October 28, 2014 / 10:38 AM / 5 years ago

UPDATE 3-Aetna sees higher medical cost spending than expected

(Recasts to focus on medical costs)

By Caroline Humer

Oct 28 (Reuters) - Aetna Inc, the third-largest U.S. health insurer, said on Tuesday it expects 2014 medical costs to increase at the high end of its forecasts, underpinning investor concerns that years of stabilized medical use could be ending.

Shares in Aetna fell 2.2 percent and others insurers including UnitedHealth Group Inc and WellPoint Inc also fell.

Aetna said that in the third quarter, it experienced an unexpected rise in its medical cost ratio due to more spending on claims at companies with 50 to 300 employees, the price of new hepatitis C treatments, and the performance of the individual business.

The company said it expects spending to pick up during the fourth quarter, a typical seasonal trend that occurs as people reach their insurance deductibles.

Its 2014 medical spending trend forecast is now for an increase at the high end of the 6 to 7 percent range. For 2015, it said it is pricing premiums based on an expectation that spending will accelerate by another 50 to 100 basis points.

Investors have been watching medical cost trends closely for any reversal of the low use of medical services in recent years.

Some hospitals have reported an uptick in use driven by a rebound in the economy. Others have said medical services use is up because of implementation of the national healthcare reform law.

So far, Aetna said unexpected increases have been largely in areas like pharmaceutical cost and hospital outpatient use.

“I wouldn’t say we have gotten to the point where we are drawing a conclusion that there is a widespread move upwards in medical cost trends,” Aetna Chief Financial Officer Shawn Guertin said.

Aetna said third-quarter profit rose as the benefits of its Coventry government healthcare acquisition offset these higher medical costs.

Aetna said the percentage of premiums collected that it spent on covering medical services increased 0.5 percentage points to 81 percent in its commercial business, which includes new individual health plans. For commercial and government businesses combined, the ratio fell to 82.3 percent from 83.1 percent.

In 2014, Aetna began selling health insurance to individuals on the new healthcare exchanges created under the Affordable Care Act.

Aetna said it has almost 600,000 new insurance exchange customers and that they have higher costs per patient than expected. But it said it began making a slight profit on the business during the third quarter as high volume helped defray fixed costs.

Aetna reported net income of $594.5 million, or $1.67 per share, up from $518.6 million, or $1.38 per share, a year earlier. Revenue rose 13 percent to $14.7 billion, slightly above analysts’ expectations.

Aetna said operating earnings were $1.79 per share excluding transaction costs, beating analysts’ expectations of $1.58.

Aetna raised its 2014 earnings forecast to $6.60 to $6.70 per share from $6.45 to $6.60. (Reporting by Caroline Humer Editing by W Simon, Lisa Von Ahn and David Gregorio)

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