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Aetna 2Q profit falls 15 pct, 2012 forecast rises

Aetna 2Q profit falls 15 pct, 2012 forecast rises

July 31st, 2012 by TOM MURPHY, AP Business Writer in News

Aetna Inc.'s second-quarter net income tumbled almost 15 percent compared with last year, when the health insurer caught a big break from lower-than-expected leftover claims. But the latest results still beat analyst expectations, and Aetna raised its 2012 earnings forecast.

The higher outlook, announced Tuesday, comes a day after competitor Humana Inc. joined another insurer, WellPoint Inc., in cutting its 2012 earnings forecast after reporting second-quarter results. Those insurers pointed in part to concern over rising medical costs.

Health insurers were helped last year by health care use that grew slower than they expected when they set their premiums. Aetna said Tuesday that medical costs - which are affected by use and price increases for care - will rise at a faster clip in 2012 than they did last year, but the growth still falls within the range the insurer expected and below rates seen before the recession.

Industry observers say people tend to rein in their health care expenses for several quarters or even a few years following a tough recession. That can affect the medical costs insurers face.

Aetna joined UnitedHealth Group Inc., the nation's largest insurer, in raising its 2012 forecast after reporting second-quarter earnings. Aetna said Tuesday that it now expects 2012 adjusted earnings, which exclude one-time items, to range between $5 and $5.10 per share. That's up from its previous forecast of $5 per share. Analysts surveyed by FactSet expect, on average, earnings of $5.04 per share.

In the second quarter, Aetna's net income fell to $457.6 million, or $1.32 per share. That's down from $536.7 million, or $1.39 per share, a year ago. Adjusted earnings, which exclude one-time items, were $1.31 per share. That topped the $1.25 per share that analysts expected.

Revenue rose 6 percent to $8.84 billion, also above analyst expectations of $8.75 billion.

Aetna's performance in last year's quarter was helped by a $188 million pretax gain recorded because claims left over from previous quarters came in lower than expected. That allowed the insurer to release money it had held in reserve. In the latest quarter, Aetna saw a smaller, $38-million gain due to leftover claims.

Excluding the after-tax impact of these gains, the insurer's earnings climbed 7 percent.

Aetna's health care costs, or the amount it paid in medical claims, rose 10 percent from to $5.91 billion. Chief Financial Officer Joe Zubretsky attributed that largely to the difference in leftover claims compared with last year.

Aetna bought Medicare supplement coverage provider Genworth Financial Inc. last year, and the insurer said that acquisition helped in this year's second quarter. Medicare is the federally funded health insurance program for the elderly and disabled people, and Aetna's Medicare business grew 14 percent compared to last year's quarter.

Aetna offers Medicare Advantage plans and prescription drug coverage, along with the supplement business. Medicare Advantage plans are privately run, subsidized versions of Medicare.

Health insurance is its main business for Aetna, the third-largest health insurer behind WellPoint and UnitedHealth, but it also sells dental, group life and disability coverage.

Zubretsky said the insurer's product diversity helped in what turned out to be a choppy quarter for the managed-care sector.

"When you have a very well-balanced portfolio with great diversification across product segments and geographies, I think we have a very, very effective way of managing the portfolio to optimum results," he said.

Aetna shares fell 3 percent, or $1.08, to close at $36.06 Tuesday, while broader indexes dropped slightly. Shares of other health insurers sank as well, with Humana's stock dropping nearly 13 percent.