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Aetna's profits rise without Obamacare while Molina's sink with it

  • Aetna reported second-quarter earnings of $3.60 per share, well above analyst estimates.
  • Molina shares slumped more than 9 percent after the insurer reported a second-quarter loss of $4.10 per share.
  • Aetna has pulled out of many Obamacare markets, while Molina made big bets on growing its exchange business.

Aetna and Molina Health's latest results are a stark reminder that government health programs continue to be a source of profitable growth for health insurers, if managed well, as long as you're not talking about the Obamacare exchange market.

"Operating results in our government business remain robust, with government premiums representing more than half of total Health Care premiums," said Mark Bertolini, Aetna chairman and CEO, on the company's earnings conference call.

Aetna reported second-quarter earnings of $3.60 per share, well above analyst estimates, on $15.5 billion in revenues. Profits rose nearly than 50 percent from a year ago, helped by increased Medicare membership, and lower exposure to money-losing Obamacare plan costs, after exiting all but four state exchanges for 2017.

The company raised its 2017 full-year outlook to between $9.45 to $9.55 per share, from $8.80 to $9.00 per share, but also cautioned that it will be investing more over the next year in order to expand its Medicare business, after its two-year effort to acquire rival Humana was blocked.

"Our strong performance through the first half of 2017 has provided us the flexibility to continue to make these investments and still deliver strong financial results," said Bertolini.

Aetna and Molina Health had both been bullish on the Obamacare market four year ago, but at Molina, the buyer's remorse is now more intense.

Molina shares slumped more than 9 percent after the insurer reported a second-quarter loss of $4.10 per share, including restructuring costs that will result in staff reductions of 10 percent of its workforce. The company is withdrawing its 2017 earnings guidance, as it continues the search for a new chief executive.

Molina had made big bets on growing its exchange business, leveraging years of experience with Medicaid patients. But after continuing losses on some market exchange markets and some Medicaid contracts, the board ousted CEO Mario Molina last May and is undertaking a major restructuring plan.

"In retrospect, a better approach would have been to undertake a full review of the organization in anticipation of the potential growth resulting from the Affordable Care Act. Instead of increasing investment in existing processes, we should have conducted the full redesign of our business that we are doing now," said interim Molina CEO Joseph White, on the company's earnings conference call.

For 2018, the insurer is pulling out of the Utah and Wisconsin Obamacare exchanges, where it has experienced the biggest losses, in an effort to shore up its overall profitability.

In its remaining markets, the insurer is raising rates by 55 percent, citing its uncertainty over federal funding for cost-sharing subsidies.

"It is also important to note that the performance of our Marketplace products in California, Michigan, New Mexico and Texas remain acceptable," said White. "We will continue to monitor political and programmatic developments in the Marketplace, and we may withdraw from additional markets for 2018, if necessary."

Insurers have until late September to decide whether they are in or out of the state health insurance exchanges for next year.

WATCH: Former Molina CEO says Obamacare won't collapse