Aetna 2Q profit slides on commercial medical costs

[July 27, 2009]  NEW YORK (AP) -- Health insurer Aetna Inc. said Monday its profit skidded 28 percent in the second quarter due to higher medical expenses in its commercial business, which it expects to continue for the rest of the year.

The Hartford, Conn., company said it earned $346.6 million, or 77 cents per share, compared with $480.5 million, or 97 cents per share. Adjusted earnings per share were 68 cents. Revenue grew 11 percent to $8.67 billion from $7.83 billion.

Thomson Reuters says analysts expected 78 cents per share and revenue of $8.56 billion.

Aetna said its medical benefit ratio, which measures the portion of premium dollars spent on providing care, rose to 86.8 percent from 81.9 percent a year ago. Costs in the commercial, Medicare and Medicaid business all increased.

Premium revenue grew 12 percent, and medical membership was flat at 19.1 million.

The company had been scheduled to post its earnings on Wednesday, but announced Sunday it would be reporting on Monday. It did not give a reason for the change.

Aetna said commercial medical costs increased due to use of more expensive services, and more tests and procedures per visit. That lead to higher costs for emergency room, urgent care, laboratory and preventive services. Aetna said its prices did not fully account for the higher costs, and said health plan providers are changing their behavior due to the recession.

It cut its annual profit forecast for the second time in two months. The company now expects to earn between $2.75 to $2.90 per share. On June 2, it lowered its profit estimate to a range of $3.55 to $3.70 per share, also because of greater commercial medical costs and lower Medicare revenue. Analysts expect earnings of $3.53 per share and $34.35 billion in revenue.

Aetna expects to spend between 84 and 84.5 percent of its commercial premium revenue on providing medical care.

The Wall Street Journal reported Monday that Aetna is shopping its pharmacy benefits management business, which had about 11.2 million members at the end of the second quarter. Aetna has reportedly been considering a sale for several months and no deal was said to be imminent.

According to the report, independent pharmacy benefits managers CVS Caremark Corp. and Medco Health Solutions Inc. have looked into buying the Aetna business. Another health insurer, WellPoint Inc., sold its pharmacy benefits management unit to Express Scripts Inc. in April.

[Associated Press]

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