Drama With Obamacare and Humana Over, Aetna Results `Crush'

(Bloomberg) -- After dropping a deal for one of its biggest rivals and largely quitting Obamacare, health insurer Aetna Inc. may have been better off sticking to its knitting all along.

The insurer raised its full-year forecast after posting second-quarter results that exceeded analysts' expectations, helped along by its core business running health benefits for employers. Earlier this year, it called off a takeover with Humana Inc., and it has also pulled back from doing business in the Affordable Care Act -- insulating itself from Washington's health-care turmoil.

Scott Fidel, an analyst at Credit Suisse, called it a “crush and raise” quarter.

“It's not often that we see EPS beats of the magnitude that Aetna reported this morning” among health insurers, Fidel said.

The health insurer now expects profit of $9.45 to $9.55 a share this year, excluding some items, up from a previous forecast of $8.80 to $9, according to a statement Thursday. The new guidance exceeds the $8.99 average of analysts' estimates compiled by Bloomberg. Second-quarter earnings also topped predictions.

The shares rose as much as 4 percent to $160.99, hitting a new record intraday high. As of Wednesday's close, the stock is up 25 percent, more than more than double the gains of the Standard & Poor's 500 Index.

Close to Home

Aetna largely exited the Affordable Care Act's individual exchanges ahead of this year, following losses in the program, and is completing its withdrawal before 2018. Its main businesses of selling coverage to large companies, and in the government's Medicare and Medicaid programs, are performing well. Margins widened in the quarter, driven by lower medical spending, typically as patients use fewer medical services such as surgeries or doctor visits.

“The report showcases the strong health insurance fundamentals as utilization remains particularly weak, while exits from the Obamacare marketplaces are driving a meaningful improvement in claims experience,” Ana Gupte, an analyst at Leerink Partners, said in a note to investors.

Earnings were also helped by government programs designed to stabilize Obamacare. The company decreased its estimate of how much it owes to other insurers under the risk adjustment program, boosting earnings in the second quarter by about $180 million. T.J. Crawford, an Aetna spokesman, said the insurer still expects to lose more than $200 million on ACA plans this year.

The company is seeking to expand in both Medicare and Medicaid to find new paths to growth after ending the $37 billion Humana deal, which was blocked by a federal judge on antitrust grounds. Aetna has said it plans to expand the geographic areas where it offers Medicare Advantage plans, to reach an estimated 60 percent of beneficiaries next year.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Cecile Daurat