Aetna 1Q15 Earnings Call Notes

21% EPS increase

This morning, Aetna reported record first quarter operating earnings of $2.39 a share, a 21% increase from last year’s very strong first quarter. Our first quarter performance speaks to Aetna’s focus on operating fundamentals and the continued execution of our growth strategy.”

Expanding margins thanks to moderate cost trends

The combination of this membership growth and strong yields from disciplined pricing actions drove solid topline growth as quarterly operating revenue reached $15.1 billion. Medical cost trends remain moderate and we experienced a healthy level of reserve development in the quarter and we now project that pretax operating margins will expand in 2015, despite an increasing mix of lower margin government sponsored business.”

Raising EPS projection

With this strong start to 2015, today we’re increasing our operating EPS projection to $7.20 to $7.40 per share from our previous projection of at least $7. At the top end of the range Aetna would achieve its low double-digit operating EPS growth call in 2015.”

Medicare advantage funding will increase in 2016 for the first time in several years

“For the first time in several years federal funding for this program will increase in 2016, which we expect will help us to further improve the value we offer to seniors as well as our returns to shareholders.”

90% of public exchange membership is subsidized by the government

“The demographic profile of Aetna’s public exchange membership remains generally consistent with last year. While the average age of our membership has declined modestly, the vast majority remains in silver and bronze plans and nearly 90% of our members receive a subsidy from the federal government, consistent with national averages.”

Optimistic that exchanges could develop into a growth opportunity

“We remain cautiously optimistic on the potential for the public exchanges to develop into an attractive growth opportunity where we can continue to offer value to customers and generate a reasonable return for our shareholders.”

We anticipated that cost trends would increase this year, but they haven’t

“I would say that there is really two things, obviously the preferred drug pricing contract is part of that movement. And as you know we anticipated that we would see a trend increase this year, utilization increase. We really did not see that, trend was very moderate in the first quarter.

So those are really the two items when we think about 2015 trend that are bringing that down.

Under the covers looking at it by category, there really hasn’t been anything I would say that is fundamentally changed in the story. Outpatient, emergency department usage continues to be one area that’s running.

Specialty Pharma continues to be part of the story, but there is really nothing that I would say is very different or extraordinary in the other categories compared to what we talked about over the last couple of quarters.”