AP NEWS

Aetna Reports Second-Quarter 2018 Results

August 2, 2018

HARTFORD, Conn.--(BUSINESS WIRE)--Aug 2, 2018--Aetna (NYSE: AET) announced second-quarter 2018 net income (1) of approximately $1.2 billion, or $3.67 per share. Adjusted earnings (2) for second-quarter 2018 were approximately $1.1 billion, or $3.43 per share. Aetna’s performance for the six months ended June 30, 2018 resulted in net income of approximately $2.4 billion, or $7.34 per share, and adjusted earnings of approximately $2.2 billion, or $6.62 per share, for the six months ended June 30, 2018.

“Our solid second quarter results reflect an ongoing commitment to operational excellence and to improving the health and wellbeing of the people we serve,” said Mark T. Bertolini, Aetna chairman and CEO. “Our strategy is focused on placing the consumer at the center of everything we do, and I am pleased with our progress toward building a simpler, more affordable and responsive health care experience for our members.”

“Disciplined pricing and moderate medical cost trend contributed to our strong second quarter results,” said Shawn M. Guertin, Aetna executive vice president and CFO. “Steady business fundamentals, focused execution and healthy cash flow position the company for continued solid performance in the second half of 2018.”

Aetna presents both GAAP and non-GAAP financial measures in this press release to provide investors with additional information. Refer to footnotes (1) through (5) for definitions of non-GAAP financial measures and pages 9 through 11 for reconciliations of the most directly comparable GAAP financial measures to non-GAAP financial measures.

Total Company Results

Net income (1) remained relatively consistent at $1.2 billion for the second quarters of 2018 and 2017. Aetna’s second-quarter 2018 results were favorably impacted by a gain recognized as a result of the sale of Aetna’s domestic group life insurance, group disability insurance and absence management businesses (the “Group Insurance sale”) which occurred during fourth-quarter 2017. The increase was substantially offset by the change in adjusted earnings described below, net realized capital losses in second-quarter 2018 compared to net realized capital gains in second-quarter 2017 and a larger reduction of Aetna’s reserve for anticipated future losses on discontinued products in 2017 compared to 2018. Adjusted earnings (2) remained relatively consistent at $1.1 billion for the second quarters of 2018 and 2017. Aetna’s second-quarter 2018 results were impacted by lower pre-tax adjusted earnings in Aetna’s Health Care segment described below and lower adjusted earnings due to the Group Insurance sale which occurred during fourth-quarter 2017, substantially offset by the favorable impact of the Tax Cuts and Jobs Act of 2017 (the “TCJA”). Total revenue was $15.6 billion for second-quarter 2018 compared with $15.5 billion for second-quarter 2017. Adjusted revenue (3) remained consistent at $15.5 billion for the second quarters of 2018 and 2017. Total revenue and adjusted revenue for second-quarter 2018 reflect higher revenue in Aetna’s Heath Care segment described below, substantially offset by lower revenue as a result the Group Insurance sale which occurred during fourth-quarter 2017. Total revenue for second-quarter 2018 also reflects a gain recognized as a result of the Group Insurance sale. Total company expense ratio was 17.8 percent and 16.4 percent for the second quarters of 2018 and 2017, respectively. The adjusted expense ratio (4) was 17.8 percent and 16.5 percent for the second quarters of 2018 and 2017, respectively. The increase in both ratios for second-quarter 2018 was primarily due to the reinstatement of the health insurer fee (“HIF”) for 2018. After-tax net income margin remained relatively consistent at 7.8 percent for second-quarter 2018 compared with 7.7 percent for second-quarter 2017. The after-tax net income margin for second-quarter 2018 reflects the favorable impact of the TCJA, substantially offset by the decrease in the adjusted pre-tax margin described below. Adjusted pre-tax margin (5) was 10.7 percent and 11.7 percent for the second quarters of 2018 and 2017, respectively. The decrease in the adjusted pre-tax margin for second-quarter 2018 was primarily due to lower favorable development of prior-periods’ health care cost estimates in second-quarter 2018 compared to second-quarter 2017. Total debt to capitalization ratio (6) decreased to 31.9 percent at June 30, 2018 compared with 37.0 percent at December 31, 2017 primarily due to the repayment of $1.0 billion aggregate principal amount of Aetna’s senior notes during second-quarter 2018. Effective tax rate was 27.0 percent for second-quarter 2018 compared with 35.0 percent for second-quarter 2017. The decrease in Aetna’s effective tax rate for second-quarter 2018 was primarily due to the reduced corporate income tax rate specified in the TCJA, partially offset by the reinstatement of the non-deductible HIF for 2018. Operating cash flow excluding large case pensions products as a percentage of net income was 192.8% during the six months ended June 30, 2018. The ratio reflects an advance payment of Medicare premium received in June 2018 related to July 2018. Cash and investments at the parent were approximately $1.7 billion at June 30, 2018. Aetna started the quarter with approximately $2.3 billion;Aetna repaid $1.0 billion aggregate principal amount of its senior notes in the quarter;Net subsidiary dividends to the parent were $717 million in the quarter;Aetna paid a shareholder dividend of $164 million in the quarter; andAfter other sources and uses, Aetna ended the quarter with approximately $1.7 billion of cash and investments at the parent.

Health Care Segment Results

Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:

Income before income taxes (1) of $1.5 billion for second-quarter 2018 compared with $1.7 billion for second-quarter 2017. Pre-tax adjusted earnings (2) were $1.6 billion for second-quarter 2018 compared with $1.8 billion for second-quarter 2017. The decrease in income before income taxes and pre-tax adjusted earnings was primarily due to lower favorable development of prior-periods’ health care cost estimates in Aetna’s Government products in second-quarter 2018 compared to second-quarter 2017, investments in Aetna’s Medicare growth initiatives and a smaller favorable adjustment in second-quarter 2018 compared to second-quarter 2017 of Aetna’s prior year risk adjustment estimates for its individual and small group ACA compliant products. The impact on both income before income taxes and pre-tax adjusted earnings of Aetna’s updated prior year risk adjustment estimates for its individual and small group ACA compliant products, net of offsetting items, was approximately $130 million during second-quarter 2018. Total revenue and adjusted revenue (3) were both $15.4 billion for second-quarter 2018 and both $14.8 billion for second-quarter 2017. The increase in total revenue and adjusted revenue was primarily due to membership growth in Aetna’s Medicare products, the adoption of new accounting guidance related to revenue recognition effective during first-quarter 2018 and the favorable impact of the reinstatement of the HIF for 2018. The increase was partially offset by lower membership in Aetna’s ACA compliant individual and small group products and its Medicaid products. Medical membership at June 30, 2018 decreased slightly compared with March 31, 2018. The decrease primarily reflects decreases in Aetna’s Commercial Insured products largely offset by increases in Aetna’s Commercial ASC and Medicare products. Medical benefit ratios (“MBRs”) for the three and six months ended June 30, 2018 and 2017 were as follows: Aetna’s second-quarter 2018 Commercial MBR decreased compared with second-quarter 2017 primarily due to the reinstatement of the HIF for 2018 and the favorable impact of the adoption of new accounting guidance related to revenue recognition effective during first-quarter 2018. The decrease was partially offset by a smaller favorable adjustment in second-quarter 2018 compared to second-quarter 2017 of Aetna’s prior year risk adjustment estimates for its individual and small group ACA compliant products. Aetna’s second-quarter 2018 Government MBR increased compared with second-quarter 2017 primarily due to lower favorable development of prior-periods’ health care cost estimates in second-quarter 2018 compared to second-quarter 2017 and new Medicare business mix, largely offset by the reinstatement of the HIF for 2018. In second-quarter 2018, Aetna experienced favorable development of prior-periods’ health care cost estimates in its Commercial, Medicaid and Medicare products, primarily attributable to first-quarter 2018 performance. Prior years’ health care costs payable estimates developed favorably by $548 million and $750 million during the first six months of 2018 and 2017, respectively. This development is reported on a basis consistent with the prior years’ development reported in the health care costs payable table in Aetna’s annual audited financial statements, and does not directly correspond to an increase in 2018 operating results. Days claims payable (6) was 49 days at June 30, 2018, a sequential decrease of 1 day compared to March 31, 2018 and a decrease of 5 days compared with June 30, 2017. The year over year decrease was driven primarily by changes in business mix.

Given the pending transaction with CVS Health, Aetna is not hosting a conference call in conjunction with its second-quarter 2018 earnings release and does not expect to do so for future quarters. Please direct any questions regarding this press release to Aetna Investor Relations or Aetna Communications.

About Aetna Aetna is one of the nation’s leading diversified health care benefits companies, serving an estimated 38.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, and medical management capabilities, Medicaid health care management services, workers’ compensation administrative services and health information technology products and services. Aetna’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates. For more information, see www.aetna.com and learn about how Aetna is helping to build a healthier world. @AetnaNews

This article has been truncated. You can see the rest of this article by visiting http://www.businesswire.com/news/home/20180802005340/en.

AP RADIO
Update hourly