2nd UPDATE: Seniors Hurt WellPoint Earnings; Aetna Lifts Outlook

Health insurers Aetna Inc. (AET) and WellPoint Inc. (WLP) each 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. The continued slow pace of U.S. consumers going to doctors' offices and operating rooms helped Aetna and other insurers because it means less spending to cover doctors' bills.

While WellPoint has also benefited from that trend--the company again boosted its full-year earnings view--the insurer was hurt by higher-than-expected costs for seniors in northern California, where WellPoint picked up thousands of members with expensive health issues after some competitors left the market. The added seniors were a bad match for WellPoint's pricing and, for that specific market, the company expects to spend more on care than it gets in premiums for the rest of this year.

"We're obviously disappointed with our performance" in that Medicare-based business, Chief Executive Angela Braly told analysts on a conference call Wednesday. This issue will hit full-year per-share earnings by 30 cents, she said.

But the company can hit the reset button, and executives said they recognized this issue before 2012 bidding began. "We believe we've got our hands around it, and we believe we can fix it for next year," Chief Financial Officer Wayne DeVeydt said in an interview.

Some analysts also see this as a transient issue, but the news weighed on WellPoint shares, which recently slid 5% to $69.87. Citigroup analyst Carl McDonald suggested WellPoint's "relative inexperience" in Medicare plans played a role in California.

"Seniors, particularly sick seniors, know how to find a good deal, as we've seen several times in recent years," he said.

WellPoint, 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 rose to $1.83 from $1.67.

The company said operating revenue increased 4.8% to $14.9 billion, while total revenue added 4.6% to $15.1 billion.

WellPoint's medical-loss ratio, or MLR--the percentage of premium revenue used on patient care--rose to 85.7% from 82.9% a year earlier, pumped up by the Northern California issue. As a result, the company raised its full-year MLR forecast, which it had lowered in April.

Aetna, meanwhile, 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.

The company's earnings were well above Wall Street expectations, despite a 2.1% decline in revenue to $8.32 billion. Aetna said its MLR fell to 79.7% from 81.8% a year earlier.

Aetna Chief Executive Mark Bertolini chalked up the good quarter to "disciplined pricing and medical cost management; lower-than-anticipated utilization of health care services by our members; and strong cash flow generation."

He sounded a note of caution about the year ahead during Aetna's earnings call, however. The insurer expects in the first quarter to lose about 500,000 members on administrative service contracts in its commercial business for big corporate customers, with 60% coming from just two accounts, as economic conditions cause some customers to opt for cheaper competition. He said senior leadership is working to reverse the "unfavorable trend."

Aetna shares recently slid 1.2% to $42.10.

The Hartford, Conn.-based company raised its full-year earnings forecast by 40 cents to $4.60 to $4.70 per share, putting the range well ahead of analysts' $4.39 average forecast, according to a Thomson Reuters survey.

WellPoint raised its per-share earnings forecast to a range of $6.90 to $7.10, including investment gains of 15 cents, from its prior projection of at least $6.70 per share, including investment gains of 10 cents a share. Analysts most recently forecast full-year earnings of $7.12 per share.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

(Tess Stynes contributed to this article.)

Aetna (NYSE:AET)
Historical Stock Chart
From May 2024 to Jun 2024