Aetna’s 2nd-Quarter Profit Falls on Rising Medical Costs
Aetna Inc., the No. 1 U.S. health insurer, said Friday its second-quarter profit fell 17% because of rising medical costs and more hospital visits by the people it insures.
The company said it plans to increase premiums by an average of 13% on business being renewed in the fourth quarter to address the costs. Health plans this year have raised premiums an average of 5% to 10%.
The company also said it will increase emergency room co-payments to motivate its customers to use less-costly medical-care providers when appropriate.
Aetna’s operating earnings fell to $134 million, or 94 cents a share, but beat analysts’ lowered forecasts of 88 cents, according to First Call/Thomson Financial. Analysts cut their consensus estimate from $1.20 last month, when Aetna warned higher medical costs would cut earnings.
Revenue rose 36% to $8.15 billion, largely from Aetna’s purchase of Prudential Health Care last fall.
Shares in Aetna rose $1.19 to close at $59.50 on the New York Stock Exchange. The shares have risen more than 50% since hitting a 7 1/2-year low of $38.50 in February, when Aetna, seeking to turn the company around after profit shortfalls, made veteran Wall Street deal-maker William Donaldson its chairman and chief executive.
“These results, while disappointing, are in line with our announcement on July 18,” said Donaldson, a co-founder of investment bank Donaldson, Lufkin & Jenrette.
The results lagged those of Aetna’s main rivals, UnitedHealth Group and Cigna Corp., which both reported higher-than-expected profits this week, citing slightly lower medical cost ratios and growth in members.
Aetna reported higher ratios and fewer members, though it remains the nation’s leading health insurer, with about 19.4 million members.
Aetna said that its commercial HMO medical loss ratio--the crucial industry measure of medical costs as a percentage of premiums--rose almost 3 percentage points to 85.9% in the second quarter, and said medical costs rose 10%.
Donaldson said Aetna is also addressing rising costs by cutting expenses, exiting certain markets and giving local managers more power in assessing claims.
