Earnings rise at Health Net, Aetna as client rosters grow

Health insurers Aetna Inc. and Health Net Inc. on Thursday reported increased fourth-quarter profits as they added customers and held down medical costs.

Los Angeles-based Health Net, which provides health insurance to 2.4 million people, mostly in California, said fourth-quarter net income rose 11% to $84.8 million, or 72 cents a share, up from $76.7 million, or 65 cents, a year earlier. Sales rose 9% to $3.21 billion as the company targeted small and mid-size employers.

Excluding a legal expense of 19 cents a share, the company earned 91 cents a share, beating the 90-cent average in a Bloomberg survey of 11 analysts. The company had $37 million in one-time costs related to a lawsuit in New Jersey involving out-of-network provider claims.

Health Net shares rose for the fourth consecutive day, gaining 79 cents to $51.66.

Net income for Hartford, Conn.-based Aetna, the third-largest U.S. health insurer, climbed 4.3% to $434.1 million, or 80 cents a share, from $416.3 million, or 70 cents, a year earlier. Revenue in the quarter rose 9% to $6.4 billion.

The earnings, excluding items such as costs associated with dismissing 650 workers, matched the average estimate of 14 analysts surveyed by Bloomberg.

Excluding one-time items, Aetna raised its 2007 forecast to $3.30 a share, including 77 cents in the current quarter. In October, Aetna’s forecast for this year was $3.26.

“Aetna’s outlook appears solid but not robust,” wrote David Shove, an analyst with Prudential Equity Group in New York, in a note to investors. “We expect that not all of the national players will be able to hit their growth targets, and in our view Aetna will be one of those.” He downgraded the stock to “neutral weight” from “overweight.”

The company’s results failed to impress investors. Aetna’s shares saw their steepest drop in three months, declining $1.07 to $42.93.

Health insurance companies reported higher earnings for the fourth quarter because of commercial membership growth, pricing that exceeded medical cost increases and profit from Medicare, the U.S. health program for the elderly and the disabled. Humana Inc. reported Feb. 5 that profit more than doubled on growing Medicare business. Cigna Corp. on Wednesday said profit increased 10% as it gained members through acquisitions and new products.

Health Net added 25,000 customers for Medicare Advantage plans, the broadened coverage offered through Medicare, in 2006. The increase brought total Medicare Advantage membership to 199,000, of which 2,000 were added in the fourth quarter. The company had 300,000 people in its Medicare drug benefit plans at the end of the year.

Aetna last month lowered its full-year membership growth projection to a range of 575,000 to 600,000, down from 650,000. For the first quarter it now expects to add 175,000 to 200,000 members, compared with the 250,000 it previously predicted.