Aetna Profit Misses Estimates on Low Medicare Margins

Photographer: Michael J. Doolittle/Bloomberg

Aetna Inc. headquarters stand in Hartford, Connecticut. Close

Aetna Inc. headquarters stand in Hartford, Connecticut.

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Photographer: Michael J. Doolittle/Bloomberg

Aetna Inc. headquarters stand in Hartford, Connecticut.

Aetna Inc. (AET), the third-biggest U.S. insurer, reported earnings that missed analyst estimates as Medicare costs were higher than expected.

Fourth-quarter earnings excluding one-time items of $1.34 a share missed by 2 cents the average of 14 analyst estimates compiled by Bloomberg. Net income almost doubled to $368.9 million, or $1 a share, from $190.1 million, or 56 cents, a year earlier, Hartford, Connecticut-based Aetna said today in a statement.

Medicare costs as a percentage of premiums, known as medical-loss ratio, rose to 87.9 percent from 85.6 percent a year earlier, in part because of “underperformance in two specific Medicare product offerings,” Aetna said. In July, Chief Financial Officer Shawn Guertin said the company was experiencing higher-than-anticipated costs in products including individual Medicare Advantage offerings.

The Medicare medical-loss ratio “has been pretty bad throughout the year,” said Ana Gupte, a New York-based analyst at Leerink Partners in a telephone interview today. Even so, the ratio was still worse than estimated, analysts Justin Lake of JPMorgan Securities Inc. and Chris Rigg of Susquehanna International Group LLP said in notes today.

Aetna fell less than 1 percent to close at $67.92 in New York. The company has gained 37 percent in the last 12 months.

Revenue Misses

Operating revenue in the fourth quarter rose to $13.13 billion, less than analysts’ expectations of $13.15 billion. The insurer reaffirmed its 2014 profit forecast of at least $6.25 a share.

Aetna’s medical membership climbed 22 percent to 22.2 million at the end of 2013, largely due to its $8.7 billion acquisition of Coventry Health Care Inc. in May. The acquisition increased the company’s business from Medicaid and Medicare, the government insurance programs for the poor and elderly.

“We now project medical membership to increase by approximately 50,000 at the end of the first quarter of 2014,” Chief Executive Officer Mark Bertolini said in the statement. Aetna also expects to add at least 110,000 new Medicare Advantage members in the first quarter. Medicare Advantage is insurers’ private version of the U.S. government program for the elderly.

The expectations beat Aetna’s previous estimates, Rigg said. Aetna said in December it expected total membership to be “flattish” in 2014 and Medicare Advantage growth of 55,000, wrote Riggs.

To date, Aetna has 135,000 paid members out of 200,000 enrollees through the exchanges set up under Obamacare, said Bertolini on a conference call. WellPoint Inc., the second-biggest U.S. health insurer, said on Jan. 29 that it had 500,000 applications through the 2010 Patient Protection and Affordable Care Act, or Obamacare, with the majority having paid their first premiums.

To contact the reporter on this story: Caroline Chen in New York at cchen509@bloomberg.net

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

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