Aetna beat analysts’ expectations on Tuesday as it reported strong operating income for the first three months of the year compared with 2012, but net income was lower because of costs related to buying Coventry Health Care Inc.
Aetna announced plans in August 2012 to pay about $5.6 billion to acquire Coventry and the Hartford-based company agreed to take on Coventry’s debt, driving up the transaction price to $7.3 billion.
Aetna reported first-quarter net income of $490 million, or $1.48 per share, compared with $511 million, or $1.43 per share, during the same period last year. The company reported $24.6 million in costs related to its purchase and integration of Coventry.
Operating income for the quarter was $495.4 million, or $1.50 per share, compared with $477.4 million, or $1.34 per share, during the same period last year. Analysts polled by Thomson Reuters were expecting $1.39 per share on average.
One closely watched metric since the Affordable Care Act took effect is the medical-loss ratio, which is the percent of premiums paid by customers that the insurer spends on medical expenses. Federal health care reform requires that large-group health plans have a medical loss ratio of at least 85 percent. Small-group and individual health plans must have a ratio of 80 percent or more.
Medical-loss ratios are calculated in different ways and the method used for federal law is not the same as the method used when insurers report earnings.
Aetna’s reported medical-loss ratios for the quarter were as follows: 89.3 percent for Aetna’s Medicaid business, 87.8 percent for Medicare business, 78.9 percent for commercial health plans.
Aetna’s customer base improved year over year from 17.9 million at the end of March 2012 to 18.3 million people in March 31, 2013. Membership grew the most in Aetna’s Medicare Advantage plans, from about 434,000 a year ago to 628,000 this year, and in Medicare Supplement plans, which were up to 313,000 from 171,000 a year earlier.
“Operating revenues increased for the company, and we grew membership for the fourth consecutive quarter fueled by strong growth in our Medicare business,” Aetna Chairman and CEO Mark T. Bertolini said in a prepared statement. “We also introduced Healthagen, a new business brand that combines our population health management solutions and health information technologies to help improve care quality, costs and patient engagement.”
Membership in the company’s dental health plans declined from 13.61 million a year ago to 13.48 million during the first quarter of this year.
“During the quarter we continued to aggressively deploy capital to create shareholder value, repurchasing $184 million of Aetna’s shares and paying a dividend totaling $66 million,” Aetna’s Chief Financial Officer Shawn M. Guertin said in a prepared statement.
Aetna employed 6,450 in Connecticut and 34,800 companywide as of March 31