--Aetna earnings slip amid deal costs
--Earnings still top Wall Street expectations, and Aetna raises
guidance
--Insurer cautious about exchanges, Medicare payments
(Updates throughout with company comments on exchanges,
Medicare, Coventry deal and health costs.)
By Jon Kamp
Aetna Inc.'s (AET) first-quarter earnings declined 4.1%, partly
because of costs pegged to a pending Coventry Health Care Inc.
(CVH) purchase, but the health insurer's revenue and membership
rolls increased.
Hartford-based Aetna--the third-largest managed-care firm by
membership behind UnitedHealth Group Inc. (UNH) and WellPoint Inc.
(WLP)--also raised its full-year operating earnings guidance after
posting stronger earnings than Wall Street expected.
"Looking ahead to the remainder of 2013, we continue to expect
strong top-line growth and solid operating performance," Aetna
Chief Executive Mark Bertolini said on a conference call Tuesday
with analysts.
Shares of Aetna hit a high Tuesday of $58.39, their best mark in
more than five years. The stock, up 26% in 2013, recently rose 3.9%
to $58.35.
This is something of a transition year for Aetna and its peers
as they prepare for major changes in 2014, when the health-care
overhaul law calls for coverage expansion to millions more
Americans. Mr. Bertolini said Aetna remains cautious about jumping
headlong into an emerging marketplace for individual health
coverage, and he warned that lower government payments for Medicare
Advantage next year will pose a challenge.
The exchanges are state-based, online marketplaces slated to
open later this year where people can seek coverage, sometimes with
government subsidies. Mr. Bertolini said Aetna is now aiming for
about 14 markets--the company previously targeted up to 15--and he
reiterated that Aetna is taking a "measured" approach. The company
also is looking at "a small handful" of exchanges for small
businesses, he said.
The company doesn't have a big stake in individual or
small-group insurance today, and has positioned the new markets
more as opportunities than risks, provided they function well.
"We just think that we have to see how these things operate, and
we're not going to go in for a land grab," Mr. Bertolini said.
On the Medicare Advantage front, health insurers recently won a
lobbying victory by warding off steep cuts in payments for 2014.
But the market for these private Medicare plans is still facing
lower payments, and Aetna joined UnitedHealth and WellPoint in
warning that the cuts will be hard to digest.
Aetna is a commercially focused insurer, but the pending
cash-and-stock deal for Coventry, valued at $5.7 billion when
announced last August, will bolster Aetna's presence in
government-financed health care. Aetna expects to close soon and is
awaiting antitrust clearance from the Department of Justice.
Mr. Bertolini said AET's talks with the DOJ "are focused on a
limited set of issues," and that the expected resolution is
factored into the company's financial projections for the deal.
Aetna recently sold its Missouri Care Medicaid business to
WellCare Health Plans Inc. (WCG) to secure regulatory approval in
that state. The business had just more than 100,000 members.
Excluding that sale, Aetna said its membership grew by 159,000 in
the first quarter from the end of last year, reaching 18.3
million.
The company reported a first-quarter profit of $490.1 million,
down from $511 million a year earlier. Per-share earnings rose to
$1.48 a share from $1.43 because of fewer shares outstanding in the
most-recent quarter. Excluding items such as realized capital
gains, transaction and integration-related costs, operating
earnings rose to $1.50 a share from $1.34. Revenue grew 7% to $9.54
billion.
Analysts polled by Thomson Reuters had forecast earnings of
$1.39 a share on revenue of $9.64 billion.
Aetna's overall medical-benefit ratio, reflecting the portion of
premium revenue spent on member care, ticked up to 81.9% in the
recent quarter, though it was still lower than analysts expected
because of light costs in Aetna's commercial insurance business. A
higher Medicare ratio, which Aetna expected, fueled the
increase.
The company didn't join the chorus of health companies
specifically highlighting light health-care usage trends in the
first quarter, as Americans continued to use services cautiously in
a still uncertain economy. Aetna did see light usage trends in
general, Chief Financial Officer Shawn Guertin said in an
interview, but this was balanced by higher-than-expected flu costs
early in the quarter.
Looking ahead, Aetna didn't change its forecast for expected
health costs this year. "It's still pretty early in the year, and
we're just starting to get mature data on the first-quarter"
trends, Mr. Guertin said.
More broadly, Aetna said it now expects full-year operating
earnings between $5.50 and $5.60 a share, up from its December
forecast of at least $5.40.
--Melodie Warner contributed to this article.
Write to Jon Kamp at jon.kamp@dowjones.com
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