By Anna Wilde Mathews and Austen Hufford 

Aetna Inc. said revenue and profit rose in its latest quarter, but the insurer is still struggling with pressure in the Affordable Care Act business, which it will largely exit next year.

Revenue grew in Aetna's government business managing Medicare and Medicaid plans, which was partially offset by membership declines in commercial products. Profit rose on higher fees and other revenue in Aetna's core health-insurance business and lower general and administrative costs.

The Medicare and Medicaid business "continued to provide the improvement in earnings, which offset the decline in earnings due to the commercial small group and individual businesses," wrote analyst Peter Costa of Wells Fargo.

Aetna tightened the range of its projected earnings for the year, to between $7.95 and $8.05 per share from between $7.90 and $8.10.

The insurer remained troubled by its individual ACA plans, which account for a small portion of its overall membership, and it is now projecting a loss of about $350 million for the year on them, up from an earlier estimate of more than $300 million. Aetna said it had about 775,000 individual members who bought their coverage through the health law's exchanges, and an additional 270,000 who have off-exchange plans.

Next year, Aetna is leaving 11 out of the 15 states' exchanges where it currently sells plans, saying it is exiting business that was worth around $2.7 billion in 2016 revenue. Despite the pullback, however, Aetna warned it might still have losses on its individual business next year.

Chief Executive Mark T. Bertolini said that, to consider re-entering exchanges, Aetna would need to see changes to the ACA program known as risk adjustment that is supposed to help smooth results for insurers. Right now, he suggested, the pool of enrollees will produce results for insurers that are cumulatively about 10% to 15% below break-even. Without changes, "we're going to find ourselves in a premium spiral" in the exchanges, with rates increasing and healthy people leaving, he said. The soonest Aetna could re-enter exchanges is 2019, he said, with 2020 more likely.

Aetna's total medical membership fell 1.6% to 23.12 million in the quarter. Medicaid membership grew 9.3% to 2.4 million, while Medicare Advantage membership grew 9.5% to 1.4 million.

Aetna's medical-loss ratio, a key measure of the share of premiums used to pay patient medical costs, rose to 82% from 81.1%. The ratio rose for its commercial members, driven largely by the ACA plans' performance, but fell for its government-based business.

Aetna also said it was seeing losses for small-business plans sold under the ACA, though its margins are positive for small-business plans that were grandfathered from before the law took full effect.

Shawn M. Guertin, Aetna's chief financial officer, said the problems with the ACA small-business plans weren't as severe or widespread as with individual plans sold under the law, but "there have been a lot of forces that can create a selection dynamic that is similar to what we have seen in individual."

Small businesses with healthier workforces may be sticking with pre-ACA coverage, or choosing other options like versions of self-insurance, he said.

In all for the quarter, Aetna reported earnings of $603.9 million, or $1.70 a share, up from $560.1 million, or $1.59 a share, a year earlier. When excluding transaction costs and other items, adjusted earnings rose to $2.07 a share from $1.90 a share. The result came in above analysts' projections of around $2.04 a share.

Revenue rose 5.5% to $15.78 billion as operating revenue, which excludes net realized capital gains and losses, grew 5.2% to $15.05 billion. Analysts polled by Thomson Reuters had forecast $2.03 a share in earnings on $15.71 billion in revenue.

Mr. Bertolini said Aetna's leaders "remain convinced of the strategic and financial merits" of its deal to buy Humana Inc., despite the recent announcement that the smaller insurer was seeing a decline in Medicare quality ratings, which is likely to affect its 2018 results.

The two insurers are defending their combination against an antitrust challenge by the Justice Department, with trial proceedings set to begin Dec. 5.

Shares of Aetna were trading at $110.49, down 52 cents, early Thursday afternoon.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

October 27, 2016 13:25 ET (17:25 GMT)