Aetna Inc (AET.N) on Tuesday reported a lower-than-expected profit for the third quarter, when cuts in U.S. government funding hurt results in the health insurer's private Medicare business.
Excluding the costs of integration and capital losses, the company reported operating earnings of $1.50 per share. Analysts on average had expected a profit of $1.53 on that basis, compared with $1.55 a year earlier, according to Thomson Reuters I/B/E/S.
The company said it was still planning for 2013 operating earnings of $5.80 to $5.90 per share. Analysts' estimates for the year are for $5.89.
The news followed disappointing financial reports during the past two weeks from competitors UnitedHealth Group Inc (UNH.N) and WellPoint Inc WLP.N, both of which drove down shares across the insurance sector.
In conference calls with investors, UnitedHealth warned of the effects of government funding cuts to private Medicare on its 2014 business, and WellPoint said that uncertainty around the technology troubled rollout of U.S. government-subsidized individual insurance made next year's results hard to predict.
Like WellPoint and other competitors, Aetna has begun selling individual insurance for 2014 on some of the state-based exchanges created under President Barack Obama's signature healthcare law.
But Aetna cut back its exchange footprint in the summer, pulling out of Maryland, New York and New Jersey among other states. It attributed the moves to its May acquisition of Coventry, which also has products on the exchanges.
Coventry specializes in Medicaid insurance for the poor and Medicare for older people.
Aetna shares closed on Monday at $61.78, up about 36 percent so far this year.
Aetna said its overall medical loss ratio, a percentage indicating the portion of premium revenue it paid out in claims, rose to 83.1 percent from 80.7 percent a year earlier.
In its Medicare business, this ratio increased to 87.8 percent from 82.5 percent. Government funding cuts and underperformance in two product offerings contributed to the higher ratio, the company said.
Aetna said medical costs were lower than expected in its commercial business, which largely provides insurance to employees. The medical loss ratio for that business rose to 80.5 percent from 79.6 percent a year earlier.
Under the health reform law, insurers must refund customers if the medical loss ratio is less than 80 percent.
Aetna said it had added 184,000 members in its healthcare business during the quarter, primarily in the commercial and private Medicare supplement sectors, to end the period with 22.2 million.
The company reported quarterly net income of $517 million, or $1.38 per share, compared with $499 million, or $1.47 per share, a year earlier.
Revenue was $13 billion, in line with analysts' expectations.
(Reporting by Caroline Humer; Editing by Lisa Von Ahn)