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Aetna raises forecast as government plans expand

(Reuters) – Health insurer Aetna Inc raised its full-year operating earnings forecast for the fourth time this year on strong performance in its government business and said underlying operating earnings would increase in 2016.

Aetna, whose shares rose 4 percent in early trading, said it expects 2016 operating earnings per share to rise at low double-digit rates from a baseline of $7 on membership growth in its Medicare and Medicaid plans.

The baseline does not presume any prior year’s reserve development, the company said.

Insurers have been benefiting from the expansion of Medicaid, a federal health insurance program for lower-income people that is administered by the states.

J.P. Morgan analyst Gary P Taylor noted that Aetna struck a more bullish tone than rival Anthem Inc, which reported results on Wednesday.

Aetna said on Thursday it was not making money this year from its individual business that sells government-subsidized plans on exchanges created under the Affordable Care Act (ACA), but said profitability could improve in the business next year.

“We think it’s way too early to call it quits on the ACA and on the exchanges … we view it still as a big opportunity,” Aetna Chief Executive Mark Bertolini said on a conference call with analysts.

Aetna said it added 815,000 members through the Obamacare exchanges and 280,000 off it in the third quarter ended Sept. 30.

UnitedHealth Group Inc and Anthem had said their Obamacare insurance businesses was being hampered by lower-than-anticipated enrollment.

Aetna, which is in the process of buying rival Humana Inc , raised its 2015 operating earnings to $7.45-$7.55 per share from its previous estimate of at least $7.40.

Leerink Partners analyst Ana Gupte said the 2016 forecast looked achievable and that she expected margins in the Obamacare business to improve next year.

Net earnings fell 5 percent to $560.1 million, or $1.59 per share, in the third quarter.

On an adjusted basis, the company earned $1.90 per share, above the average analyst estimate of $1.77 per share, according to Thomson Reuters I/B/E/S.

Spending on medical claims as a percentage of premiums improved to 81.1 percent from 82.3 percent a year earlier.

Total revenue rose to $14.95 billion from $14.73 billion, helped by higher premium yields.

The company’s shares rose 4.4 percent to $116.07 on the New York Stock Exchange. (Reporting by Amrutha Penumudi in Bengaluru; Editing by Don Sebastian)

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