Aetna Inc (AET.N) reported a higher-than-expected quarterly profit on Thursday, saying it had reached its 2012 membership goal ahead of schedule, held down costs with doctors and benefited from higher medical insurance premiums.
The third-largest U.S. health insurer also boosted its 2012 outlook to the top end of its previous forecast range of $5.00 to $5.10 a share.
Aetna shares rose about 2 percent in pre-market trading to $44.91 compared with a close of $43.95.
"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," Leerink Swann analyst Jason Gurda said.
Aetna forecast 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 healthcare reform. It kept its 2012 membership goal intact.
Aetna Chief Financial Officer Joseph Zubretsky said on the call that it is always tough to forecast costs in the fourth quarter as more members have passed their deductible levels and the company's portion of healthcare payments increases.
Beyond 2012, Zubretsky said he expected 2013 earnings to improve and that its planned $5.6 billion purchase of Coventry Health Care Inc CVH.N 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.
He said the company had worked with providers to keep costs down. In addition, a voluntary early-retirement program announced in 2011 helped to reduce expenses. Aetna's percentage of premiums paid for medical expenses was 80.7 percent in the third quarter, up from 78.9 percent a year earlier.
Some of the quarterly costs stemmed from Aetna's plans to increase its share of the fast-growing, U.S. government-backed Medicare and Medicaid programs with the Coventry purchase, announced in August.
PROFITS, REVENUES RISE
Aetna said its third-quarter profit had risen to $499.2 million, or $1.47 per share, from $490.4 million, or $1.30 per share, a year earlier.
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.
Last week, larger competitor UnitedHealth Group Inc (UNH.N) also reported earnings above Wall Street expectations.
Aetna's 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 businesses.
Aetna added 149,000 new medical members in the quarter to reach its full-year goal of 18.2 million.
(Reporting by Caroline Humer in New York; Editing by Lisa Von Ahn and Dale Hudson)