Merger Impacts, Medicaid Growth Drove 2017 Earnings for Payers
Fallout from a failed merger limited Aetna’s 2017 earnings, while other payers were able to profit by leveraging business opportunities in the Medicaid and Medicare segment.
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By - Aetna experienced a 4 percent drop in year-to-year earnings because of fallout from its proposed Humana merger, while other payers increased revenues by taking advantage of growing Medicaid, Medicare, and ACA-compliant business opportunities.
Based on fourth quarter earnings reports, traditionally strong health plan markets including the commercial segment and Medicare Advantage helped large payers like Aetna and Cigna earn significant revenues.
Notably, payers like Centene and WellCare, which focus on providing government-sponsored plans, reported high revenue increases by expanding membership of high-risk Medicaid and Medicare beneficiaries, ACA-compliant health plans, and managed Medicaid contracts.
The end of 2017 highlighted how payers can financially benefit in either the commercial and public insurance market by achieving many of their business goals.
Aetna revenue drops, but outlook remains strong due to proposed CVS acquisition
Aetna’s net income fell to $1.9 billion in 2017 from $2.3 billion in 2016. The payer cited the termination of its proposed merger with Humana as a major cause for the dip. The payer was required to pay Humana a $1 billion termination fee after a federal judge struck down the deal.
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“The decrease in net income during the full-year 2017 was primarily due to costs associated with the termination of the Humana Merger Agreement during first-quarter 2017, partially offset by the increase in adjusted earnings,” the payer said in its earnings statement.
Aetna’s fourth quarter revenues also fell by 6 percent from 2016 to 2017, driving total year-to-year downward from $63 billion to $60.5 billion. Aetna’s revenues fell because of lower premiums within its Aetna Health Care segment, lower membership in ACA-compliant individual and small group plans, and suspension of the ACA excise tax.
“The sale of Aetna’s domestic group life insurance, group disability insurance, and absence management businesses (the “Group Insurance sale”) on November 1, 2017 also contributed to fourth-quarter and full-year 2017 decreases in total revenue and adjusted revenue.” leaders said.
Aetna continued to excel in commercial business segments and government segments, which offset revenue decreases within other product lines. Aetna also reduced its operational expenses, which improved the company’s outlook for next year.
“Aetna’s strong 2017 results demonstrate the power and versatility of our core businesses,” said Aetna Chairman and CEO Mark T. Bertolini.
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“As we progress toward completing our pending transaction with CVS Health, we remain focused on serving our members and delivering on our strategic and financial objectives. We are confident that the combined entity will deliver a better health care experience by improving access to affordable health care and coordination of health services in communities across the country.”
Cigna revenues grew by 5 percent; 8 percent growth expected for 2018
Cigna’s total revenues for 2017 increased by 5 percent to a total of $41.6 billion, primarily driven by growth in targeted customer segments.
The company cited growth in healthcare, supplemental benefits, and group disability and life insurance segments as the primary factors in revenue growth.
Cigna heavily relied on the strong performance of commercial health enrollment to grow year-to-year revenues.
Commercial plan enrollment rose from 14.6 million in 2016 to 15.4 million customers in 2017.Government-sponsored plan enrollment fell from 566,000 in 2016 to 487,000 in 2017. Cigna excelled in the commercial market to drive total company premium revenues by 7 percent and offset lower enrollment in government segments.
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The payer expects to continue its success into 2018 because of improved operating ratios in its commercial and government business sectors.
“Cigna's exceptionally strong 2017 performance reflects our team’s dedication to delivering innovative solutions aligned to the evolving needs of our customers and clients around the world,” said David M. Cordani, President and CEO.
“We’ve entered 2018 with considerable momentum for growth in each of our businesses, as we continue to invest in market-leading capabilities to create differentiated value for our stakeholders.”
Centene increased Medicaid business opportunities, grew revenues by 19 percent
Centene increased 2017 revenues by $8.2 billion to a total of $48.4 billion, citing significant growth in various Medicaid business sectors.
The payer was able to drive considerable revenue increases even as it grew high-risk membership, indicating an ability to remain profitable in traditionally non-profitable markets.
In 2017, Centene added 765,000 members to its managed Medicaid plans. Centene subsidiaries won statewide managed Medicaid contracts in Illinois, New Mexico, and Pennsylvania.
Centene additionally attributed success to expansions into the Health Insurance Marketplace in Kansas, Missouri and Nevada, while expanding existing Marketplace offerings.
The company expects the gains from the end of 2017 to translate into continued growth for 2018, said Michael F. Neidorff, Centene Chairman and CEO.
“The strong fourth quarter and full year results for 2017 provide positive momentum heading into 2018 as we continue to focus on revenue growth and margin expansion,” Neidorff said.
WellCare increases Medicaid and Medicare revenues by 12.9 percent and 37.2 percent respectively
WellCare total premium revenues increased by 19 percent, from $14.2 billion in 2016 to 16.9 billion in 2017.
The company attributed a large part of its success to receiving two new managed Medicaid contracts, Medicaid growth in various states, and the company’s acquisition of Universal American which contributed to organic growth in Medicare enrollment.
Medicaid plan premium revenue reached $10.7 billion for 2017, an increase of 12.9 percent over 2016 levels. Medicare plan premium revenue reached $5.3 billion for 2017 and increased by 37.2 percent from 2016 revenues.
Ken Burdick, WellCare’s CEO, said the company is predicting similar growth in these product segments for 2018.
"2017 was a very strong year for WellCare, and our performance demonstrates the continued progress we are making toward achieving our multi-year strategic plan," Burdick said. "As we enter 2018, we are well-positioned to continue to grow and deliver value to our stakeholders."
