Shares of Aetna are rallying 2.8% to $109.92 in early market trading on Tuesday, after the health care plan company reported first quarter earnings.  Aetna reported earnings per share of $2.39 on revenue of $15.09 billion.  Analysts polled were looking for earnings per share of $1.95 on revenue of $15.46 billion.  Revenue showed growth of 8% year over year, but still came in under analysts’ expectations.

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Management raises full year 2015 EPS target

After reporting decent earnings, management revised their full year 2015 earnings per share target to the upside.  Aetna’s management now expects to earn $7.20 and $7.40 per share, up from the previous estimate of $7 a share.  Analysts maintain their full year earnings per share estimates at $7.19 per share.  The main driver for Aetna has been the company’s government health insurance business, thanks to Affordable Care Act.  Aetna’s enrollment for medical insurance rose to 23.7 million, up from 22.7 million during the first quarter last year. Aetna said Medicaid plans saw growth of 6.1% to 2.1 million during the first quarter and Medicare Advantage plans saw growth of 11.5% to 1.23 million plans.

Aetna and rivals still worried about rising costs of health care

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While Aetna saw healthy new enrollment growth during the first quarter, there is still an underlying worry about rising health care costs.  Pharmaceutical companies continue to find ways to raise prices on blockbuster drugs such as Gilead Sciences’ new hepatitis C drugs Harvoni and Sovaldi.  With that said, Aetna was able to strike a deal with Gilead, which gives Aetna more favorable pricing on important drugs such as the hepatitis C drugs.  Aetna was able to lower its total medical benefit ratio (amount from medical premiums that are used to pay medical bills) to 79.1% from 80.4% during the first quarter last year.

Overall, Aetna continues to benefit greatly from the Affordable Care Act and the “mandatory” enrollment for health insurance.  While overall health care costs remain an issue for Aetna and its rivals, the company’s deal with Gilead for lower drug pricing and lower total medical benefits ratio certainly shows that Aetna is doing what it can to attempt to keep costs in check, for now. Aetna and the rest of the health care industry will now continue to wait to hear from the Supreme Court and its anticipated landmark ruling on the Affordable Care Act to determine where the future will take them.

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