* Economy seen as culprit for costs
* Q1 EPS of 96 cents vs 93-cent Wall St estimate
* Backs 2009 EPS forecast
* Shares fall 9.3 percent (Recasts, adds CFO comment, analyst's comment, updates share movement)
By Lewis Krauskopf
NEW YORK, April 29 (Reuters) - Aetna Inc AET.N reported higher-than-expected medical costs in its business serving employers on Wednesday, sending its shares down 9 percent and overshadowing quarterly profit that was slightly above expectations.
The No. 3 U.S. health insurer, which backed its full-year profit forecast, blamed the weak economy for the unexpected cost spikes, as people use medical services in fear of losing their insurance if they are laid off and growing numbers turn to post-employment health coverage.
The report from Aetna contrasts with first-quarter results from rivals, which have posted profits that easily topped analysts' estimates.
"Most everyone has seen better (medical cost) trends and have not referenced any kind of concerns," said David Heupel, a portfolio manager with Thrivent Investment Management. "They are sticking out in that regard this reporting season."
Analysts have speculated the weak economy would help health insurers because people would hold back on medical spending, but Aetna's report suggests otherwise. Still, shares of most rival health insurers rose moderately on Wednesday, shrugging off Aetna's results.
Aetna's net income rose to $437.8 million, or 95 cents per share, from $431.6 million, or 85 cents per share, a year earlier.
Excluding items, earnings of 96 cents a share were 3 cents ahead of the average forecast of analysts, according to Reuters Estimates.
Revenue rose 11 percent to $8.61 billion. The health insurer's enrollment grew 9 percent, to 19.1 million at the end of March.
Aetna Chief Financial Officer Joseph Zubretsky called it a "very, very good quarter," pointing to the membership growth as well as an 8 percent increase in operating earnings.
"Even with the uptick in commercial medical costs, on balance this was a very, very good result that we believe is creating attractive shareholder returns," Zubretsky said in an interview.
In the commercial segment that serves employers, the medical benefit ratio, which measures the amount of premiums spent on medical costs, worsened to 81.7 percent from 79.8 percent a year earlier. Aetna previously projected the ratio at between 80.2 percent and 80.8 percent for the year.
More people than expected are using COBRA post-employment insurance, Aetna said. Because such coverage is so expensive, people tend to buy it only if they are likely to use medical services. Others who worry about their jobs are using services in anticipation of losing coverage, Aetna said.
The company further said people are using more services, such as getting more tests, when they visit the doctor. Doctors are also billing for all revenue they are contractually entitled to, Zubretsky said.
"We believe this distressed economy is creating membership and provider behavior changes," Zubretsky said.
In addition, the Hartford, Connecticut-based company said it took more reserves to cover medical costs from prior quarters.
Wachovia analyst Matt Perry said Aetna's first-quarter results were the weakest in the industry so far, but added that it has been the best-run health insurer and did not see problems that rivals endured in 2008.
Aetna still expects 2009 operating earnings of $3.85 to $3.95 per share.
To adjust to the higher medical costs, Aetna plans to re-price business for the remainder of the year and take a closer look at its methods for managing medical costs.
Improved performance in its Medicare plans for seniors, administrative cost controls, higher expected investment income and share buybacks also will allow Aetna to reach its full-year forecast, Zubretsky said.
Aetna shares were down $2.27 or 9.3 percent at $22.13 on the New York Stock Exchange around midday. Through Tuesday, the stock was down 14 percent this year, compared with a 7 percent drop for the S&P Managed Health Care index .GSPHMO. (Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn and Matthew Lewis)