Aetna Inc, the nation's biggest health insurer, said Wednesday that its losses deepened in the second quarter as medical costs jumped 17 percent to 18 percent in its core managed care business. The company said the losses would continue into next year before it could again generate profits by raising premiums and tightening cost controls.
Aetna, based in Hartford, Connecticut, is also shedding money-losing units that it acquired during a buying binge in the 1990s, and it may even give up its unrewarding status as the biggest, albeit hardly the best managed, health insurer.
"Aetna is shifting from a bias on size to a bias on profitability," said Dr John Rowe, the company's chairman and chief executive.
The company's operating loss was US$95.9 million, or 67 cents a share, compared with operating profit of US$36.4 million, or US$0.25 a share, in the period a year earlier. Revenue in the quarter slipped 2.7 percent, to US$6.53 billion.
Analysts were expecting the company to lose US$0.20 a share in the quarter, according to a survey by Thomson Financial/First Call.
Including one-time gains and charges, net income was US$10.6 million, or US$0.07 a share, compared with US$186.6 million, or US$1.30 a share, in the quarter a year earlier.
Aetna's shares slipped US$0.36, to US$25.99, reflecting investors' previously lowered expectations and their hopes that Aetna's turnaround strategy will succeed.
"The business still stinks, but that was pretty well priced into the stock," said Rob Plaza, a health care analyst at Morningstar, which tracks mutual funds. "Expectations were already pretty low."
Joshua Raskin, a managed-care analyst at Lehman Brothers, said analysts were concentrating on the company's turnaround strategies. "No one is looking at the current results to value the stock," he said.
Rowe called the latest results disappointing but added, "they didn't come as a shock to us" because the losses were caused by problems that Aetna had already identified and was working to fix. "We are on course to be profitable in 2002," he said in a brief telephone interview.
He said national employers, Aetna's mainstay, were staying with the company by and large despite rising premiums for next year. Aetna also wants to increase its share of medium-sized customers and to sharply reduce Aetna-insured HMO membership while raising the number of self-insured employers that it serves. Self-insured companies take the risk of paying for any illnesses of workers; they hire administrative services companies like Aetna to line up discounts from hospitals and doctors and handle the bills.
Aetna also hopes to generate long-range savings by carefully monitoring high-risk patients to make sure they are following doctors' orders, which could reduce costly hospital stays later. It recently arranged for outside companies to monitor 40,000 patients who had suffered congestive heart attacks.
On another front, Rowe said Aetna was renegotiating open-ended contracts for certain hospital services that were ballooning. Payments to hospitals were "increasing significantly," he said. As the government pays hospitals less under Medicare, commercial HMOs are pushed to pay them more.
Aetna's health care enrollment shrank by 1.4 million, or 7.1 percent, to 18.1 million in the 12 months ended June 30, including reductions in unprofitable Medicare and Medicaid managed care plans and withdrawals from HMOs with a total of 200,000 members in St. Louis, Louisiana, Georgia and central California.
Aetna also recently sold its Medicaid HMO in New Jersey, which has 117,000 members, to the AmeriChoice Corp for US$20 million.
Both Aetna and its competitor Cigna have reported higher than expected payments to hospitals and doctors and for prescription drugs. Cigna said last week that medical costs were rising by 12 percent to 13 percent.
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