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July 27, 2009

Aetna 2Q profit slides; Drug Benefits unit on block

Health insurer Aetna Inc. said Monday its profit skidded 28 percent in the second quarter due to higher medical expenses in its commercial business, which it expects to continue for the rest of the year.

Meanwhile the Hartford-based insurer has reportedly put its pharmacy-benefit management business on the sales block, according to the Wall Street Journal.

Aetna's pharmacy business manages prescription-drug benefits for about 11.2 million members, and has been shopped to companies such as CVS Caremark Corp. and Medco Health Solutions Inc., the Wall Street Journal reported citing unnamed sources.

Second quarter earnings, which were released two days early, totaled $346.6 million, or 77 cents per share, compared with $480.5 million, or 97 cents per share in the year ago period. Revenue grew 11 percent to $8.67 billion from $7.83 billion.

Thomson Reuters says analysts expected 78 cents per share and revenue of $8.56 billion. In premarket trading, Aetna shares gave up $2.44, or 9.2 percent, to $24. The stock closed at $26.44 Friday.

Aetna said its medical benefit ratio, which measures the portion of premium dollars spent on providing care, rose to 86.8 percent from 81.9 percent a year ago. Costs in the commercial, Medicare and Medicaid business all increased.

Premium revenue grew 12 percent, and medical membership was flat at 19.1 million.

The company had been scheduled to post its earnings on Wednesday, but announced Sunday it would be reporting on Monday. It did not give a reason for the change.

Aetna said commercial medical costs increased due to use of more expensive services, and more tests and procedures per visit. That lead to higher costs for emergency room, urgent care, laboratory and preventive services. Aetna said its prices did not fully account for the higher costs, and said health plan providers are changing their behavior due to the recession.

It cut its annual profit forecast for the second time in two months. The company now expects to earn between $2.75 to $2.90 per share. On June 2, it lowered its profit estimate to a range of $3.55 to $3.70 per share, also because of greater commercial medical costs and lower Medicare revenue. Analysts expect earnings of $3.53 per share and $34.35 billion in revenue.

Aetna expects to spend between 84 and 84.5 percent of its commercial premium revenue on providing medical care. (AP)


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