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Aetna (AET) Calls it Quits on Unsustainable Public Exchanges
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In the wake of continued loss incurred by its public exchange business, health insurer Aetna Inc. has announced to pull back its presence in all the remaining states where it is operates now.
The company will now make an exit from the public exchanges in the states of Delaware and Nebraska. Last month, the company called it quits on Iowa and Virginia. With the exits, the company will now be virtually absent from the public exchange business.
Losses to the tune of $700 million from 2014–2016 from the public exchange business drained the company’s bottomline. Despite having curbed its exposure, the company still anticipates a loss of $200 million in 2017.
These losses and other headwinds such as merger led uncertainty have led shares to gain 31.7% over the past one year. However, this compares favorably with the Zacks categorized Medical - HMOs industry which has gained 34.4%.
Aetna joins other players, with UnitedHealth Group Inc. (UNH - Free Report) being the frontrunners, in folding up the public exchange business. It was the first health insurer in the industry to cut its exposure to the painful public exchange business. It was present in only three states in 2017, down substantially from 34 states last year. Other insurers like Humana Inc. (HUM - Free Report) and Anthem Inc. are also cautious of this business.
Individual/Public Exchange, a signature achievement of Obamacare was created to provide insurance to individuals and offer subsidies based on income levels. Insurers were hopeful of making gains out of the provision that was anticipated to provide steep membership growth between 2015 and 2019. But it did not turn out as expected. Soon the public exchange business started losing sheen as it attracted a greater number of old and sick population in comparison with the young and healthy ones, which increased the overall risk profile of the members insured on public exchanges. It therefore led to higher-than-expected claim cost and consequent losses.
Public exchanges are now detested all the more as this provision has come under the critical eye of Donald Trump, who via his repeal and replace plans has created significant uncertainty related to its future. The GOP's plan calls for the elimination of Obamacare subsidies, which are refundable tax credits based on a person's income and cost of coverage in their area. The subsidies made it easy to buy insurance on exchanges. The scrapping of these subsidies will drive them away from the exchanges.
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Aetna (AET) Calls it Quits on Unsustainable Public Exchanges
In the wake of continued loss incurred by its public exchange business, health insurer Aetna Inc. has announced to pull back its presence in all the remaining states where it is operates now.
The company will now make an exit from the public exchanges in the states of Delaware and Nebraska. Last month, the company called it quits on Iowa and Virginia. With the exits, the company will now be virtually absent from the public exchange business.
Losses to the tune of $700 million from 2014–2016 from the public exchange business drained the company’s bottomline. Despite having curbed its exposure, the company still anticipates a loss of $200 million in 2017.
These losses and other headwinds such as merger led uncertainty have led shares to gain 31.7% over the past one year. However, this compares favorably with the Zacks categorized Medical - HMOs industry which has gained 34.4%.
Aetna joins other players, with UnitedHealth Group Inc. (UNH - Free Report) being the frontrunners, in folding up the public exchange business. It was the first health insurer in the industry to cut its exposure to the painful public exchange business. It was present in only three states in 2017, down substantially from 34 states last year. Other insurers like Humana Inc. (HUM - Free Report) and Anthem Inc. are also cautious of this business.
Individual/Public Exchange, a signature achievement of Obamacare was created to provide insurance to individuals and offer subsidies based on income levels. Insurers were hopeful of making gains out of the provision that was anticipated to provide steep membership growth between 2015 and 2019. But it did not turn out as expected. Soon the public exchange business started losing sheen as it attracted a greater number of old and sick population in comparison with the young and healthy ones, which increased the overall risk profile of the members insured on public exchanges. It therefore led to higher-than-expected claim cost and consequent losses.
Public exchanges are now detested all the more as this provision has come under the critical eye of Donald Trump, who via his repeal and replace plans has created significant uncertainty related to its future. The GOP's plan calls for the elimination of Obamacare subsidies, which are refundable tax credits based on a person's income and cost of coverage in their area. The subsidies made it easy to buy insurance on exchanges. The scrapping of these subsidies will drive them away from the exchanges.
Aetna carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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 >>