UPDATE 5-Aetna profit beats as medical claims costs remain low

* Q3 EPS ex items $1.40 vs $1.15 Wall Street view

* Sees FY 2011 EPS of $5.00; Street looks for $4.81

* Sees 2012 EPS 'at least' $4.80; Street looks for $4.89

* Shares up 2.9 percent

By Lewis Krauskopf

Oct 27 (Reuters) - Health insurer Aetna Inc posted a much higher-than-expected quarterly profit, as low use of healthcare services curbed medical claim costs, and allayed investor concerns over a rise in such expenses in 2012.

Shares in the No. 3 U.S. health insurer rose 2.9 percent percent on Thursday, exceeding a rally in the wider market.

Health insurers have benefited from low claims costs as Americans delay doctor visits and medical procedures. Some have lost jobs that provided health insurance while others struggle to pay rising co-payments and other out-of-pocket costs in their existing plans.

Aetna's forecast for 2012 includes the potential for earnings to decline slightly next year as it expects medical costs will increase. Low utilization levels have helped it beat Wall Street profit expectations through this year.

The forecast contrasts with those of rivals UnitedHealth Group Inc and WellPoint Inc , which projected profits to rise in 2012. But analysts said Aetna's forecast should comfort investors who worried about an even lower profit next year.

"We expect there is conservatism with room for upward revisions," Sanford Bernstein analyst Ana Gupte said in a research note.

Chief Financial Officer Joseph Zubretsky called the forecast a "floor" for the company's operating earnings potential next year, but stressed the need to consider a rebound in use of healthcare services.

"We just don't think utilization can stay this low for very much longer," he told a conference call with analysts.

In an interview, Zubretsky said that membership declines next year from the losses of two major national employer accounts would pressure results, though Aetna is optimistic it will add to its Medicare Advantage plans for the elderly.

"It's too early to tell whether that will occur so we are being cautious on the membership gains that will offset the membership losses we already know about," the CFO said.

Aetna projected 2011 operating earnings, excluding items, of $5.00 per share. The company said last month it expected profit to exceed its forecast of $4.60 to $4.70 per share. Analysts have since been looking for $4.81 per share, according to Thomson Reuters I/B/E/S.

Aetna expects operating earnings of "at least" $4.80 per share next year. Analysts have been looking for $4.89.

Citigroup analyst Carl McDonald said Aetna shares have been trading at only 8 times Wall Street's projection for 2012 profit, "a big discount to the rest of the group."

"The market was fearing a much worse outcome, as evidenced by Aetna's multiple," McDonald said in a research note.

Aetna shares were up 2.9 percent to $40.05 in late morning trade on the New York Stock Exchange.

PROFIT WELL ABOVE EXPECTATIONS

Aetna's third quarter net income fell slightly to $490.4 million from $497.6 million a year earlier. On a per-share basis, earnings rose to $1.30 from $1.19 a year ago, when the company had more outstanding stock.

Excluding items, earnings of $1.40 per share beat the analysts' average estimate by 25 cents.

Aetna's profit amounted to a 22 percent beat over Wall Street's expectation, compared with WellPoint's 5 percent beat and UnitedHealth's 4 percent beat, Leerink Swann analyst Jason Gurda noted.

Aetna's revenue edged down 0.7 percent to $8.48 billion.

Total membership fell 1.6 percent to 18.23 million as its commercial membership serving employers declined. The company spent 78.9 percent of its premium revenue on medical costs across its health plans, down from 81.8 percent a year ago.

The health insurance industry saw its biggest deal in six years on Monday, when Cigna Corp announced a $3.8 billion acquisition of HealthSpring Inc to jump-start its business selling Medicare plans for the elderly.

Chief Executive Mark Bertolini said on the conference call that he expected more consolidation, as a U.S. healthcare overhaul enacted last year shakes out "winners and losers."

Zubretsky said Aetna is seeking to increase its Medicare business. Medicare is an enticing market for health insurers because the entry of the postwar baby boom generation into retirement is expected to swell the ranks of privately run Medicare Advantage plans.

"We are bullish on the Medicare line of business. The demographics line up; our capabilities line up," Zubretsky said in the interview. "We are going to grow it organically and inorganically."

Through Wednesday, Aetna shares had climbed 27 percent this year, as health insurer shares have easily outperformed the broader market in 2011.