Managed-care company Aetna Inc. said today its first-quarter profit rose slightly due to membership gains and premium increases, even though the company saw higher-than-expected medical costs.
The Hartford, Conn.-based company became the fifth large health insurer to surpass Wall Street expectations for the quarter. But unlike bigger competitors UnitedHealth Group Inc. and WellPoint Inc., Aetna saw an increase in the percentage of premiums it spent on medical care in its commercial segment. It also bucked another trend and posted an increase in commercial membership.
"While Aetna continues to execute well, the company's (first-quarter) results are the weakest in the industry thus far," Wachovia analyst Matt Perry said in a research note.
Aetna said its profit rose 1 percent to $437.8 million, or 95 cents per share, compared with $431.6 million, or 85 cents per share, in the same quarter last year.
Revenue, which excludes investment losses, rose 11 percent to $8.6 billion.
Earnings per share increased 12 percent, as the company spent $277 million to repurchase more than 10 million shares in the quarter.
The company said operating earnings, which also exclude investment losses, were 96 cents per share. That topped Wall Street expectations.
Thomson Reuters said analysts, on average, expected earnings of 93 cents per share on $8.5 billion in revenue.
Medical costs rose 14 percent to $5.8 billion. Company officials attributed that to the impact of layoffs and membership increases due to the federal law commonly known as COBRA, which helps people who lose their jobs keep temporary health coverage from their employer.
A new federal subsidy that picks up 65 percent of the cost of COBRA coverage for people who lose their jobs began late in the quarter, but it's unclear whether that had an effect.
Aetna also saw its members use more medical services per person, but spokesman Fred Laberge said it was hard to determine whether that was tied to the
recession.
Aetna's commercial medical benefit ratio, which is the percentage of premium revenue spent on medical care, rose to 81.7 percent from 79.8 percent.
Total medical membership rose 9 percent to more than 19 million people, led by gains in commercial business, which generally involves employer-sponsored health insurance. The insurer added large national accounts for
Bank of America Corp. and Home Depot Inc. during the quarter.
"This is especially impressive in a weak economy where industry-wide employer-sponsored coverage is declining," Perry wrote.
Both Minnetonka, Minn.-based UnitedHealth and Indianapolis-based WellPoint reported commercial enrollment declines.
The insurer also said a previously announced increase in its pension expense partially offset first-quarter gains. Aetna said earlier this year it will record a pension expense of about 39 cents per share in 2009 due to the equity markets. The company didn't offer a quarterly breakdown of that expense.
Investment losses decreased to $4.8 million from $58.5 million in the first quarter last year.
Aetna also said Wednesday it remains confident in the guidance it issued earlier this year, when it said it expected 2009 operating earnings of $3.85 to $3.95 per share.
Analysts expect $3.85 per share.
