UPDATE 2-Coventry profit rises as Medicaid in Kentucky improves

Wed Feb 6, 2013 10:00am EST

Feb 6 (Reuters) - Coventry Health Care Inc, which is
being bought by larger competitor Aetna Inc, reported a
higher fourth-quarter profit Wednesday that beat analysts'
expectations, helped by improvements in its Kentucky Medicaid
business.
    The company earned a net income of $119 million, or 88 cents
per share, up from $86 million, or 60 cents a share a year
earlier.
    Analysts had expected Coventry to have earned 67 cents a
share, excluding costs relating to the transaction with Aetna,
according to Thomson Reuters I/B/E/S. 
    Coventry's stated net earnings of 88 cents a share includes
that cost of 3 cents per share.
    Leerink Swann analyst Jason Gurda said in a research note
that the company had beaten estimates because its commercial and
Medicaid businesses had put less toward medical costs as a
percentage of the premiums they took in. 
    He said the company's strong member growth in Medicare
Advantage, a type of Medicare coverage that private insurers
offer, was a positive for Aetna shares.
    Coventry shares were off 16 cents, or 0.34 percent, at
$46.24 and Aetna shares were off 19 cents or 0.38 percent at
$49.36 in morning trading while the S&P 500 index was off 0.27
percent.
    Coventry and other insurers have lost money on their
Medicaid contracts in Kentucky due to higher than expected
claims from members. The company said a better contract went
into effect Oct. 1 and it narrowed its medical loss ratio there.
The percentage of premiums paid for medical expenses fell by
1,170 basis points to 96.7 percent, it said.
    Coventry's results were in contrast to Centene Corp.
, another Kentucky Medicaid provider, which on Tuesday
missed Wall Street estimates for profit and said that its costs
in the Kentucky plan had increased during the quarter. It plans
to exit the plan later this year.
    Aetna, which said in August it would buy Coventry for $5.6
billion, awaits regulatory approval for the transaction. It is
buying the regional provider of Medicare and Medicaid healthcare
insurance as a bet on growth as the U.S. government expands
insurance coverage to more people.
    Under the Affordable Care Act, the government expects about
30 million more people to sign up for insurance, and about half
of them are likely to be eligible for Medicaid programs.    
    Coventry said it had an operating revenue of $3.4 billion in
the fourth quarter. Analysts had expected a revenue of $3.5
billion.
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