Aetna reported higher fourth-quarter profits propelled by revenue from its Coventry Health Care acquisition and is looking to its Medicare and managed care business for growth in 2014.
The Hartford, Conn.-based insurer said in its earnings release Thursday that it realized higher margins for its core commercial premium yield growth and also anticipates a bigger role for private exchanges in 2014.
However, the more high-profile public health insurance exchanges, in which Aetna participates in 17 states, accounts for a very small part of its operations – just 3 percent of its operating revenues and 1 percent of earnings, said Mark Bertolini, Aetna chairman, CEO and president, in an earnings conference call. The insurer expects to lose money on its individual market on the public exchanges, but its effect is "manageable."
"We expect the business to have a negative impact on our earnings, and it's built into our guidance for 2014," he said. Aetna has attracted about 200,000 public exchange enrollments with about 135,000 paid members through the end of January, and it will continue to grow over the remainder of the open enrollment period.
However, it is still too early to know where it will offer plans and at what rates in 2015, Bertolini said.
Even as the insurance exchange websites are operating better, the backend operational accounting for the public exchanges is still not up and running and is being done largely manually.
"Since Aetna has been an alpha tester, we've been exchanging information back and forth and have figured out how to get as clear a set of data from Healthcare.gov that we can. But the 'add, change, delete' functionality still needs to get built on the backend," he said.
"I think that's where the next biggest concern is as we move forward on managing the enrollment on the public exchanges," Bertolini added.
Aetna also expects to expand its efforts to shift from fee-for-service to a value-based network model. The insurer now has 340 agreements, which include 32 accountable care collaborations (ACOs), 112 patient-centered medical homes, 112 Medicare collaborations and 88 high performance networks covered in the Coventry transaction.
"We project that 20 to 25 percent of our medical costs will run through some form of value-based contract in 2014. We are committed to increasing that to 45 percent by 2017," Bertolini said on the call.
In the 2013 fourth-quarter, Aetna reported soaring net income of $368.9 million, or $1 a share, compared to $190.1 million, or 56 cents a share, in the year-ago period, a 79 percent increase. Revenue was $13.1 billion, a 47 percent increase over the $8.9 billion in the fourth quarter in 2012.
For all of 2013, net income was $1.9 billion, or $5.33 a share, compared to $1.6 billion, or $4.81 a share, an 11 percent increase.
Coming into 2014, Aetna had near 22.2 million medical members. "One area of notable growth is in our Medicare Advantage business, which we project will add at least 110,000 new members in the first quarter," he said.
The driving force in the shift toward a retail marketplace is plan sponsor interest in defined contribution models for employee health benefits and that can be achieved most efficiently through private exchanges, Bertolini said.
"In the first quarter of 2014, we project that 90,000 existing ASC (administrative service contract) members will convert to a private exchange model. We project that 130,000 new private exchange members will select an Aetna product," he said.