If the "big five" U.S. health insurers' fourth-quarter earnings reports made one fact clear, it's that the profitability of their Affordable Care Act exchange products continues to be an issue.
The major insurers' third-quarter earnings reports had detailed individual market woes, but their Q4 and full-year 2015 results spoke of deepening losses, even as other business lines did well.
Here's some of the highlights:
UnitedHealth, which made headlines late last year when it adjusted its 2015 earnings outlook to account for worsening individual market losses, reported in January that it lost $720 million on its ACA-compliant plans in 2015, and $245 million in Q4 alone. President and Chief Financial Officer David Wichmann said in an earnings call that the insurer will decide mid-year whether it will participate in the ACA marketplace in 2017, and said it has taken other steps to reduce its exposure, such as dropping platinum plans and ending commissions for the sale of exchange plans. Its subsidiary, Optum, however, continues to thrive, as its revenue grew 42 percent in 2015. Overall, the company's 2015 revenues of $157.1 billion grew 20 percent year-over-year.
Anthem's net income fell 64 percent between Q3 and Q4, from $506.7 million to $180.9 million. CEO Joseph Swedish cited lower-than-expected earnings on the insurer's individual market plans as the primary reason for that shortfall, saying those losses were driven by unsustainable pricing in some markets. He said he was pleased, however, with the federal government's moves to address some insurer concerns with ACA marketplace regulations, adding, "you can be assured we are contributing to the dialog to form a long-term, sustainable and affordable marketplace." Anthem's government business, though, experienced an increased operating gain of $62.9 million--or 17.7 percent--in the fourth quarter compared to 2014.
Aetna's net income rose 38 percent in the fourth quarter of 2015 compared to in 2014, coming out at $320.9 million, or $0.91 per share. Its net income for all of 2015 was $2.4 billion, up from $2 billion in 2014--primarily due to the favorable performance of its Medicare and Medicaid business lines. Yet its individual market business "remained unprofitable in 2015," CEO Mark Bertolini said an a call with investors, adding that "we have serious concerns about the sustainability of the public exchanges." He cited issues with special enrollment periods (SEP), the predictability and transparency of the risk-adjustment program and newly proposed federal regulations on network adequacy and the standardization of benefits.
Humana reported that its net income dipped to $101 million, or $0.67 per share in the fourth quarter, down from $145 million, or $0.94 per share, from the same quarter in 2014. But its full-year earnings rose 11.2 percent from 2014 to 2015. The insurer said the benefit ratios associated with its individual commercial policies "significantly exceeded its pricing expectations," primarily due to SEP exemptions and "government‐mandated product designs that attract higher‐utilizing members." As a result, Humana recorded a premium deficiency reserve totaling $176 million for the fourth quarter to cover its anticipated losses and said it will continue to evaluate its participation in the individual commercial business for 2017.
Cigna's net income for the fourth quarter of 2015 was $426 million, or $1.64 per share, compared with $467 million, or $1.77 per share, for the fourth quarter of 2014, in part due to transaction costs related to its pending merger with Anthem. However, its Q4 adjusted income from operations rose to $486 million, or $1.87 per share, up from $475 million, $1.80 per share, at the same time in 2014. In its earnings report, the insurer noted "strong contributions from our commercial employer and specialty businesses, as well as unfavorable medical costs in our individual and government businesses." Cigna also is dealing with sanctions from the Centers for Medicare & Medicaid Services that prevent it from selling or marketing new Medicare products.
Q3: Big five insurers post positive results, but struggle on exchanges
UnitedHealth loses $720M on exchange plans in 2015
Individual market struggles drag down Anthem's Q4 earnings
Aetna reports rise in fourth-quarter profits
Humana records premium reserve of $176M due to ACA losses
Cigna's income from operations rises in Q4