2nd UPDATE: Aetna's 4Q Earnings Up 73% On Light Health Usage

Aetna Inc.'s (AET) fourth-quarter earnings rose 73% as the health insurer continued to benefit from light medical costs amid a sluggish pace of patient visits to hospitals and doctors' offices.

This trend, brought on by the weak economy and high unemployment, fueled earnings gains and rising stock prices across the managed-care sector last year. Aetna in mid-December indicated it capped the year on a strong note by raising its 2011 guidance.

Analysts expect issues such as the upcoming U.S. presidential election and Supreme Court ruling on the U.S. health-care overhaul law could be more influential drivers for health-insurance stocks this year. The industry has generally taken a cautious approach with 2012 guidance projections, although companies steadily raised guidance through last year.

Aetna on Wednesday maintained its forecast--which it raised in mid-December--for operating earnings of about $5.00 a share this year, which is less than analysts were recently expecting.

The company is "encouraged by our early indications for 2012," Chief Executive Mark Bertolini said during a conference call.

Shares of the Hartford-based company rose 3.1% to $45.06 in recent trading, putting them up more than 33% over the last year.

The insurer reported a profit of $372.6 million, or $1.02 a share, up from $215.6 million, or 53 cents, a year earlier. Excluding items such as realized capital gains, transaction-related costs and severance, earnings rose to 97 cents a share from 63 cents. Revenue excluding capital gains and losses edged up slightly to $8.54 billion.

Analysts polled by Thomson Reuters had most recently forecast earnings of 97 cents a share on revenue of $8.5 billion.

Pretax operating margin rose to 7.9% from 5.5%.

Aetna's total medical-benefit ratio, or the amount of premiums used to pay patient medical costs, fell to 80.7% from 83% a year earlier and was up from 78.9% in the prior quarter.

Aetna is taking a cautious approach by forecasting that health-care usage will rise in the new year. But this is more about prudently managing risk while setting prices than actual signs patients are ramping up their health-care usage, officials said.

"The consumer still seems retrenched," said Joseph Zubretsky, Aetna's chief financial officer, in an interview. One big question for Aetna and insurers in general is whether, once the economy and employment trends improve, consumers will revert to normal health-usage patterns or continue holding back because of rising out-of-pocket costs.

"We're guarded against whether this is the new normal," Zubretsky said, regarding recent usage trends. "That's what we don't know."

Meantime, he noted in a release that the company expects to have $1.35 billion of deployable capital for this year. Aetna has been making acquisitions lately as it diversifies its operations, with recent purchases including Prodigy Health Group, an administrator of self-funded health-care plans, in June.

In October, Aetna bought account-based health-plan administrator PayFlex Holdings Inc. and a Medicare supplement business with more than 150,000 members from Genworth Financial Inc. (GNW).

Unlike some competitors, however, Aetna hasn't made big purchases aimed at broadly boosting its exposure to senior-focused health coverage such as Medicare Advantage plans. Data released by the government Wednesday underscored insurers' interest in the market by showing 10% Medicare Advantage enrollment growth since this time last year. Premiums, however, were down 7% on average.

Zubretsky in the interview stressed how much Aetna has grown in the market since the middle of the last decade, plus the opportunity Aetna has to covert its own commercial customers to Medicare Advantage. "We've been focusing on organic opportunities," he said.

Aetna's total medical membership at the end of last year rose to 18.5 million from 18.23 million at the end of September. Membership was little changed compared with the tally at the end of 2010.

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

--Melodie Warner contributed to this article.

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