Sector Wrap: Health Insurers profits hampered by costs
NEW YORK—Health insurers reported mostly lackluster first-quarter profit results this week, hampered by high medical costs, and in many cases, declining corporate membership amid a weakening economy.
Minnetonka, Minn.-based UnitedHealth Group Inc. on Tuesday slashed its outlook after reporting disappointing first-quarter results and predicting a continued decline in membership. Chief Executive Stephen J. Hemsley said factors within a weakening economy created pressures not seen for many years and called the company's outlook "unacceptable."
UnitedHealth experienced a particularly negative impact from what it called the most severe and geographically spread-out flu season in five years, resulting in $80 million in costs above what it normally spends on flu patients. The company's report sent its shares tumbling Tuesday, and dragged the sector down with it.
The bad news continued Wednesday, as Indianapolis-based WellPoint Inc., which operates Blue Cross & Blue Shield plans, said quarterly profit dropped 25 percent. The results missed Wall Street expectations and WellPoint cut its full-year outlook for the second time.
The company's medical loss ratio, an industry-specific cost measure, drove the profit decline, said Oppenheimer & Co. analyst Carl McDonald, in a note to investors. He said Medicare costs appeared to be the biggest culprit, with the company reporting a $200 million loss for its senior business. But comments made by management also point to higher costs within the company's commercial insurance business.
On Thursday, however, Hartford-based Aetna said its a mix of membership growth and higher premiums boosted revenue 16 percent. Though profit slipped, the results still met Wall Street forecasts.
"We were struck by Aetna's ability to convert its defensive positioning into an offense that is winning business and creating separation from its competitors," said Lehman Brothers analyst Joshua Raskin, in a note to investors Friday.
The company reaffirmed its outlook for 2008 adjusted earnings per share of $4, and raised its forecast for medical membership growth by 50,000, to a range of 850,000 to 900,000 members.
Raskin said Aetna stands almost alone in its ability to manage through the tough profit environment hampering its competitors.
Several other health insurers are scheduled to report results next week. Louisville, Ky.-based Humana Inc. reports Monday and Philadelphia-based Cigna Corp. reports Thursday.
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