A multi-billion dollar deal helped fuel third-quarter earnings growth for Aetna Inc., but the performance missed expectations, and shares slid Tuesday after it became the latest big health insurer to warn about challenges that lie ahead.
Chairman and CEO Mark Bertolini told analysts that the Hartford, Conn., insurer is committed to growing operating earnings next year, and it expects the floor for its performance to be around where it finishes this year.
But Aetna also expects to pay about $600 million toward a health insurance fee required as part of the health care overhaul, and it faces a Medicare Advantage funding cut also mandated by the law, which aims to fund coverage for millions of uninsured people over the next few years.
"Medicare Advantage rate pressure in 2014 will present a meaningful challenge for the program," Bertolini said.
The insurer plans to unveil a specific 2014 forecast at a Dec. 12 conference for investors.
Bertolini's counterpart at UnitedHealth Group Inc., CEO Stephen Hemsley, also has voiced concern about funding cuts to Medicare Advantage plans, which are privately run versions of the government's coverage program for the elderly and disabled people. UnitedHealth is the nation's largest insurer and biggest provider of Medicare Advantage plans.
This uncertainty about next year comes after investors have snapped up health insurance stocks most of this year due in part to strong quarterly performances. But insurance stocks have stumbled a bit this month, as UnitedHealth also missed expectations in the quarter and another insurer, WellPoint Inc., said it was raising its forecast despite added expenses from the overhaul.
Overall, Aetna Inc. said Tuesday that its third-quarter earnings rose 4 percent to $518.6 million, or $1.38 per share, in the three months that ended Sept. 30. That is up from $499.2 million, or $1.47 per share, a year ago, when Aetna had fewer shares outstanding.
Excluding items like integration costs, adjusted earnings totaled $1.50 per share. Total revenue jumped 46 percent to $13.04 billion.
Analysts forecast higher earnings of $1.52 per share on about $12.87 billion in revenue, according to FactSet.
Aetna is the nation's third largest health insurer based on enrollment, trailing UnitedHealth and WellPoint. It also sells dental, group life and disability coverage, but health insurance is its biggest business.
Aetna booked $51.2 million in expenses before taxes tied to its acquisition of Medicare and Medicaid coverage provider Coventry Health Care in the quarter. The insurer completed that $6.9 billion deal in May.
That acquisition also helped swell its revenue and medical enrollment, which climbed 22 percent to more than 22 million people.
Aetna's health care costs — its largest expense — climbed 57 percent in the quarter, which partially offset the revenue gain. The company said a poor performance from two products and federal budget cuts this year hurt its Medicare business.
The insurer also reaffirmed its forecast for 2013 adjusted earnings that will range between $5.80 and $5.90 per share. The insurer started 2013 expecting adjusted earnings of at least $5.40 per share and has since raised that forecast three times.
Analysts expect, on average, $5.90 per share.
The insurer's stock fell 1.9 percent, or $1.15, to $60.63 in Tuesday afternoon trading while the Standard & Poor's 500 index rose slightly. Aetna shares were still up more than 30 percent so far this year.