Aetna Profit Slips as Insurer Settles Payments Lawsuit

Aetna Inc. (AET), the third-biggest U.S. health insurer, said fourth-quarter profit fell 49 percent as the company settled a lawsuit over medical claims while costs for patient care climbed.

Net income dropped to $190.1 million, or 56 cents a share, with the higher costs masking a rise in enrollment, Hartford, Connecticut-based Aetna said today in a statement. The company also said Chief Financial Officer Joseph M. Zubretsky will head a new unit and named Shawn Guertin as his replacement.

Aetna’s profit was hurt by $147 million in charges, including the lawsuit settlement and costs for its $5.6 billion deal last year for insurer Coventry Health Care Inc. (CVH) The company also saw profit margins drop in some of its health plans, possibly as a result of a flu outbreak during the quarter, said Matthew Borsch, a Goldman Sachs Group Inc. analyst in New York.

The higher medical costs were “the incremental pressure point on otherwise solid fourth-quarter results,” Borsch said in a note to clients today.

Aetna declined 1.5 percent to $48.23 at the close in New York. The shares gained 10 percent in the past 12 months.

Aetna said the share of health-care premiums it spends on patient care rose to 84.1 percent from 80.7 percent a year earlier. The insurer finished 2012 with 18.2 million members in its medical plans, an increase of 64,000 over the third quarter, Aetna said in its statement.

Excluding the settlement and other one-time items, earnings were 94 cents, matching the average of 17 analysts’ estimates compiled by Bloomberg. Aetna also reaffirmed its 2013 forecast for at least $5.40 a share in profit.

Revenue rose 4.8 percent to $8.96 billion from a year earlier, Aetna said.

Lawsuit Settlement

The company said Dec. 7 that it had settled a class-action suit by patients and providers who said insurers had manipulated data to lower reimbursements for out-of-network care. Aetna will pay at least $120 million under the agreement, resulting in fourth-quarter costs after taxes of $78 million.

Chief Executive Officer Mark Bertolini said at a Jan. 8 conference that the insurer met its 2012 goals for medical costs and enrollment. Insurers also had a tough comparison with 2011’s fourth quarter, when costs were lower than expected, said Michael Manns, a Bloomberg Industries analyst in Princeton, New Jersey.

“You just didn’t end up getting as much of a benefit because many of the companies had gone ahead and done better at anticipating their costs,” Manns said in a phone interview before today’s announcement.

Management Changes

In a separate statement, Aetna announced management changes it said would better align the insurer’s businesses with the “evolving needs” of customers.

Zubretsky, who had been CFO since 2007, will lead a new National Businesses unit that includes the company’s national accounts, national network contracting and care management, and the company’s growing roster of “accountable care” partnerships with doctors and hospitals.

Guertin, Aetna’s head of business segment finance, will succeed Zubretsky as CFO as of Feb. 25. Prior to joining Aetna in 2011, he worked for almost five years at Coventry, including as CFO.

The Coventry deal is still expected to close by mid-2013, the company said.

UnitedHealth Group Inc. (UNH), the top insurer by enrollment, is based in Minnetonka, Minnesota. WellPoint (WLP) Inc., the second biggest, is based in Indianapolis.

Net income was $372.6 million, or $1.02 a share, in the fourth quarter of 2011.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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