(Rewrites throughout with commentary on medical costs, industry
By Caroline Humer
July 29 Aetna Inc, the third-largest
U.S. health insurer, reported a rise in medical costs on
Tuesday, raising investor concerns that a long run of low growth
in such costs might be ending and pushing shares in the industry
U.S. insurer profits have benefited from several years of
relatively low use of medical services by their members due to
an economic downturn and higher out-of-pocket costs for
Aetna said its medical spending rose in the second quarter
due to an expensive new treatment for hepatitis C made by Gilead
Sciences and the higher costs of covering patients who
bought insurance under President Barack Obama's healthcare law
for the first time.
The insurer said that it spent 83.1 percent of the premiums
it took in on medical claims, a measure called medical benefit
ratio, higher than some Wall Street estimates. It said that
ratio increased from 82.5 percent a year earlier.
Aetna shares fell 3.4 percent to $81.94 in early afternoon
trading on the New York Stock Exchange. Among rivals,
UnitedHealth Group slipped 1.7 percent, WellPoint Inc
dropped 2.9 percent and Humana Inc slid 3
Aetna executives said the quarter did not represent a new
trend and that they expect 2014 medical spending to be at the
low end of company forecasts. But investors were skeptical, and
cited evidence of higher medical costs when UnitedHealth
reported its quarterly profits last week.
"Investors are concerned that cost trend is creeping up,"
Jefferies & Co analyst David Windley said.
Industry analysts also pointed to the financial performance
of U.S. hospitals as another sign that medical use is up. After
years of low utilization, hospitals such as HCA Holdings Inc
have reported quarterly profits that blew past Wall
Aetna's chief financial officer said its data did not show
any reason for concern.
"When we look at our core business and we look at medical
cost trends in the second quarter, everything looks very well
behaved," CFO Shawn Guertin said in an interview. "The (cost
ratios) are actually down year over year."
Cost increases are tied to the new Obamacare exchange
business and the new hepatitis C treatment Sovaldi, he said. The
drug was approved in December and costs $84,000 for a 12-week
treatment that cures most patients who take it.
Aetna second-quarter profit was boosted by Medicare and
Medicaid provider Coventry Health Care. Excluding costs related
to that purchase in 2014, earnings were $1.69 per share, above
the $1.60 per share that analysts had anticipated.
The insurer raised its 2014 earnings forecast due to greater
profits created by the deal, predicting a range of $6.45 to
$6.60 per share from $6.35 to $6.55.
Aetna's second-quarter net income rose to $549 million, or
$1.52 per share, from $536 million, or $1.49 per share, a year
Revenue rose to $14.5 billion from $11.5 billion.
(Reporting by Caroline Humer; Editing by Michele Gershberg and