Aetna 3Q profit jumps 53 percent on lower costs
Wednesday, November 3, 2010
NEW YORK (AP) — Health insurer Aetna Inc. said Wednesday its third-quarter net income jumped 53 percent on lower benefits and expenses.
The Hartford, Conn. company said a series of cost management moves and lower use of health care services gave profit a boost during the quarter. The medical benefit ratio, which measures the percentage of premiums spent on medical costs, fell to 81.8 percent from 85.6 percent.
Last year, Aetna struggled with costs that rose faster than it expected when it set prices, due in part to the slumping economy. That caused it to reprice a big portion of its commercial insurance. Health insurance is the company’s main product, but it also sells dental, group life and disability coverage.
During the quarter, the insurer earned $497.6 million, or $1.19 per share, in the three months that ended Sept. 30. That’s up from the $326.2 million, or 73 cents per share, in the same period last year. Revenue fell 2 percent to $8.54 billion from $8.72 billion, mainly on a decline in membership.
Adjusted earnings were 84 cents per share, which topped the 67 cents-per-share estimate by analysts polled by Thomson Reuters. Analysts had also expected $8.47 billion in revenue.
Aetna is the third largest commercial health insurer based on enrollment, trailing WellPoint and UnitedHealth. Medical membership at Aetna fell 3.5 percent to 18.5 million during the quarter, with the largest losses coming from commercial plans. Dental plan and pharmacy plan membership also fell.
Health insurers were hurt during the recession by shrinking commercial enrollment, as employers cut jobs and reduced the number of people covered by health insurance. But that trend appears to be waning, as several insurers have reported either slower losses or gains over the past couple quarters.
“Aetna’s third-quarter results reinforce our significant performance improvement in 2010 after an unusually weak 2009,” Chairman and CEO Ronald A. Williams said in a statement.
Competitors UnitedHealth Group Inc., Cigna Corp. and Humana Inc. have already reported better-than-expected third-quarter earnings and raised their 2010 profit expectations. The companies said they benefited from a drop in health care use, something analysts have said is common during and after a recession, as people put off procedures or care to save money.
Aetna boosted its full-year outlook for operating profit to about $3.60 per share from a prior range of $3.05 to $3.15 per share. Analysts had forecast about $3.20 per share.
Looking ahead, the health care overhaul will require insurers to spend a certain percentage of the premiums they collect on medical care or provide customer rebates, beginning in 2011. Details of this medical loss ratio provision are still being ironed out, but investors worry they will cause insurers to leave certain markets where they can’t meet minimum standards.
Also, this will be the last quarterly report for Williams as CEO. Aetna announced last month that he will be replaced by company President Mark T. Bertolini as CEO Nov. 29. Williams will then become executive chairman before retiring in April.
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