Yahoo Finance Aetna Expects Medical Benefit Ratio to Remain Stable in 4Q15
Aetna's 4Q15 Results Are Coming Up: Will It Beat the Estimates?
Medical benefit ratio
For full year 2015, Aetna (AET) has projected a medical benefit ratio of approximately 81%, plus or minus 0.3%. This translates into Aetna’s medical benefit ratio being about 81.1% in 4Q15, similar to the ratio in 3Q15.
In 3Q15, Aetna’s medical benefit ratio, also called medical care ratio or medical cost ratio, declined by 1.2% on year-over-year (or YoY) basis. It reached 81.1%, mainly due to effective pricing, favorable development of prior year reserves, and controlled medical costs.
Operating expense ratio is also projected to be about 19% for 2015 due to lower revenues and higher investment spending. To know more about the medical benefit ratio, please refer to How Does Aetna Compare to Its Peers in Medical Care Ratio?
The above graph shows that Aetna’s medical benefit ratio initially rose from 82.3% in 3Q14 to 83% in 4Q14. Then it suddenly dropped to 79.1% in 1Q15. The ratio has been stable at 81.1% in 2Q15 and 3Q15. In 3Q15, peers such as Humana (HUM), Cigna (CI), and UnitedHealth Group (UNH) had medical benefit ratios of about 83.9%, 81.0%, and 80.9%, respectively.
If the acquisition of Humana goes through, Aetna could witness a rise in its medical benefit ratio. Medical costs associated with government programs, or Medicare and Medicaid, are generally higher than those related to the commercial segment.
Commercial medical benefit ratio
Aetna has projected that the company’s commercial medical cost trend will be about 6%. To know more about medical cost trend, please refer to Medical cost trend means rising premiums for health insurance.
Aetna’s commercial medical benefit ratio was around 80.7% in 3Q15 due to controlled medical costs and strong growth in the group commercial business. The ratio suffered, partly due to unfavorable changes introduced in the 3R accrual program for the Affordable Care Act (or ACA) compliant exchange business. To know more about Aetna’s participation in the 3R program, please refer to How Has Aetna Implemented the Premium Stabilization Program?
Government program medical benefit ratio
Aetna’s government medical benefit ratio has improved gradually, reaching 81.6% in 3Q15. That’s a YoY improvement of 2.4%, mainly due to strong revenue growth in the company’s Medicare business.
You can get exposure to Aetna through the iShares Russell 1000 Value ETF (IWD). Aetna accounts for 0.31% of IWD’s total holdings.
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