* Raises 2012 profit forecast
* Sees 2014, 2015 gains from Coventry Health purchase
* Shares rise 1 pct
By Caroline Humer
NEW YORK, Oct 25 Health insurer Aetna Inc
said it was able to hold down costs by directing more of
its plans to U.S. medical providers that focus on efficient
care, helping it beat quarterly profit expectations and raise
its earning forecast for the year.
The third-largest U.S. health insurer is on the frontlines
of a national healthcare overhaul that will be largely in place
Aetna said that next year it will shift even more of its
commercial and Medicare business to these groups, known as
accountable care organizations, which are offered incentives to
improve the quality of care while lowering costs. Medicare is
the government health plan for older Americans.
The shift should help it weather government efforts to rein
in reimbursement for Medicare and the Medicaid program for the
poor, as well as expected fees and taxes on the industry down
the road, the company said.
Its shares were up 1 percent in midday trading, ahead of a
0.5 percent rise for the Morgan Stanley Healthcare Payor Index
of industry peers.
"Overall, it was a solid operating quarter. A big part of
this business is that in order to have a sustainable margin
structure, you need to bring down costs, and they demonstrated
that in this quarter," said Leerink Swann analyst Jason Gurda.
Aetna expects earnings to improve in 2013 from 2012 but did
not give a specific forecast and said that it is uncertain about
the extent that consumers' use of healthcare will grow. Use of
medical services has been at record low rates in recent years
due to a weak economy and high unemployment, helping insurer
profits by keeping claims costs low.
The so-called "fiscal cliff" - about $600 billion in
automatic government budget cuts that could come into play next
year - is another uncertainty for the industry and the U.S.
"We are very concerned about it. Not just for our business
and shareholders but for people in general," Aetna Chief
Financial Officer Joseph Zubretsky said in an interview.
He said Aetna could be affected as consumers either rein in
their own spending yet again due to economic distress, "or in
the wake of possible further unemployment, (spend) as much as
they can in their current benefit programs with the prospects of
losing their job."
FOURTH QUARTER TOUGHER TO FORECAST
Aetna's report comes one week after the largest U.S. health
insurer, UnitedHealth Group, also reported better than
expected earnings. UnitedHealth also expects a stronger
performance in 2013, but warned analysts not to be too
optimistic because of the uncertain economy.
Aetna's third-quarter profit rose to $499.2 million, or
$1.47 per share, from $490.4 million, or $1.30 per share, a year
Excluding tax benefits and other special items, earnings
rose to $1.55 per share from $1.40. That was ahead of analysts'
average estimate of $1.34, according to Thomson Reuters I/B/E/S.
To account for these higher earnings, but taking into
account uncertainty about profitability in the fourth-quarter,
Aetna raised its 2012 outlook to the top end of its previous
forecast range of $5.00 to $5.10 a share.
Aetna said it expects fourth-quarter operating earnings of
92 cents per share, below analyst forecasts, and said in a
conference call with investors that it expected to spend more
because of the U.S. healthcare reform. It kept its 2012
membership goal intact.
Zubretsky said on a call with investors that it is always
tough to forecast costs in the fourth quarter as more members
pass their deductible threshold of healthcare services that they
pay out of pocket before insurance kicks in, increasing Aetna's
Zubretsky said he expected 2013 earnings to improve and that
Aetna's planned $5.6 billion purchase of Coventry Health Care
Inc would add to earnings in subsequent years.
Excluding transaction costs, he expects the acquisition to
add 45 cents per share in 2014 and 90 cents per share in 2015.
Aetna's percentage of premiums paid for medical expenses was
80.7 percent in the third quarter, up from 78.9 percent a year
Revenue increased to $8.9 billion from $8.4 billion, in line
with expectations. The company attributed the rise to higher
insurance premiums in its commercial, Medicare and Medicaid
Aetna added 149,000 new medical members in the quarter to
reach its full-year goal of 18.2 million.