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Aetna profit up despite public health exchange losses

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Aetna Inc. said Monday that its public health insurance exchange business remained unprofitable in 2015 despite narrowing its losses and, for its overall business, improving its underwriting margins.

Despite its exchange business losses, Aetna recorded net income of $320.8 million for fourth quarter of 2015, an increase of 38.3% over the year before, the company said in a statement. Revenue climbed 1.9% to $15.05 billion.

Medical membership as of Dec. 31 was 23.5 million, a less than 1% decline compared with a year earlier.

Aetna's individual policies sold on the public exchanges authorized by the Affordable Care Act narrowed losses to a loss of 3 to 4 percentage points from the mid-single digits earlier in the year, Shawn M. Guertin, Aetna's executive vice president and chief financial officer, said during a conference call Monday with investors.

Mr. Guertin attributed the reduction in ACA exchange losses to Aetna's exiting certain markets such as Kansas, which was “driving a big piece of our headwinds related to margins in the public exchange,” increasing rates, promoting medical cost initiatives and “doing better on risk-adjusted revenue.”

The quarterly results were boosted by strong results and membership in the insurer's Medicare business, which CEO Mark T. Bertolini said during the earnings call was a “key growth engine” for the company.

Still, despite the improvement in its exchange business, Mr. Bertolini said, “We continue to have serious concerns about sustainability of the public exchanges.”

Key areas of concern include the stability of the risk pool and the lack of transparency and predictability of the risk adjustment program, as well as Centers for Medicare and Medicaid Services' “regulations on network adequacy and standardization of benefits that would limit our ability to offer affordable, innovative on-exchange products,” he said.

Also on the call, Aetna executives discussed the insurer's pending acquisition of rival insurer Humana Inc., which they maintain will close in the second half of 2016. The proposed $37 billion acquisition announced last July must obtain approval from federal and state regulators.

Aetna so far has obtained seven of the state approvals necessary to close the deal, some of which are dependent on U.S. Justice Department approval, Mr. Bertolini said, though he declined to disclose which states have given the go-ahead.

An Aetna spokeswoman said 20 state approvals are needed.

“All the hearings we have had have been very straightforward, supportive for the most part. We continue to see more approvals coming, and it's an extended process state-by-state,” Mr. Bertolini said.

Discussions with the Justice Department regarding divestitures have yet to begin, he said.

“We believe we remain on track to close in the second half of 2016,” Mr. Bertolini said.

For the full 2015 year, Aetna reported net income of $2.39 billion, up 17.1% from 2014. Revenue for the year jumped 4.0% to $60.34 billion.

“We are pleased with our 2015 results, and as we enter 2016 we are focused on two main objectives: delivering on our 2016 operating (earnings per share) projections and executing a successful closing of the Humana acquisition,” Mr. Bertolini said.