Aetna Profit Misses Estimates as Medicare Cuts Loom
Aetna Inc. (AET), the third-biggest U.S. health insurer, reported profit that missed analyst estimates and said pressure from Medicare payment changes may leave earnings little changed next year.
Third-quarter earnings excluding one-time items were $1.50 a share, missing the $1.53 average estimate of 17 analysts tracked by Bloomberg. Net income climbed 3.9 percent to $518.6 million, or $1.38 a share, from $499.2 million, or $1.47, a year earlier, the Hartford, Connecticut-based carrier said in a statement today.
Chief Executive Officer Mark Bertolini said the company’s worst-case scenario for 2014 is that per-share earnings from operations won’t increase from 2013. Insurer shares have slid this month after the top two carriers, UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP), gave outlooks for next year that disappointed investors. The industry faces falling payments from the U.S. Medicare program. Technical issues with the Obamacare rollout also have clouded prospects for new business from the federal health-care law.
“There’s a whole host of operational questions about 2014,” said Thomas Carroll, a Stifel Nicolaus & Co. analyst in New York, in a telephone interview. “Even if the companies have clarity on that, it really is not in their best interests to stick their necks out.”
Aetna fell 1.7 percent to $60.75 at the close in New York. The insurer has risen 31 percent this year.
Third-quarter revenue jumped 46 percent to $13 billion, boosted by the acquisition of rival Coventry Health Care Inc.
Aetna reiterated its 2013 profit forecast of $5.80 to $5.90 a share. Analysts had estimated an average of $5.90 for the year. The company plans to give a detailed outlook for 2014 at a meeting in December with analysts.
The insurer won’t be affected much next year by the flawed debut of the Obamacare insurance exchange website since the company gets less than 3 percent of its revenue, and a smaller percentage of its profit, from the sale of insurance to individuals and small groups, Bertolini said on a conference call with investors and analysts.
“Right now, this isn’t a big exposure for us,” he said. “It is an appropriate risk to take in testing a new marketplace, which we believe will be around for an extended period of time.”
He said the delays to the site, which may not be fully functional until December, could deter young, healthy consumers from buying plans on the exchange created by the Patient Protection and Affordable Care Act of 2010. That might lead a disproportionate amount of sick consumers signing up, costing insurers more.
“The younger, healthier people aren’t likely going to give it more than one shot,” he said.
Aetna completed its acquisition of Coventry in May, anticipating higher growth in Medicaid and Medicare, the government insurance programs for the poor and elderly. The purchase expanded Aetna’s enrollment by almost a third, bringing the company closer to Minnetonka, Minnesota-based UnitedHealth and WellPoint, based in Indianapolis.
The deal was valued at $8.7 billion when it closed, including the assumption of $1.8 billion in Coventry debt.
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