Health insurers Aetna Inc. (AET) and WellPoint Inc. (WLP) both
reported better-than-expected second-quarter earnings, but while
Aetna saw a clear benefit from a continued slowdown in health-care
usage, Wellpoint was nicked by high medical costs in its business
for seniors.
Aetna reported a 9.3% increase in profits and again raised its
2011 per-share earnings forecast, this time by 40 cents, to $4.60
to $4.70 a share. In premarket trading, Aetna shares jumped 3.2% to
$44.
Meanwhile, WellPoint's earnings fell 2.9% on investment impacts
and higher-than-expected costs in its senior business. For the
year, the company raised its per-share earnings forecast to $6.90
to $7.10, including investment impacts of 15 cents, from its prior
projection of at least $6.70 per share, including investment gains
of 10 cents a share.
Despite the boost, Wellpoint's full-year earnings projection is
below the average target of $7.12 a share among analysts surveyed
by Thomson Reuters. Susquehanna analyst Chris Rigg said he
anticipates weakness in Wellpoint shares "given commentary from
management about cost trends in its Medicare Advantage
business."
The insurer said its medical loss ratio--the percentage of
premium revenue used on patient care--rose to 85.7% from 82.9% a
year earlier and was up from 82.1% in the first quarter.
The company said costs in its senior business "have been
significantly higher than expected in 2011", and it cited higher
membership growth and adverse selection in certain Medicare
Advantage products. The company said it's "refining" its 2012
strategy for that product.
Wellpoint shares slipped in premarket trading, recently dropping
3.7% to $70.85.
Aetna, meantime, reported that its total medical cost ratio, or
the amount of premiums used to pay patient medical costs, declined
to 79.7% from 81.8% a year earlier but edged up from 79.2% in the
first quarter.
Aetna reported a profit of $536.7 million, or $1.39 a share, up
from $491 million, or $1.14 a share, a year earlier. The latest
period included favorable reserve development impacts of 31 cents a
share, while the prior year included 30 cents a share.
Revenue, excluding capital gains, decreased 2.1% to $8.32
billion. Premium revenue was down 2.6%
Analysts polled by Thomson Reuters had forecast earnings of
$1.08 a share on revenue of $8.31 billion.
Total medical membership fell 1.9% to 18.2 million as of June 30
from 18.6 million a year earlier, but it was up 447,000 from 17.8
million as of March 31.
Aetna has been tacking on acquisitions this year as it
diversifies its operations, including its deal to acquire Prodigy
Health Group, an administrator of self-funded health-care plans.
Providing self-funded options for mid-sized and small businesses is
an area where health insurers have been seeking growth.
WellPoint also has been making acquisitions to diversify its
operations, including a deal for senior-citizen healthcare benefits
provider CareMore that will expand its presence in the growing
Medicare market.
The nation's largest health-benefits provider by membership
reported a profit of $701.6 million, or $1.89 a share, down from
$722.4 million, or $1.71 a share, a year earlier. Excluding
investment impacts, per-share earnings were up at $1.83 from
$1.67.
Operating revenue rose 4.8% to $14.9 billion, while total
revenue increased 4.6% to 15.1 billion.
Analysts polled by Thomson Reuters had forecast earnings of
$1.80 a share on operating revenue of $14.67 billion.
Medical enrollment increased 2.1% to 34.2 million as of June 30
from a year earlier, and was stable from the first quarter.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481;
Tess.Stynes@dowjones.com
--Jon Kamp contributed to this article.