Higher Medical Costs Hurt Aetna

Aetna Inc., the largest U.S. health insurer, on Thursday reported a first-quarter operating loss of $36.6 million as higher-than-expected medical costs continued to plague the company.

Aetna said the loss amounted to 26 cents a share and compared with a year-earlier profit of $86.2 million, or 61 cents. Revenue declined 5% to $6.43 billion, with revenue from health-care premiums down 7% to $5.07 billion.

The 148-year-old company, which in recent years has been grappling with high medical costs, the integration of massive acquisitions and contentious relations with physicians, is in the midst of a vast restructuring that includes layoffs and changes in business strategies.

Aetna’s dismal first quarter was even worse than analysts had expected. After a dire profit warning from the company last month, analysts cut their earnings forecasts, to a consensus estimate of 1 cent a share. Forecasts ranged from a loss of 15 cents to a profit of 10 cents.

Investors had hoped that Aetna would provide specific earnings guidance for the remainder of the year, but company officials said in a conference call that they could not provide quarterly or yearly earnings forecasts with any confidence.

The Hartford, Conn.-based company said restructuring efforts and other changes would help improve its financial performance through 2002 and make it comparable to that of other national health insurers by the end of 2003.

Aetna officials also stressed that the company intends to renew its contracts with employers and other customers and price its products with a focus on profitability, even at the expense of a drop in membership.

“We will look at each market with a bias toward profitability, not toward growth,” said Ronald Williams, Aetna’s new chief of health operations.

In fact, the company said it expects a decline of up to 10% in its overall health-care membership this year--from 19.3 million members in 2000--and said additional reductions might be necessary as its operations are analyzed.

Analysts said a reduction in membership is favorable for Aetna because costs per member have been running high.

Aetna said it was disappointed with the first-quarter results and blamed the higher-than-expected costs on increased patient use of outpatient, pharmacy and other services for the second straight quarter.

Aetna’s medical loss ratio--a key figure that looks at the portion of premium revenue spent on medical costs such as payments to doctors and hospitals--increased sharply in the first quarter in its private-sector commercial business and its Medicare programs. Wall Street views a drop in the ratio as an improvement.

Aetna’s shares closed up 23 cents at $25.63 on the New York Stock Exchange.