Aetna became the latest major health insurer to thump third-quarter expectations and raise its 2014 forecast, but the company's shares slipped Tuesday after it also said expenses climbed more than expected for part of its enrollment.
The nation's third-largest health insurer said that medical costs for some of its small-business coverage came in higher than projected, and benefit and network changes that it had made to help control those expenses hadn't worked as expected. The insurer also reported an 18 percent jump in operating expenses, which include selling, general and administrative costs.
Investors, who are skittish about medical costs climbing more rapidly after years of moderate growth, knocked down Aetna's stock after trading started.
"The pressures they're facing now aren't necessarily a shock, but I think some of the market is spooked as far as the costs they are seeing," Morningstar analyst Vishnu Lekraj said.
Overall, Aetna's earnings climbed 15 percent in the third quarter to $594.5 million, or $1.67 per share. That compares to net income of $518.6 million, or $1.38 per share, the previous year.
Adjusted earnings totaled $1.79 per share in the most recent quarter.
Analysts expected, on average, $1.58 per share, according to Zacks Investment Research.
Operating revenue, which excludes investment gains and losses, grew 13 percent to $14.7 billion and also topped forecasts.
The insurer beat expectations partly because of the growth of its government businesses, which involves the state- and federally run Medicaid program and Medicare Advantage coverage. Citi analyst Carl McDonald said in a research note that results from that segment appear to be "unsustainably good."
"The headline earnings number looks good, but Aetna was quite vocal after the second quarter that there was nothing to worry about in the commercial business and about the company's improved insight into commercial medical cost trend," McDonald wrote.
Aetna trails only UnitedHealth Group Inc. and WellPoint Inc. on the list of the nation's largest health insurers. Earlier this month, UnitedHealth reported results that topped expectations and raised its 2014 forecast.
On Tuesday, Aetna Inc. said it now expects 2014 earnings, excluding one-time items, to range between $6.60 and $6.70 per share. That's up from a forecast it made in July for $6.45 to $6.60 per share.
That also topped average analyst expectations of $6.59 per share, according to FactSet.
Aetna shares fell about 2.8 percent, or $2.21, to $76.97 Tuesday morning, while the Standard & Poor's 500 index climbed slightly. The stock had climbed 15 percent since the beginning of the year, as of Monday's close. That more than doubled the growth of the S&P 500.