By Debra Sherman
July 31 Aetna Inc reported better-than-expected quarterly earnings on Tuesday and raised its profit forecast for the full year, outperforming some health insurer rivals who have cut their expectations due to rising U.S. medical claims costs.
The third-largest U.S. health insurer said more people were using medical services after several years of cutting back on doctor visits due to a weak economy and high unemployment. Aetna said patients were increasingly using outpatient services, while fewer were undergoing more expensive procedures that require a hospital stay.
Rising cost trends have prompted other industry players, notably WellPoint Inc and Humana Inc, to cut their profit forecasts for the year, and some on Wall Street had expected Aetna to do the same.
"The consensus view was that Aetna's guidance had to fall meaningfully," Citi Research analyst Carl McDonald wrote in a note. "Aetna joins Coventry and UnitedHealth in describing the commercial environment as tougher this year, but within the realm of what earnings guidance contemplated."
WellPoint had also cited fiercer competition among insurers to attract new members, while Humana reported late on Monday that a surge in new members for its Medicare Advantage plans for the elderly had led to unexpectedly higher costs.
By contrast, Aetna said its membership rose by more than 100,000 medical members from the first quarter, ending the second quarter with 18 million members. It predicted continued membership growth for the year and raised its full-year earnings forecast to a range of $5.00 to $5.10 per share, excluding items, from $5.00.
"It seems like Aetna is doing well in terms of understanding costs," said Morningstar analyst Matthew Coffina. "Managed care investors tend to be very reactive about medical costs."
Susquehanna Financial Group analyst Chris Rigg noted that Aetna was also benefiting from higher underwriting margins in its Medicare business, which administers the health program on behalf of the U.S. government.
Aetna shares fell 2.2 percent on Tuesday to $36.30, but outperformed industry rivals. Humana sank nearly 14 percent, WellPoint dropped 3.3 percent and the Morgan Stanley Healthcare Payor Index fell 2.5 percent.
JOINING THE MEDICAID EXPANSION
Aetna Chief Financial Officer Joseph Zubretsky said the company was able to accurately predict medical costs in the latest quarter and is very diversified so its profitability was not undermined by its Medicare business.
He said in a telephone interview that Aetna would like to expand its presence in Medicaid, the U.S. health program for the poor, which is due to extend coverage to as many as 16 million uninsured Americans under President Barack Obama's healthcare law.
The company does not plan a major acquisition to do so. "There are lots of other ways to do that ... we can grow it organically, pseudo-organically through collaborations," Zubretsky said.
Aetna's second-quarter net earnings were $457.6 million, or $1.32 per share, compared with $536.7 million, or $1.39 per share, a year earlier. Excluding items, earnings were $1.31 per share. On that basis, analysts, on average, were expecting $1.25, according to Thomson Reuters I/B/E/S.
The company also was active in stock repurchases in the latest quarter, so the share count was lower, Rigg noted.
Quarterly revenue rose to $8.83 billion from $8.32 billion, helped by higher premiums from the company's Medicare and commercial healthcare businesses.