adjustment program.

Aetna executives said they are hoping to get $320 million from the PPACA reinsurance program for the year and $97 million from the other two programs.


6. Some midsize groups could face big increases in premiums in 2015

Aetna executives noted that efforts to use narrow networks and plan design changes to hold down claims worked poorly at employers with 51 to 300 lives.

Aetna is building a 1 percentage-point increase in anticipated 2015 medical cost increases into 2015 rates for those employers, executives said.

Cold shoulder

7. Insurers may not be that into hanging on to off-exchange individual enrollees

Centene has not had a significant presence in the ordinary commercial individual major medical market.

Aetna has had a significant presence in that market — and it’s not all that interested in the future of the traditional, off-exchange individual major medical market.

During the Aetna call, Bertolini said his company is losing a modest amount of money in the off-exchange market.

“We’re not going to keep doing what we have for that off-exchange business,” Bertolini said. “That business will either decide to leave us or buy one of ACA-compliant plans.”

Aetna likes to see the holders of the off-exchange plans buy exchange QHPs, because the exchange QHP premiums are higher, Bertolini said.