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
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
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,"
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.