Aetna profit beats expectations as costs stay low

(Reuters) — Health insurer Aetna Inc. on Tuesday reported higher-than-expected second-quarter earnings as medical costs in its employer-based and commercial business remained low and it closed on its acquisition of Coventry Health Care.

Aetna said net income rose to $536 million, or $1.49 per share, from $457.6 million, or $1.32 per share a year earlier.

Aetna's report of low spending by consumers on medical services follows similar earnings beats by larger rivals UnitedHealth Group Inc. and WellPoint Inc.

People began seeing doctors and hospitals less frequently several years ago because of the weak economy and the trend has continued.

Aetna announced plans to buy Coventry for $5.6 billion last year in a bet on growth of U.S. government-backed Medicare and Medicaid programs. As part of the Patient Protection and Affordable Care Act, states have the option to expand Medicaid to more people and be reimbursed by the federal government.

President Barack Obama's health care reform law also will create subsidized insurance based on income, which Aetna will also sell. That insurance will be available on Oct. 1 on state-based health insurance exchanges across the country.

The law set other rules for insurers, such as the percentage of medical premium revenue they can spend on health care costs. Aetna said it had a total medical benefit ratio of 82.5% versus 82.4% a year earlier.

Excluding gains and charges from lower reserves, a reinsurance settlement, acquisition costs and capital losses, the company reported earnings of $1.52 per share. Analysts on average were expecting $1.41 on that basis, according to Thomson Reuters I/B/E/S.

Coventry helped both profit and revenue. It added 3.7 million members, bringing Aetna's total to 22 million at the end of June. Aetna said 3.25 million members had insurance based on high medical deductibles, sometimes called consumer directed plans. Last quarter it had 3 million in these plans.

Revenue rose to $11.5 billion from $8.8 billion a year earlier.

For the full year, the company said it expected operating earnings of $5.80 to $5.90 per share. Analysts were forecasting a 2013 profit of $5.82.