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The Journal Gazette

Thursday, January 31, 2013 11:51 am

Aetna 4Q profit sinks 49 pct, medical costs climb

By TOM MURPHYAP Business Writer

Aetna's fourth-quarter net income sank 49 percent as higher medical costs squeezed profitability for the insurer's commercial health coverage, and several one-time expenses chipped away at the bottom line.

The Hartford, Conn., company said Thursday the amount it paid in medical claims grew more than 9 percent in the quarter to $6.12 billion as a rise in flu-related expenses countered a drop in use when Superstorm Sandy swept up the East Coast last fall.

This flu season has stirred worry among managed care investors about a rise in claims due to its early start and rapid spread. Aetna Chairman and CEO Mark Bertolini said earlier this month the insurer had seen a spike in flu intensity following two very mild seasons, but he didn't expect claims to exceed the insurer's normal range of $40 million to $50 million.

Aetna officials said their medical costs also climbed in the final quarter of 2012 because employer-sponsored health insurance coverage is changing. Enrollment in high-deductible plans is growing, and people with that coverage often rush to get medical care in the final months of the year before their deductibles reset.

Deductibles are the annual amounts a person must pay out of pocket before most insurance coverage starts.

"As that grows as a percentage of your book of business, the slope of utilization just gets steeper and steeper, and that's been happening every year for the past five," Chief Financial Officer Joseph M. Zubretsky said, adding that Aetna expected the increase.

Aetna also booked after-tax charges totaling more than $134 million in the quarter due to the settlement of litigation, the early retirement of some debt and severance costs.

The insurer also had nearly $13 million in costs related to its acquisition of fellow insurer Coventry Health Care, a $5.7 billion deal Aetna expects to close in the middle of this year.

All told, the company earned $190.1 million, or 56 cents per share, in the three months that ended Dec. 31. That's down from $372.6 million, or $1.02 per share, in the 2011 quarter.

Excluding the charges and capital gains, the insurer earned 94 cents per share. That fell short of average analyst expectations of 97 cents per share, according to FactSet.

Total revenue climbed 16 percent to $9.93 billion due largely to a one-time pension premium. Excluding that and other one-time items, revenue grew 5 percent to $8.96 billion, while analysts expected $8.89 billion.

Aetna Inc. is the third-largest commercial health insurer based on enrollment, trailing WellPoint Inc. and UnitedHealth Group Inc. Health insurance is Aetna's main product, but the company also sells dental, group life and disability coverage.

Aetna's medical enrolment slipped 1 percent to 18.2 million compared to the final quarter of 2011.

For the full year, Aetna earned $1.66 billion, or $4.81 per share, on about $36.6 billion in total revenue. The insurer recorded adjusted earnings of $5.13 per share not counting the charges and capital gains.

For 2013, Aetna expects adjusted earnings of at least $5.40 per share. Analysts expect, on average, $5.53 per share.

Aetna also said Thursday that executive Shawn M. Guertin will replace Joseph M. Zubretsky as chief financial officer next month. Zubretsky will stay with Aetna to lead the insurer's newly created national businesses segment, which includes its national accounts and specialty products like behavioral health.

Guertin has served as the head of Aetna's finance business and worked for nearly five years as chief financial officer and treasurer of Coventry before joining Aetna in 2011.

Aetna shares fell 88 cents, or 1.8 percent, to $48.07 in midday trading Thursday. The insurer's stock climbed 10 percent last year and had already risen more than 3 percent so far in 2013.