We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Aetna (AET) Hurt by Exchange Business, High Medical Costs
Read MoreHide Full Article
Shares of health insurer Aetna Inc. underperformed over the past one year. While the stock returned 17.7%, the Zacks categorized Medical - Health Maintenance Organization industry gained 24.3%.
The underperformance is likely to have resulted from a number of issues bothering the company of late. Its merger with Humana Inc. (HUM - Free Report) was ripped apart recently on regulatory concerns. The deal would have positioned Aetna as a major Medicare provider – a market coveted by all other players in the industry.
Aetna has been troubled by its public exchange business. After incurring loss on public exchanges in 2015, Aetna bore a pre-tax operating losses of $450 in 2016. Lackluster results from this line of business prompted the company to substantially reduce its risk exposure to these products for 2017. Based on its current view of open enrollment, the company projects that its first-quarter Individual Commercial membership will decline to 240,000 from approximately 965,000 at year-end 2016. The company also projects losses on its Individual Commercial ACA-compliant products in 2017.
Aetna’s membership has also been under pressure. The company ended 2016 with medical membership of 23.1 million, down from 23.49 million in 2015. It is witnessing continued pressure in membership growth in the middle market and small group businesses due to its previous pricing actions to improve margins. The company expects 22.2 to 22.3 million medical members in the first quarter of 2017.
Aetna is also facedwith an increase in medical benefit ratio (MBR), which measures medical cost as a percentage of premium revenues. Total MBR for full-year 2016 was 81.8%, up from 80.8% in 2015. The increase was driven by an unfavorable performance in individual Commercial products and lower favorable development of prior-period healthcare cost estimates for Government business. The company projects full-year 2017 total Health Care Medical Benefit Ratio in the range of 84% to 85%, representing an increase of 270 basis points year over year at the midpoint of the range.
Despite these challenges, we believe the company will achieve long-term growth on the back of its strongly performing government business, cost control measures, growing accountable care organization initiative, expanding international markets and a strong capital position.
Aetna carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the medical space are UnitedHealth Group, Inc. (UNH - Free Report) and Inogen Inc. (INGN - Free Report) . While Inogen sports a Zacks Rank #1 (Strong Buy), UnitedHealth holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen beat earnings estimates in three of the last four quarters with an average positive surprise of 49.08%.
UnitedHealth beat earnings estimates in each of the last four quarters with an average positive surprise of 3.80%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Aetna (AET) Hurt by Exchange Business, High Medical Costs
Shares of health insurer Aetna Inc. underperformed over the past one year. While the stock returned 17.7%, the Zacks categorized Medical - Health Maintenance Organization industry gained 24.3%.
The underperformance is likely to have resulted from a number of issues bothering the company of late. Its merger with Humana Inc. (HUM - Free Report) was ripped apart recently on regulatory concerns. The deal would have positioned Aetna as a major Medicare provider – a market coveted by all other players in the industry.
Aetna has been troubled by its public exchange business. After incurring loss on public exchanges in 2015, Aetna bore a pre-tax operating losses of $450 in 2016. Lackluster results from this line of business prompted the company to substantially reduce its risk exposure to these products for 2017. Based on its current view of open enrollment, the company projects that its first-quarter Individual Commercial membership will decline to 240,000 from approximately 965,000 at year-end 2016. The company also projects losses on its Individual Commercial ACA-compliant products in 2017.
Aetna’s membership has also been under pressure. The company ended 2016 with medical membership of 23.1 million, down from 23.49 million in 2015. It is witnessing continued pressure in membership growth in the middle market and small group businesses due to its previous pricing actions to improve margins. The company expects 22.2 to 22.3 million medical members in the first quarter of 2017.
Aetna is also facedwith an increase in medical benefit ratio (MBR), which measures medical cost as a percentage of premium revenues. Total MBR for full-year 2016 was 81.8%, up from 80.8% in 2015. The increase was driven by an unfavorable performance in individual Commercial products and lower favorable development of prior-period healthcare cost estimates for Government business. The company projects full-year 2017 total Health Care Medical Benefit Ratio in the range of 84% to 85%, representing an increase of 270 basis points year over year at the midpoint of the range.
Despite these challenges, we believe the company will achieve long-term growth on the back of its strongly performing government business, cost control measures, growing accountable care organization initiative, expanding international markets and a strong capital position.
Aetna carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the medical space are UnitedHealth Group, Inc. (UNH - Free Report) and Inogen Inc. (INGN - Free Report) . While Inogen sports a Zacks Rank #1 (Strong Buy), UnitedHealth holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen beat earnings estimates in three of the last four quarters with an average positive surprise of 49.08%.
UnitedHealth beat earnings estimates in each of the last four quarters with an average positive surprise of 3.80%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>