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Aetna Q1 Profit Up; Revenue Down

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(File: Douglas Healey/AP Photo)

(File: Douglas Healey/AP Photo)

By TOM MURPHY,  AP Business Writer

INDIANAPOLIS (AP) _ Aetna Inc. said Thursday its first-quarter
net income rose 4 percent, as it became the fourth big health
insurer in the past week to report better-than-expected earnings
and raise its 2011 earnings forecast.

Health care costs fell for the Hartford, Conn., company, and it
recorded a $174-million gain because claims left over from previous
quarters came in below expectations due to lower-than-projected
care use.

Several health insurers have said slower-than-expected growth in
health care use _ caused in part by bad weather _ has helped them
in recent quarters. Aetna is the third largest commercial health
insurer behind WellPoint and UnitedHealth. Both companies and
Humana Inc. have already reported first-quarter results that topped
Wall Street expectations and raised their 2011 earnings forecasts.

Managed care companies had set a high bar for first-quarter
earnings and guidance increases, but Aetna’s results exceed “even
our recently heightened expectations,” Leerink Swann analyst Jason
Gurda said in a research note.

The company’s share price, which has already risen about 30
percent so far this year, climbed nearly 5 percent, or $1.81, in
midday trading to $41.62.

The insurer surprised analysts with a big increase to its
full-year earnings forecast. Aetna now expects 2011 adjusted
earnings to range between $4.20 and $4.30 per share. That’s up from
its forecast in February of between $3.70 and $3.80 per share and
much higher than analyst expectations of $3.73 per share.

That February forecast also was much higher than what analysts
were expecting at the time.

“A lot of investors thought they would have a harder time
beating already high expectations,” Bernstein analyst Ana Gupte
said.

Aetna raised its forecast by a large margin because company
leaders were waiting for first-quarter numbers to tell them how
their new pricing was working out. The insurer has had to change
prices for some of its health insurance after premiums came in too
low for claims.

“You need to feel confident that you can give investors a
realistic look at what’s going to happen for the balance of the
year,” Chief Financial Officer Joe Zubretsky said.
Aetna earned $586 million, or $1.50 per share, in the three
months that ended March 31. That’s up from $562.6 million, or $1.28
per share, a year ago. Revenue fell 3 percent to $8.39 billion.
Adjusted earnings, which exclude one-time items, were $1.43 per
share.

Analysts surveyed by FactSet forecast, on average, earnings of
96 cents per share on $8.32 billion in revenue. They normally
exclude one-time items from their estimates.

Aetna said health care costs, which are essentially the amount
it pays in medical claims, fell 6 percent in the first quarter to
$5.35 billion.

Medical membership fell to 17.8 million people from 18.7 million
in last year’s first quarter, as it saw losses mainly in its
commercial business, which includes employer-sponsored group
coverage and individual plans.

The insurer also said Thursday it will spend about $600 million
to buy Prodigy Health Group, a privately held company that
administers self-funded health plans for companies with between 100
and 5,000 employees. In self-funded plans, the employer pays the
claims and assumes the risk.

Insurers have been buying back shares, offering dividends or
considering acquisitions after piling up cash from strong financial
performances in recent quarters. Aetna, like several competitors,
also is paying a new or bigger dividend to shareholders. The
company will make its first quarterly payment of 15 cents per share
on Friday.

The steady cash flow from larger dividends can make a company’s
stock more attractive to investors. Aside from Aetna, shares of
UnitedHealth, WellPoint and Humana _ all of which increased or
started dividends _ have risen nearly 30 percent or more in 2011.

Some of that gain also has come in the past week, as earnings
reports eased investor worry about the impact of a new health care
overhaul requirement. Insurers entered 2011 facing a new rule that
essentially requires them to pay out a minimum percentage of
premiums on medical claims or issue rebates to consumers.

Gupte, the Bernstein analyst, said there was no historical
precedent for how something like this would affect the companies.

“This was a litmus test of the reform impact,” she said.

     (Copyright 2011 by The Associated Press.  All Rights Reserved.)

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