Aetna Drops on Rising Costs for Dismissed Workers

side note: Spending more on Cobra expenses and health benefits for laid off workers, the third largest health insurer saw its shares drop 10%. However, it seems that the company’s enrollment in medical plans and its revenue are beating analyst’s estimates. Aetna has affirmed its full year earnings forecast

By Alex Nussbaum

April 29 (Bloomberg) — Aetna Inc., the third-largest U.S. health insurer, slipped the most in two months in New York trading after the company said it was spending more than expected on health benefits for workers who lost their jobs or feared dismissal.

The shares dropped 10 percent, or $2.52, to $21.88 at 4:15 p.m. in New York Stock Exchange composite trading, Aetna’s biggest one-day fall since March 5. The Hartford, Connecticut- based insurer said expenses were pushed higher by dismissed workers who continued buying insurance through the government- subsidized Cobra program, as well as those who ramped up medical treatment as firings loomed.

“I think about this as the recessionary effect,” Chief Executive Officer Ronald Williams said in a conference call with analysts today to discuss first-quarter earnings. “We feel that ‘09 is clearly unlike ‘08 and all the years that have gone before it.”

Enrollment in Aetna’s health plans rose in the quarter, the company said today in reporting profit that beat analysts’ estimates. That occurred even as U.S. unemployment reached 8.5 percent last month, the highest level in 25 years. Earnings were inflated by investment income and share repurchases and offset by the higher costs, said Matthew Borsch, an analyst with Goldman, Sachs & Co. in New York, in a note to clients.

Aetna’s profit margins “remain at cycle-peak levels, despite industrywide deterioration last year,” Borsch said. Enrollment gains are at least partly due to aggressive pricing that “we do not believe is sustainable,” he said.

Beating Estimates

Net income climbed 1.4 percent for the quarter to $437.8 million, or 95 cents a share. Earnings adjusted for higher pension costs of 96 cents a share topped the 93 cents average estimate of 15 analysts in a Bloomberg survey. Revenue rose 11 percent to $8.61 million.

Overall enrollment in medical plans jumped 9.1 percent to 19.1 million, with increases among commercial plans, Medicare plans for the elderly and disabled and Medicaid for the poor. The company expects that number to dip slightly by year’s end to 19 million, as gains in new clients are offset by losses in the recession, Williams said on the call.

The CEO said during a Feb. 12 call that Aetna expects to add as many as 1.3 million members this year, boosted by new contracts with Home Depot Inc. and Bank of America Corp. UnitedHealth Group Inc. and WellPoint Inc., the two largest insurers, and Humana Inc. have reported enrollment declines, blaming rising unemployment.

original article over at Bloomberg

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