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Aetna CEO Calls Pulling out of ACA Exchanges 'Good Business'

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Aetna Inc. recently came under fire for having allegedly pulled out of Affordable Care Act (ACA) exchanges in 11 states, including the areas covered by the Justice Department lawsuit, in a bid to avoid antitrust claims.

However, Mark T. Bertolini, the Chief Executive Officer of Aetna, discarded such claims and referred to the move as “just good business.”  He pointed out the mounting losses incurred by the particular business and claimed that the pullback was for reasons associated with business and not litigation.

Bertolini explained that a total loss of $430 million had been incurred by individual policies unit since the ACA exchanges had opened in Jan 2014. This led the company to halt its exchange expansion plans for 2017 and review its participation in President Obama's signature health reform program

Allegations Against the Merger Deal and Aetna’s Defense

On Jul 21, 2016, the U.S Justice Department sued Aetna’s pending acquisition of Humana Inc. (HUM - Free Report) and the companies’ decision to sell $117 million of assets in Medicare Advantage business to California-based Molina Healthcare Inc. (MOH - Free Report) . The Justice Department opposed the merger on the ground that the deal will pass the control of the multi-trillion dollar health insurance industry to three insurance behemoths, in turn, severely restricting competition in key markets.

The Justice Department further stated that Aetna’s move was likely to result in higher expenses for seniors and disabled people under the standard Medicare plans as well as people registered under the individual insurance program created under the Affordable Care Act (ACA), popularly known as ObamaCare. Along with the Aetna-Humana merger, the Justice Department sued the merger between Anthem Inc. and Cigna Corp. (CI - Free Report) on similar grounds.

In its defense, Aetna said that Medicare Advantage has the potential to compete with the government’s traditional Medicare program for elderly or disabled patients. The company also argued that merger is unlikely to have any impact on the competitive landscape of the Health insurance market. We note that Aetna disclosed its plan to stop offering policies on the exchanges in 11 of the 15 states where it had operations soon after the Justice Department filed the aforesaid lawsuit.

However, the Justice Department alleges that this move of Aetna was litigation-driven and not just for the sake of business growth. The Justice Department lawyers have already produced evidences that clearly indicate that both the health insurance giants – Aetna and Humana – are just shoving their underperforming business to Molina, which lacks the manpower and the capability to take on the weak Medicare Advantage assets. The Justice Department has sued the companies demanding an explanation for the same.

Share price Movement

Despite the above-mentioned litigations, shares of Aetna have been trading pretty well. Over this time frame, the stock has gained 8.66%, a tad higher than the Zacks-categorized Health Maintenance Organization industry’s increase of 8.37%.

This price movement reflects shareholders’ confidence on the stock as a result of the company’s consistent approach to enhance investors’ value and remain focused on the changing needs of its customers. We expect Aetna to overcome these regulatory hurdles soon and get back to its patient-centric operations.

PRICE CHART SINCE JUL 21, 2016

Zacks Rank

Aetna presently holds rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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