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Aetna says Coventry purchase boosted second-quarter profit

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(Reuters) — Aetna Inc., the third-largest U.S. health insurer, on Tuesday reported a higher second-quarter profit that beat analyst expectations, helped by last year's acquisition of Medicare and Medicaid provider Coventry Health Care.

Revenue rose to $14.5 billion from $11.5 billion, and Aetna raised its forecasts for 2014 profit and customer growth.

The cost of a new hepatitis C treatment held back further gains in profit, but Aetna said its outlook was for the 2014 increase in medical cost spending to be at the lower end of the 6% to 7% range it had been expecting.

Medical costs are an important component of profit for Aetna, which sells insurance both through employers and for government-paid programs. Aetna is one of the largest sellers of new insurance plans offered to individuals on the exchanges created by President Barack Obama's health care reform law.

During the quarter, it spent 83.1% of the premiums it took in on medical claims, a measure called medical benefit ratio. It said that ratio increased from 82.5% a year earlier because of the spending on the new hepatitis C drug, which costs $84,000 per treatment.

Under the healthcare law, Aetna and other insurers must spend 80% or more of premiums on medical care or return money to customers. Growth in spending on healthcare has generally slowed in recent years with the economy.

“Encouragingly, fears of commercial cost trend acceleration from an economic rebound were alleviated with trend guidance stated to come in at the lower half of the 6-7% guidance range," Leerink Partners analyst Ana Gupte said in a research note.

Aetna added 385,000 members during the quarter and now expects 23.4 million members by the end of the year. That growth was in its commercial insured business, which includes new Obamacare customers, as well as government products.

Aetna, which closed on its acquisition of Coventry in May 2013, said it now expected the deal to deliver more operating profit per share in 2014 than it had previously thought, raising the range to 55 cents to 60 cents.

Excluding acquisition-related costs, it reported earnings of $1.69 per share, above the $1.60 per share that analysts had anticipated.

Aetna reported net income of $549 million, or $1.52 per share, up from $536 million, or $1.49 per share, a year earlier.

Based on its second quarter, the company raised its 2014 earnings outlook to a range of $6.45 to $6.60 per share from $6.35 to $6.55.