Aetna (NYSE: AET) just demonstrated why Americans hate health insurance companies. The company revealed that it paid its CEO $18.7 million in 2015 on the day after it pulled out of its Obamacare marketplace in Iowa.
Aetna told regulators that it will stop selling policies through Iowa’s Obamacare exchange on April 6, The Des Moines Register reported. That means only one insurer; a Minnesota company called Medica, is participating in the exchanges in most Iowa counties. It also means that Iowans who are currently covered through Aetna and Obamacare will lose their health insurance.
What’s even worse is that the Medica might pull out of Iowa, leaving residents of the state with no options on the exchange, The Register reported. The biggest health insurer in Iowa, Wellmark Blue Cross & Blue Shield, announced that will leave the exchanges on April 3, 2016.
On April 7, Aetna filed documents that indicated its CEO Mark Bertolini received $18.7 million in compensation in 2016 with the Securities and Exchange Commission (SEC), Modern Healthcare reported. That means Bertolini got a $1.4 million raise, because his pay for 2015 was $17.3 million.
Bertolini received a salary of $1.1 million, a bonus of $1.7 million, stock awards worth $6.5 million and options worth $8.7 million, according to Modern Healthcare. Berolini’s pay was increased because of improved financial performance, a press release claims.
Does Aetna Make Money?
Skeptical investors will want to know Bertolini is really earning his extra. They will find their in Aetna’s financial report which tells a different story than the press release.
There are some questionable numbers in the December 31, earnings report including a profit margin of .88% and a free cash flow of -$975.1 million for fourth quarter 2016. There were also some pretty good numbers that show Aetna is still a cash rich company.
Aetna did make a lot of money at the end of 2016 in the form of:
- $69.19 billion in assets.
- $63.15 billion in revenues.
- $2.26 billion in net income.
- $22.05 billion in cash and short term investments.
- $12.14 billion in cash from financing.
- $3.719 billion in cash from operations.
Aetna did make some money in 2016, but did Bertolini earn his money by helping the company grow? Well revenues did increase by $2.75 billion in 2016, rising from $60.34 billion to $63.15 billion. Yet net income fell from $2.39 billion in December 2015 to $2.26 billion in December 2016. That indicates the pullout from Obamacare is a smart financial move, even if it is lousy publications.
Is Aetna a Value Investment?
Not surprisingly a lot of value investors will be looking at Aetna because of the cash. They would be right to do so because Aetna has some value attributes including a lot of float.
Its stock also makes money for investors, they received a 13.02% return on equity on December 31, 2016. Aetna also paid a 25¢ a share dividend on January 10, 2017. Yet that dividend has not increased since January 2015, which means it has been flat for two years, so since this is not necessarily a good dividend stock.
Yes, folks Aetna is a value investment if you can you are okay with its Obamacare pull out and high CEO salary. Persons who are bothered by those questionable practices should certainly look elsewhere.
Does Push for Medicare for All Threaten Health Insurance Companies?
There’s a growing political movement that might be either a threat or an opportunity for Aetna out there.
It is the push for Medicare for All that has attracted such diverse supporters; as alt-right activist Mike Cernovich and self-proclaimed socialist and U.S. Senator Bernie Sanders (I-Vermont), Marketwatch political columnist Darrell Delamaide noted. Rallies for Medicare for all were held around the country by Physicians for a National Health Program (PNHP) on April 8.
Investors need to pay attention to this push because it is popular, around 60% of Americans support the notion that government should ensure health care for all Americans, Pew Research reported on January 13, 2017. Support the notion is even higher among some demographics, 85% of African Americans, 84% of Hispanics, 74% of those with incomes of less than $30,000 a year and 85% of Democrats backed Medicare for all or a Single Payer health insurance system, Pew data indicates. Even a majority of those with incomes over $75,000 a year (53%) are in favor of Medicare for all.
Medicare for All both Threat and Opportunity
Investors need to pay attention to this move because it would entail nationalizing the health insurance system to contain costs. This is a direct threat to Aetna’s business model because it would eliminate the market for most individual health-insurance policies and most health coverage operated by businesses. In other words it would destroy most of the health insurance business.
Yet it might be an opportunity because Aetna is a major issuer of Medicare Advantage policies. It plans to enter six new Medicare Advantage markets this year, Modern Healthcare reported. That means a lot of potential business if Medicare were expanded to cover all 324.82 million residents of the USA.
This means Aetna’s future is likely to be an interesting one, particularly as discontent with the health insurance system grows and the push for Single-Payer healthcare heats up. If you want to make an interesting bet on health insurance’s future, check out Aetna’s stock.