Aetna Inc.'s third-quarter net income slipped 1 percent on a charge for an early retirement program, but the performance trumped expectations and the health insurer raised its 2011 earnings forecast.
The Hartford, Conn., company said Thursday that lower-than-expected use of health care continued to help its performance, along with disciplined pricing and medical cost management.
Aetna saw a $117-million, after-tax gain in the third quarter because leftover claims mostly from the second quarter came in lower than expected. The company's health care costs also fell 5 percent to $5.36 billion, mainly because of lower-than-expected use.
For the past several quarters, health care utilization has grown at a slower clip than insurers expected when they set premiums. That has helped Aetna and its competitors turn in strong performances. Analysts say consumers tend to scale back their use of care after a recession by putting off elective procedures or skipping doctor visits.
Use tends to pick up toward the end of the year, when consumers seek care before their insurance deductibles renew in the new year. But Citi analyst Carl McDonald said in a Thursday morning note he has not seen evidence that use is rising "by any meaningful amount."
Aetna is the third-largest commercial health insurer based on both enrollment and revenue, trailing WellPoint and UnitedHealth. UnitedHealth Group Inc. and WellPoint Inc. have already reported better-than-expected third-quarter earnings and raised their 2011 net income forecasts as well.
For the third quarter, Aetna earned $490.4 million, or $1.30 per share. That's down from $497.6 million in the same period last year. Earnings per share rose from $1.19 per share last year because the company had fewer shares outstanding in this year's quarter.
Revenue excluding capital gains fell 1 percent to $8.4 billion as medical enrollment dropped nearly 2 percent to 18.2 million people compared to last year's quarter. Adjusted earnings, which exclude one-time items, were $1.40 per share.
Analysts surveyed by FactSet expected, on average, earnings of $1.15 per share on $8.28 billion in revenue.
Aetna said results included a one-time charge of 24 cents a share, or $137 million, from a voluntary early retirement program in which more than 1,700 employees participated.
The insurer now expects 2011 adjusted earnings of $5 per share, up from its previous forecast of $4.60 to $4.70 per share.
Analysts expect, on average, earnings of $4.80 per share. BMO Capital analyst Dave Shove noted in a Thursday morning report that Aetna's 2011 guidance has climbed 33 percent since February.
For 2012, Aetna expects adjusted earnings of at least $4.80 per share, a figure Chief Financial Officer Joseph M. Zubretsky said they consider to be "a floor on our 2012 operating EPS potential." But he also told analysts during a conference call that Aetna expects health care use to pick up in the new year.
"We just don't think utilization can stay this low for very much longer," he said.
A company spokeswoman said the 2012 forecast does not include projections for any benefits from leftover claims coming in lower than expected. In contrast, the $5 per share 2011 forecast includes benefits totaling 37 cents per share that the insurer has already seen this year. Aetna will talk more about its 2012 expectations at its Dec. 15 investor meeting.
For 2012, analysts forecast earnings of $4.87 per share. Shove called the company's 2012 outlook conservative.
WellPoint said Wednesday it expects earnings growth next year off of its projection for 2011, but the Indianapolis insurer did not give a specific figure.
Aetna shares climbed $1.93 to close at $40.83 Thursday.