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Aetna: Saving the PPACA exchange system is a good investment

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Executives from Aetna Inc. (NYSE:AET) today gave only general information about the company’s current public health insurance exchange operations, said nothing about 2017 exchange plan menus, and called for policymakers in Washington to help them revamp the system.

“There’s still much to be done to ensure the long-term future of this program,” Aetna Chairman Mark Bertolini said today during a conference call the company held to go over first-quarter earnings with securities analysts.

See also: Democrats evenly split over Clinton, Sanders in Bloomberg poll

Executives at UnitedHealth Group Inc. (NYSE:UNH) kicked off the current health insurance company earnings season last week by saying their company will respond to the heavy losses it suffered on the Patient Protection and Affordable Care Act (PPACA) exchange system in 2015, and expects to suffer this year, by pulling products off of the shelves of the PPACA exchange programs in all but a handful of states.

Executives from Centene Corp. (NYSE:CNC), which was known in the past mainly as a Medicaid and Children’s Health Insurance Program (CHIP) plan manager, said their company has been happy with its PPACA exchange operations; has earned high enough gains to have to pay into the PPACA risk corridors program, which is supposed to use cash from thriving exchange plan issuers to help struggling issuers; and may expand into PPACA exchange programs in states in which it has strong Medicaid plans.

Executives from Anthem Inc. (NYSE:ANTM) said Wednesday that they are unhappy with the performance of the exchange system, but their comments implied that the company is willing to stick with the system and work on strengthening it at least until 2018. They revealed no plans to expand into additional state exchange programs, but they did not talk about any moves to withdraw from the exchange programs they currently serve.

See also: Anthem likely to give PPACA exchanges more time to stabilize

Aetna executives could have helped give investors, agents, brokers and others a better idea of what the PPACA exchange program might look like in 2017. Instead, they left the exchange watcher community in suspense.

For a closer look at what the executives said, read on. 

Tulips, representing solid Aetna earnings

1. Aetna as a whole did well in the first quarter.

Aetna is reporting $727 million in net income for the first quarter on $16 billion in revenue, compared with $778 million in net income on $15 billion in revenue for the first quarter of 2015.

The company ended the quarter providing or administering major medical coverage for 23 million people, or about 3 percent fewer than it was covering a year earlier.

Although net income was down, it was in line with what Aetna had projected and securities analysts had been expecting.

Medicare Advantage plan enrollment increased to 1.3 million, from 1.2 million.

Medicare supplement (Medigap) enrollment increased to 612,000, from 488,000.

Medicaid plan enrollment increased to 2.3 million, from 2.1 million.

Overall commercial plan enrollment fell to 19 million, from 20 million.

Enrollment in major medical plans associated with health savings account (HSA) or health reimbursement arrangement (HRA) programs increased to 4.3 million, from 4 million.

The company gave no specific financial information about the performance of its individual commercial health insurance operations or about what it might get from, or pay into, the PPACA risk corridors program or the other PPACA “three R’s” programs — the PPACA reinsurance program and the PPACA risk-adjustment program.  

For Aetna, one factor that could throw off 2016 earnings projections is a spike in medical costs, and another is “low visibility at this juncture of the year into our ability to achieve our margin improvement goals in our ACA-compliant products, particularly the uncertainty related to three R’s accruals,” said Shawn Guertin, Aetna’s chief financial officer.

Executives noted that the company has been careful about the small-group market, because of a concern that expirations of grandmothering provisions, or provisions that have let small employers keep pre-PPACA coverage, will lead to market disruption.

See also: Aetna: What PPACA problem?

Zipped Aetna mouth

2. Aetna is not giving many details about the performance of its public exchange operation.

Aetna executives said the company ended the first quarter with 911,000 PPACA exchange plan enrollees, and a total of 1.2 million holders of individual coverage inside and outside the exchange system.

A year ago, the company said it had 950,000 exchange plan enrollees and a total of 1.3 million individual coverage holders.

Aetna executives implied that the exchange plans lost money in 2015, saying that their goal for this year is for the plans to break even.

In the first quarter, exchange plan enrollee demographics, claims and other indicators all did at least as well as the company had expected, and that is giving the company some confidence that it might get the exchange plans to a break-even level this year, executives said.

PPACA calls for two of the three R’s programs, the PPACA reinsurance program and the PPACA risk corridors program, to go away next year. The disappearance of two of the three R’s could increase 2017 premiums by about 6 percent, and increases in the underlying medical costs could expand 2017 individual health insurance rate increases by another 6 percentage points to 7 percentage points, to about 12 percent or 13 percent, Bertolini said.

In terms of prices, “the market is rational, and probably more rational than it’s ever been, given the impacts of the ACA on [Blue Cross and Blue Shield carrier] reserves and [other] competitors,” Bertolini said. “Folks are being much more careful about pricing.”

Bertolini said carriers face a “stark realization” about pricing risk.

“If you get behind on your pricing, and try to buy share, you just can’t catch up in any reasonable amount of time,” Bertolini said.

See also: Aetna profit tops estimates as medical spending declines

Microphones in front of a U.S. flag, representing elections

3. Aetna is hoping the fall elections will make the public exchange situation better.

Bertolini said Aetna is already selling Medicare Advantage coverage through nine private exchanges and plans to start its own Medicare Advantage plan private exchange, with help from its bswift unit, to respond to the possibility that federal funding changes could shake up the market for employer-sponsored group Medicare Advantage plans and cause the sponsors to send enrollees out to buy individual coverage.

Bertolini also said the business value to Aetna of the public exchange system has, up till now, far outweighed any losses the company might have suffered on exchange plans during the first two years of program operations.

“We see this as a good investment,” Bertolini said.

Acquiring the 911,000 enrollees Aetna has acquired through the PPACA exchange system would have cost the company $1.2 billion, if it had acquired those enrollees through conventional means, and simply expanding into 15 additional states it was able to enter through the exchange system would have cost the company $600 million to $750 million without the help of the exchange system, Bertolini said.

Bertolini said Aetna wants to work with policymakers to split the risk pools into more parts, develop different products for different risk pools, and, in general, make the exchange program more flexible.

Aetna is hoping to get “an administration and a Congress that will allow us to change the [exchange] product like we change Medicare every year, and the way we change Medicaid every year,” Bertolini said. “We haven’t been able to touch this product because of the politics.” 

See also: 

View: Obamacare is on back burner in presidential race

Democrats evenly split over Clinton, Sanders in Bloomberg poll


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