So far, 2014 is not looking too shabby for some large insurers. Aetna, the Hartford-based giant, raised its outlook following a record quarter, but that doesn't mean there aren't headwinds.
Aetna posted first quarter net income of $666 million, at $1.82 a share, 36 percent more than first quarter 2013. Revenue hit a "historic high" for the quarter: $13.96 billion (a 47 percent increase over Q1 2013's $9.5 billion) thanks to growth in membership, synergies from the Coventry subsidiary and fairly healthy medical loss ratios.
The company is now increasing its projections for full year operating earnings by at least a dime, from $6.25 to between $6.35 and $6.55.
It's an "encouraging start," said Aetna CEO Mark Bertolini in a conference call, "as we seek to double operating revenues by the end of the decade."
For the full year, the company is projecting operating revenue in the range of $56 billion to $57 billion, up from $54 billion, and at least 23 million lives in medical membership.
Membership and MLR
Aetna's medical membership now stands at 22.7 million, with more than half a million added since December. In the first quarter, the company added 130,000 private exchange members (more than two-thirds of them fully insured), 230,000 public exchange members, 130,000 Medicare Advantage members, 60,000 Medicaid managed care members and 65,000 members from the recently-completed acquisition of expat insurer InterGlobal.
All of those new members, Bertolini said, will add some $3 billion in annual premium revenue, of which $11.9 billion was brought in this past quarter. In September, Aetna will be adding another 415,000 or so self-insured beneficiaries in the Teachers Retirement System of Texas after winning a state contract, the largest membership sale in its history.
Aetna also saw a first quarter medical loss ratio that is both better than some analysts were projecting and improved year-over-year: a 77.2 percent commercial MLR (compared to 78.9 percent in Q1 last year) and an 84.7 percent government program MLR (compared to 88 percent last year).
Those trends could very well change, though, cautioned Shawn Guertin, CFO and chief enterprise risk officer. There is "the ever-present concern that medical cost trends could increase more than we have projected, including but not limited to the potential for higher-than-projected utilization of new hepatitis C treatments" and "current low visibility associated with our public exchange membership," Guertin said.
The company is projecting a full-year commercial MLR at 79 percent to 80 percent a public program MLR at 85 percent to 87 percent.
"Sovaldi is going to be a headwind," Bertolini said, referring to the new, highly successful hepatitis C drug developed by Gilead Sciences that can cost upwards of $70,000 per-patient for a multi-week treatment course.
"We spent about $30 million on Sovaldi in the first quarter, with the majority of that being in commercial and Medicare" and "a very small amount in Medicaid," Guertin said, noting that some of the company's Medicaid plans don't include pharmacy benefits.
"Largely for us in the first quarter, it came in right around what we had built in for the first quarter," Guertin said. "Having said that, there was a delayed ramp on some of our segments...our guidance contemplates that we will have more expense related to this item for the rest of the year."
Commercial pricing
As for the commercial pricing environment -- which in New York, especially its small group market, UnitedHealth Group recently described as unsustainable -- the market "remains rational," Bertolini said.
"The New York dynamic is actually very interesting," he said. "New York is unique, with a couple of other states, where they were guaranteed issue and community rated to begin with, so the effect of ACA rates on that marketplace was a lot smaller than other marketplaces." Guertin added that Aetna's New York's small group membership had an MLR in line with the rest of the country.
Bertolini said, "If there's any irrational pricing, it happened with a few of the co-ops as they went into the exchange. We, in those markets, actually withdrew from those markets as we were asked to meet co-op rating."
For 2015, Aetna has 132 rating areas in 17 states, all of which need to be approved individually. For premium increases, he said, "the range of our rates are very low single digits, to some that will be over double digits."