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Humana weighs limiting public exchange offerings; merger costs hit bottom line

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Humana Inc. said Wednesday that it may exit certain public health insurance exchange markets for 2017 as it tries to turn a profit in a segment that has weighed heavily on most health insurers' bottom lines.

Humana, which sells coverage through exchanges in 15 states, is “making course corrections to maintain commercial insurance options for individuals through the public exchanges in markets where Humana is able to offer a high-quality and ultimately, stable individual insurance product,” a company spokesman said in an email Wednesday.

That means possibly exiting certain states' exchanges or product lines on and off the exchanges established by the Affordable Care Act, Humana said in the statement.

Still, Humana remains committed to public health insurance exchanges “where practical,” said the spokesman, who declined to provide details on which states Humana may exit.

Humana also reported a drop of 45.6% in its first-quarter net income, which was $234 million, due to costs from its proposed merger with rival Aetna Inc. and losses in its individual commercial business, which includes coverage sold through public exchanges.

Total revenue fell 0.2% to $13.8 billion year-over-year, while premium revenue increased 1.4% to $13.44 billion during the three months that ended March 31.

While Humana and UnitedHealth Inc., which next year plans to exit nearly all of the 34 states in which it currently sells exchange coverage, have seen exchange business weigh on their bottom line, other insurers, such as Aetna Inc. and Anthem Inc., see the exchanges as an opportunity for growth.

Still, most health insurers' exchange business is not yet profitable.

“All indications are that ... most insurance plans on the exchanges are yielding 0% at the very most,” said Vishnu Lekraj, senior equity analyst with Morningstar Inc. in Chicago. The “less healthy” people purchasing exchange coverage make it “tough for anybody to be profitable in that market consistently,” he said.

Winners and losers

What differentiates the insurers' financial performance on the exchanges are pricing and underwriting diligence and whether the insurers can get favorable provider pricing in the areas where they sell exchange coverage, Mr. Lekraj said.

Aetna, which sells coverage in 15 states, is one insurer that seems to be faring better on the exchanges.

In a call with investment analysts last week, Aetna CEO Mark Bertolini said the insurer is on track to “break even” in its exchange business this year.

And Anthem Inc. CEO Joseph R. Swedish said last week that the Indianapolis-based insurer's exchange business is “well-positioned for continued growth,” though it does not plan to expand beyond its current 14 states.

St. Louis-based insurer Centene Corp. said it is already profiting from exchange coverage it sells in 15 states.

“Centene's exchange experience continues to be favorable, and we are achieving margins at the higher end of our targeted range,” Centene Chairman, President and CEO Michael F. Neidorff said during an investor call last week.

But some insurers are losing big.

UnitedHealth said it expects to lose $650 million on exchange business this year on top of the $475 million it lost last year.

And Highmark Health, a Blue Cross and Blue Shield affiliate based in Pittsburgh, said in early April that it lost $590 million on exchanges in 2015.

“It's a very nascent market, so it's going to take time to mature,” said Mr. Lekraj, who compared exchange coverage to Medicaid programs that have undergone many “tweaks and revamps.” He said he expects the federal government to make changes to better ensure profitability of health insurance coverage offered through the public exchanges.