Aetna reported a 3% increase in total revenue over the previous year to $15.5 billion in the third quarter and a 19% increase in net income to $1 billion in an earnings release Tuesday.
The payer's healthcare segment, which includes medical, pharmacy, dental and behavioral health products and services, reported $1.4 billion pre-tax adjusted income, which improved on $1.3 billion for Q3 2017. The segment's total revenue was $15.3 billion, which was a $1 billion gain over last year.
Total medical membership for the quarter decreased to 22.1 million members compared to 22.2 million last year, though the company saw a slight increase compared to Q2. Aetna also increased its commercial administrative services contract (ASC) plans, and Medicare and Medicaid offerings, while experiencing a drop in its commercial membership over the past year.
For the second consecutive quarter, Aetna didn't hold an earnings conference call because of its pending transaction with CVS Health, which is expected to close by the end of this year after the Department of Justice declined to challenge the deal.
In prepared statements provided in connection to the earnings release, CEO Mark Bertolini and Shawn Guertin, Aetna's executive vice president and CFO, promoted the pending sale. Bertolini said the acquisition will "drive the next phase of Aetna's growth and accelerate our opportunity to help transform the healthcare system."
Aetna said adjusted earnings and the sale of its group insurance business last year drove net income gain. That sale included its domestic group life insurance, group disability insurance and absence management businesses. The company's revenue jump came from higher revenue in the healthcare segment. Gains were partially offset by lower revenue in group insurance.
Aetna said the pre-tax adjusted earnings increase for the healthcare segment came from its Medicare offerings and reinstatement of the health insurance fee for 2018. Those improvements were partially offset by an arbitration ruling and drops in its government business. The unfavorable arbitration ruling dealt with Aetna leaving the Affordable Care Act exchanges. The payer estimated a $130 million pre-tax impact.
The healthcare segment's revenue increase came from Medicare membership growth, different accounting guidance and the insurance fee. However, the company saw headwinds from fewer members in the ACA plans and Medicaid.
Aetna's medical benefit ratio, also known as medical loss ratio, decreased 0.4 percentage points to 81.5% in the quarter and 1.1 percentage points for the year to 80.4%. Those improved MBRs were connected to its government business. Commercial saw a 3.2 percentage point increase in MBR, which means more premium dollars went to provide coverage. Aetna said the arbitration ruling and seasonality of medical costs were mostly to blame.
Meanwhile, Aetna's membership losses over the past year have come mostly from its commercial business. Echoing a trend in Q2, Aetna is seeing more commercial clients moving from insured to ASC plans. During the second-quarter earnings season, both Humana and Aetna reported that businesses, especially small companies, are increasingly transitioning to contracts for administrative duties only.
That trend was evident again in Aetna's Q3 results. The payer lost about 600,000 members in insured plans since last year but picked up close to 400,000 in ASC plans. The company finished Q3 with 3.9 million insured members and nearly 13.9 million ASC plans for a total of slightly fewer than 18 million members.
Medicare Advantage continues to grow for Aetna, which finished the quarter with 1.75 million members, an increase from about 1.5 million members a year ago. It also expanded its Medicare supplemental membership but saw a drop in Medicaid members from 1.3 million in 2017 to 1.1 million this year.
Its pharmacy benefit management business additionally dropped from about 13.7 million members a year ago to 13.1 million this year. That loss came from its commercial business. Medicare Part D and MA prescription drug plans both increased in the quarter compared to last year.