Coventry slashes forecast; shares tumble

By Kim Dixon

WASHINGTON (Reuters) - Health insurer Coventry Health Care Inc (CVH.N: Quote, Profile, Research) on Wednesday slashed its second-quarter profit forecast nearly in half and cut its 2008 view, blaming steeper-than-expected patient costs, sending shares in the sector tumbling.

Shares of Coventry were down 16.3 percent to $33.50 in extended trade following the announcement after the close of the market. Shares of WellPoint Inc (WLP.N: Quote, Profile, Research), UnitedHealth Group (UNH.N: Quote, Profile, Research) and Aetna Inc (AET.N: Quote, Profile, Research), the three biggest U.S. health insurers, also fell.

"The health insurers are having a pretty bad year," said Morningstar analyst Matt Coffina, citing competitive pricing and faster-than-expected increases in medical costs.

After a bad first quarter driven in part by costs to treat the flu, "it's a little surprising in the second quarter that it's still getting worse," he added.

Coventry cut its second-quarter view to 55 cents to 57 cents per share from a prior forecast of $1.03 to $1.04 per share. It now expects to earn $3.65 to $3.75 per share in 2008, compared with a prior estimate of $4.39 to $4.50 per share.

Higher-than-expected claims in a lucrative arm of Coventry's Medicare business -- its fee-for-service business within Medicare, the government's insurance plan for 44 million elderly and disabled -- contributed to 42 cents of the 2008 downward revision.

Private companies have reaped healthy profits in recent years following a 2003 law that encouraged the plans to target Medicare beneficiaries. Still, the first-quarter reporting season was gloomy for health insurers amid profit warnings and fears of an economic downturn.

MEDICARE, COMMERCIAL