* CFO Zubretsky to take new business role
* Settlement related to out-of-network payments
* Backs 2013 outlook for earnings growth
By Caroline Humer
Jan 31 Aetna Inc fourth-quarter earnings
fell sharply, the health insurer said on Thursday, as costs rose
in parts of its employer-based insurance business and it took
charges for settling litigation over out-of-network payments.
The company said Chief Financial Officer Joseph Zubretsky
will lead a new business internally. His CFO slot will be filled
by Shawn Guertin, who has been with Aetna since 2011 and was
previously CFO of Coventry Health Care Inc, which Aetna
The Hartford, Connecticut company announced plans in August
for the $5.6 billion acquisition of Coventry, part of a strategy
to expand in government-sponsored healthcare programs like
Zubretsky, Aetna's CFO for six years, will now have broader
responsibility, managing new businesses such as coordinated
"He's been very well respected as a CFO so now he's heading
up operations of their largest business unit," said Sarah James,
an analyst at Wedbush Securities.
Shares in Aetna were off 1.4 percent, or 69 cents, at $48.26
in morning trading.
Aetna said fourth-quarter net income slid to $190.1 million,
or 56 cents per share, from $372.6 million, or $1.02 per share,
a year earlier.
Profit took a hit from a $78 million after-tax charge for
the $120 million settlement reached in December for the
class-action lawsuit. Patients and doctors had accused Aetna of
systematically underpaying claims.
Excluding special items, the company reported earnings of 94
cents per share. Analysts on average were expecting 95 cents on
that basis, according to Thomson Reuters I/B/E/S.
Aetna said operating earnings fell in its commercial
business as healthcare costs rose. Increased costs related to a
severe flu season were offset by a decline in the Northeast of
medical services after Superstorm Sandy, which shut down
businesses, schools and public transportation for weeks or more.
Leerink Swann analyst Jason Gurda said in a research note
the decline in healthcare earnings came as the company collected
less money than expected in insurance premiums.
He noted that costs appeared to have risen due to an
industry trend toward more aggressive pricing that was mentioned
by competitors UnitedHealth Group Inc and WellPoint Inc
, which already reported fourth-quarter results.
RETURN TO GROWTH
Aetna, facing a year in which healthcare reform could
accelerate as state and federal governments start insurance
exchanges for people to buy policies, affirmed that it expects
profit to return to growth in 2013.
The 2010 Patient Protection and Affordable Care Act has put
the insurers on the front lines of reform as the law requires
policies to include more preventative services for free, added
taxes and mandated access to health care for all Americans.
Zubretsky said in an interview that the company was
preparing for the Oct. 1 launch of health insurance exchanges by
building its technology and meeting with providers such as
hospitals to negotiate rates.
This spring and summer they will file rate proposals and
negotiate with regulators on what they can charge for these
products aimed at individuals and small businesses, he said.
Wall Street is looking closely for signs of what rates
insurers will negotiate with providers for a clue as to how
profitable the exchanges will be but the companies have said
little. Zubretsky said Aetna will be pricing "conservatively."
Aetna expects 2013 profit excluding items of at least $5.40
a share compared with $5.13 on that basis in 2012.
Analysts are expecting 2013 earnings of $5.53 per share and
2013 revenue of $38.7 billion on average, according to Thomson
Total revenue increased to $9.9 billion in the fourth
quarter from $8.6 billion a year earlier.
Excluding capital gains and a $941 million revenue gain
related to its annuity business, revenue increased 5 percent to
$8.96 billion from $8.54 billion a year earlier, driven by
higher health care premiums in its employer-based and Medicare
and Medicaid government insurance.
It ended the year with 18.2 million members, an increase of
64,000 during the fourth quarter. It expects to increase
membership in 2013 to 18.4 million members as it adds more
Medicare and Medicaid patients.