Aetna Reports Earnings Increase, Announces HMO Cutbacks

Aetna Inc. on Thursday posted better-than-expected earnings for the latest quarter as it announced plans to stop offering HMO coverage to seniors in several cities next year because the business is no longer profitable.

The nation’s biggest health insurer said profit grew 28% to $184 million, or $1.29 a share, on higher premiums and slightly lower medical costs, beating Wall Street forecasts by 17 cents, according to First Call/Thomson Financial.

Revenue grew 39% to $7.9 billion. The big increase was largely due to Aetna’s acquisition of Prudential Health Care, which it bought last year.

The Hartford, Conn.-based company said it will disclose July 1 which cities it will exit, when it is required to inform the federal government. Aetna said a “substantial” number of its 670,000 Medicare health maintenance organization members will be affected, mainly in the Northeast, California and Texas.

In 1999, about 62,000 Aetna Medicare HMO members had to find a new health plan or return to the traditional Medicare program after the company left several major markets. Another 1,700 Aetna members were displaced this year.

Aetna is one of several large HMOs to curtail its Medicare business in the last two years because they say the federal government no longer pays them enough.

Since 1999, the exodus of health plans from Medicare has affected more than 700,000 beneficiaries.

Several competing HMOs, including Foundation Health Systems Inc., PacifiCare Health Systems Inc. and UnitedHealthcare said Thursday they were still deciding whether to leave any Medicare markets next year.