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Aetna Raises Profit Forecast as Insurer Grows Enrollment

Aetna Inc. (AET), the third-biggest health insurer by sales, raised its full-year forecast, helped by a surge in Medicare and Medicaid premiums and medical claims that were lower than the company anticipated.

Profit for 2013 may be $5.50 to $5.60 a share, Aetna said today in a statement. The Hartford, Connecticut-based carrier had forecast earnings of at least $5.40 a share in January. Excluding costs for its acquisition of Coventry Health Care Inc., first-quarter earnings were $1.50, 12 cents higher than the average of 18 analyst estimates compiled by Bloomberg.

Aetna joined larger U.S. health insurers UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP) in reporting first-quarter results that beat analyst estimates. The industry has benefited for years from slow growth in medical costs as Americans cut back on care amid economic concerns.

“That Aetna beat consensus meaningfully in the first quarter should surprise no one at this point,” wrote Carl McDonald, a New York-based Citigroup analyst, in a note to clients today. “Almost every company that has reported thus far has benefited from lower utilization” of medical services.

Aetna said earnings were also boosted by rising revenue from private versions of Medicare, the U.S.-backed program for the elderly, and plans it administers for Medicaid, which covers poor Americans. The company’s total membership in medical plans rose 2.1 percent to 18.3 million.

The carrier rose 2.3 percent to $57.44 at the close in New York. The shares have gained 30 percent in the past 12 months.

$64,000 Question

So far this year, insurers have been helped by “a combination of better industry price discipline and continued moderate utilization,” said Matthew Borsch, a Goldman Sachs Group Inc. analyst in New York, in an April 17 note to clients.

Whether the lower costs are a temporary result of a weak economy or a permanent change “in some ways is the $64,000 question” for health insurers, Shawn Guertin, Aetna’s chief financial officer, in a phone interview.

“We’ve approached the business assuming in our pricing that it would turn around and we did not see that in the first quarter,” Guertin said. Aetna didn’t change its forecast for medical costs the rest of the year, preferring to take a wait-and-see approach, he said.

UnitedHealth, the biggest health insurer, is based in Minnetonka, Minnesota; WellPoint, No. 2 in the industry, is based in Indianapolis.

Coventry Update

Aetna agreed to buy Coventry for $5.6 billion last year, to expand its Medicare and Medicaid offerings. The deal is expected to close by the middle of 2013, Aetna has said.

Chief Executive Officer Mark Bertolini, on a call with analysts today, said the insurer has all the required approvals from U.S. states and is awaiting a decision from the federal Justice Department.

First-quarter net income declined 4.1 percent to $490.1 million from $511 million a year earlier as costs rose along with the higher membership, Aetna said in its statement. Per-share earnings rose to $1.48 from $1.43 after the insurer bought back 3.7 million shares in the quarter for $184 million.

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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