June 19 (Bloomberg) -- UnitedHealth Group Inc., WellPoint Inc., and other U.S. health insurers dropped in New York trading after Coventry Health Care Inc. lowered its earnings forecast for the second time this year.

Coventry, of Bethesda, Maryland, fell $8.70, or 22 percent, to $31.30, at 4 p.m. in New York Stock Exchange composite trading, a day after saying it underestimated medical claims for its U.S.-backed health plans for the elderly. It was the biggest decline in 10 years. UnitedHealth, based in Minnetonka, Minnesota, fell 7.7 percent, Indianapolis-based WellPoint dropped 5.2 percent and Cigna Corp., of Philadelphia, declined 7 percent.

The selloff increased pressure on insurers to say whether they're standing by their earnings forecasts, analysts said. The largest U.S. health insurer, UnitedHealth, will set the tone, said Carl McDonald, an analyst with Oppenheimer & Co. in New York, in a note to clients today.

``The valuation of the group suggests the market believes that further negative earnings revisions are likely,'' McDonald said. ``Until UnitedHealth provides some indication of its full- year outlook, the group probably won't have many friends.''

The six-member Standard & Poor's 500 Managed Health Care Index fell 6.4 percent.

UnitedHealth spokesman Don Nathan, in an e-mail, wouldn't say today whether the company would be commenting on its earnings outlook. The company last spoke about its forecast in April, when it reduced its full-year expectations.

Aetna, Humana Reaffirm

Aetna Inc. cushioned the blow by reaffirming its previous forecast today. The shares fell 1.8 percent.

Aetna is standing by its second-quarter earnings forecast of 93 cents a share and its 2008 estimate of $4 a share, the Hartford, Connecticut-based company said in a statement.

Humana Inc., of Louisville, Kentucky, also affirmed its previous 2008 earnings forecast of $4.10 to $4.35 a share and $1.15 to $1.20 for the second quarter. Humana fell 3.8 percent, after declining 7.9 percent before commenting on its prospects.

In Coventry's new forecast, it scaled back anticipated enrollment for the most profitable customers, employers that pay the insurer to bear the financial risk of health claims. Coventry projected a 4 percent decline in that membership, reflecting the shrinking national market for employer plans.

Coventry's Forecast

After the market closed yesterday, Coventry forecast second- quarter earnings of 55 to 57 cents a share, and full-year earnings of $3.65 to $3.75. In March, Coventry projected full- year earnings per share of $4.39 to $4.50, down from a previous forecast of $4.42 to $4.58.

Coventry was the worst performer today in the Standard & Poor's 500 after being downgraded by two analysts. Analysts Dave Shove of BMO Capital Markets and Matt Perry of Wachovia Capital Markets changed their ratings to market perform from outperform. The shares now are recommended by five of 15 analysts surveyed by Bloomberg.

The slashed price of shares would make Coventry an attractive acquisition target for Aetna, said Michael Obuchowski, a manager at Altanes Investments in New York, in a Bloomberg TV interview today.

Coventry said in a conference call with analysts yesterday that it failed to anticipate the cost of claims for new members of its health plans for the elderly subsidized by the U.S. Medicare program. Coventry has added 89,000 members to those plans this year, bringing its total Medicare enrollment to 371,000, analyst McDonald said.

Backlog

Coventry's faulty medical-cost estimates reflect backlogs from last year that surfaced in 2008, as well as unexpectedly higher first-quarter expenses that emerged in April and May, said Chief Financial Officer Shawn Guertin. The company plans to raise prices for 2009, freeze some hiring for the rest of the year and cut back on general expenses.

``We tightened our belt effective today on some staffing levels,'' Dale B. Wolf, chief executive officer of Coventry, told analysts. ``We're a little over 15,000 employees in this company, and more or less what we were asking people to do is not let that number grow through the year, as opposed to ripping the guts out of it.''

Democrats in Congress are seeking to reduce payments to insurers under Medicare Advantage plans, which on average are paid 13 percent more than Medicare pays directly to doctors and hospitals. At the same time, insurers have been pressured by unanticipated costs and increased patient claims for the private fee-for-service plans. Aetna and Cigna are the largest health insurers that haven't cut earnings forecasts this year.

Democrats in Congress

The Democrats are especially interested in cutting private fee-for-service plans, structured to operate without the networks of doctors and hospitals that form the backbone of all other Advantage plans. The government pays these plans 17 percent more, on average, than traditional Medicare would spend on the same patients.

Private fee-for-service health plans are most popular in rural areas with few medical providers, accounting for 22.5 percent of the 10 million Medicare Advantage enrollees nationwide, according to McDonald.

``I'd hate to see what Coventry's numbers would look like if the Democrats do cut private fee-for-service,'' Robert Laszewski, an Alexandria, Virginia-based consultant who was a senior executive in the health insurance industry, said on his Web site. ``If Coventry can't make money at 117 percent of what Medicare gets for the same seniors, how will they make money? This is scary.''

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

Last Updated: June 19, 2008 17:27 EDT