Coventry profit rises as Medicaid in Kentucky improves

Wed Feb 6, 2013 10:03am EST

(Reuters) - Coventry Health Care Inc CVH.N, which is being bought by larger competitor Aetna Inc (AET.N), 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 October 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. (CNC.N), 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.

(Reporting by Caroline Humer; Editing by Gerald E. McCormick, Bernadette Baum and Sofina Mirza-Reid)