Leerink Keeps Aetna (AET) at 'Outperform' Amid Limited Market Participation Plans
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The firm commented today,
Specifically, the company will reduce its individual HIX participation from 778 to 242 counties, maintaining on-exchange presence in four states (Delaware, Iowa, Nebraska and Virginia). The company will continue to offer off-exchange individual product for FY17 in most of the counties where it offered similar product in FY16. We expect the reduced presence to offer an earnings tailwind of around $200MM in 2017, which has been contemplated in our 2017 EPS estimate of $8.95. The company cited that the whole industry is experiencing similar problems in the HIX segment with 16 out of 23 co-ops shut down, while major MCOs like UNH (OP) and HUM (OP) have already declared a meaningful HIX exit in FY17.
Aetna is lobbying for a change in the risk adjustment mechanism away from the current zero sum program to a program similar to that for Medicare Advantage that can adequately compensate plans for the adverse selection they are observing and which has meaningfully increased in 2016. We reiterate our Outperform rating on AET at a PT of $135 with a meaningful call option to the upside should the legal defense on the HUM close be successful.
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