Aetna Shares Drop on Cut to 2009 Profit Outlook

Health insurer Aetna cut its 2009 forecast on Tuesday, citing higher projected medical costs for its commercial business serving employers and lower revenue from its Medicare plans for seniors.

Shares of the No. 3 U.S. health insurer fell about 7 percent in late trading after the announcement. Click here for after-hours Aetna quotes.

The company forecast operating earnings in a range of $3.55 to $3.70 per share, excluding items. It previously forecast $3.85 to $3.95 per share for the year.

As Aetna prepared its Medicare bids for next year, data indicated that the insurer would receive about $100 million less revenue for 2009 than it previously expected, Chief Financial Officer Joseph Zubretsky said in an interview.

"Unfortunately, we overestimated the amount of revenue we were going to collect," Zubretsky said.

On the medical cost side, Zubretsky said the company saw a continuation of a problem it cited in its first-quarter report in April—use of more services at health-care facilities such as hospitals and clinics.

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Aetna has been seeking to implement programs to manage medical costs, but Zubretsky said it was no longer including benefits of such actions in its outlook.

"We're confident in the success of these programs, (but) we are no longer including the incremental benefit," Zubretsky said.

The CFO said a larger proportion of the earnings shortfall for the 2009 range would be felt in the second quarter.

In 2008, Aetna stood out as one of the few health insurers not to significantly take down their initial full-year earnings expectations. However, Aetna spooked investors in April, when it reported higher-than-expected first-quarter medical costs—a report that contrasted with the generally rosy quarterly results from rivals.

Aetna made the forecast announcement after the market closed. Shares closed at $27.27 on the New York Stock Exchange.

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