Aetna 4Q profit falls 15 percent on medical costs

INDIANAPOLIS -- Aetna Inc. said its fourth-quarter profit fell 15 percent, as it continued to struggle with rising medical costs that hurt its performance throughout 2009.

The Hartford, Conn., health insurer said Friday medical costs, its largest expense, climbed 14 percent to $6.1 billion in the three months that ended Dec. 31. That hit was partially offset by a 9 percent increase in premiums.

Aetna has tied the rising costs to the slumping economy. Analysts also have said the insurer set prices too low last year, which helped it gain enrollment but hurt when medical costs rose.

CEO Ronald A. Williams said fixes the company put in place last year are starting to show results.

"To date, we have repriced a significant portion of our commercial insured business and are creating momentum toward the improvement of our long-term operating margin profile," he told analysts during a Friday morning conference call

Aetna earned $165.9 million, or 38 cents per share, in fourth quarter of 2009. That's down from the $194.7 million, or 42 cents per share, in the same period the prior year. Excluding one-time items it said profit totaled 40 cents per share.

Revenue rose 13 percent to $8.76 billion.

Analyst polled by Thomson Reuters forecast, on average, a profit of 42 cents per share on $8.65 billion in revenue.

Goldman Sachs analyst Matthew Borsch said in a research note the insurer reported lower-than-expected earnings, but results show "clear signs" of strengthening in core operating results. He noted Aetna's cash flow is strong and its health care earnings were higher than he expected.

Aetna said claims rose partly due to treatment for swine flu and greater use of temporary COBRA insurance coverage, which people can buy after they lose their employer-sponsored insurance. Aetna said it spent 85 percent of its commercial premium revenue on medical costs, up from 80.6 percent a year ago.

Commercial premiums include revenue from employer-sponsored group insurance and individual policies, not government programs like Medicaid or Medicare Advantage.

For the full year, Aetna said its profit fell 8 percent, to $1.28 billion from $1.38 billion. On a per-share basis, profit rose to $2.84 from $2.83 because the company now has fewer shares on the market.

Its revenue rose 12 percent to $34.76 billion from $30.95 billion.

For 2010, Aetna forecast an operating profit of $2.55 to $2.65 per share. Analysts expect $2.83 per share. The insurer has said it expects 2010 operating earnings to be "modestly lower" than last year due in part to pricing pressures and Medicare Advantage reimbursement cuts.

Williams called this year a "repositioning year" that doesn't reflect Aetna's earnings potential.

Aetna competitors UnitedHealth Group Inc., WellPoint Inc., Humana Inc. and Cigna Corp. all reported fourth-quarter profits that either met or exceeded Wall Street expectations. But each also saw sizable enrollment drops compared to 2008.

Several health insurers have been hit by enrollment losses, as companies cut jobs and trimmed the number of people covered by employer-sponsored health insurance.

However, Aetna ended 2009 with enrollment of 18.9 million people, a 7 percent increase over 2008.

Aetna took a $65 million charge in the fourth quarter for two rounds of job cuts it recently completed. The insurer cut 625 jobs in November and then recently cut the same amount.

The company is the third largest publicly traded health insurer based on medical enrollment.

Aetna shares rose 26 cents to $29.49 in morning trading.