Aetna announced stronger third-quarter earnings this year than last year, though the company missed analysts’ expectations as its Medicare business became more expensive.
Net income for the three months ending Sept. 30 was $518.6 million, or $1.38 per share, compared with $499.2 million, or $1.47 per share, during the same period last year.
Operating income was $561.8 million, or $1.50 per share, compared with $523.2 million, or $1.55 per share. Analysts polled by Thomson Reuters were expecting, on average, $1.53 per share.
Total revenue was up 46 percent to $13 billion from $8.9 billion. The dramatic increase is due to the health insurer’s acquisition of Coventry Health Care Inc., a company specializing in the private management of U.S. taxpayer-funded Medicare and Medicaid health plans. That $7.3 billion deal was announced in August 2012 and was completed in May.
“Our capital generation is strong, allowing us to execute upon our strategic vision and return cash to shareholders,” Aetna’s Chief Financial Officer Shawn M. Guertin said in a prepared statement. “This quarter we paid a dividend of $74 million and repurchased $333 million of shares. Year to date, Aetna has returned nearly $1.2 billion of capital to our shareholders through these two programs.”
The company repurchased 5.2 million shares for $333 million during the quarter.
One closely watched metric in health insurance is the percentage of premium revenue spent on customers’ medical claims. It’s calculated in different ways for regulating purposes than for earnings, but the so-called medical loss ratio shows the insurer’s profit margin of a block of business, such as Medicare customers.
Aetna has seen a decline in the medical costs associated with its commercial health plans and its Medicaid business during the first nine months of the year compared with 2012. Costs related to Medicare customers, however, have increased during the first nine months of this year compared with last year.
In Aetna’s Medicare block of business, the medical loss ratio – costs divided by revenue – was 88.2 percent for the first nine months, up from 83.3 percent. In commercial plans, the ratio was down to 79.5 percent from 80.4 percent; and in Medicaid health plans the ratio declined to 86 percent from 89.6 percent.
Aetna’s customer base in all of its medical coverage plans is up to 22.2 million people as of Sept. 30, from 18.2 million during the same time last year, driven by the acquisition of Coventry. At the end of the quarter, the company had 18.8 million commercial members, 961,000 Medicare Advantage members, 363,000 Medicare Supplement members and 2.1 million Medicaid customers.
Aetna also improved membership in its dental plans, which was up to 14.2 million customers from 13.6 million a year ago. The Pharmacy Benefit Management customers, including people who have Medicare Part D stand-alone drug coverage, increased to 14.1 million from 8.8 million, driven by the Coventry acquisition.
The company’s stock was down 78 cents to $61 in pre-market trading Tuesday.