Aetna and Humana Earnings Down, Future Remains Cloudy

Managed healthcare providers Aetna

and Humana

both missed second quarter earnings. Aetna earnings fell by 15 percent, blaming a smaller benefit from surplus money set aside to cover earlier patient claims. However, the company did raise its full year guidance. Humana, on the other hand, lowered their yearly guidance from $6.90 to $7.10 a share -- well below analyst's estimates of $7.88. Last year, the company generated three-quarters of its sales from Medicare. “The company's enrollment is growing as the U.S. population ages and the new members are using more medical care. The increase in doctor visits may have come because people put off care before joining Medicare due to the weak economy”, said Humana's Executive Vice President James Murray. Aetna reported a second-quarter profit of $457.6 million, (or $1.32 a share), down from $536.7 million, (or $1.39), a year earlier. Excluding items such as net-realized capital gains, earnings fell to $1.31 a share from $1.35 a share. Revenue, excluding capital gains, rose 6 percent to $8.83 billion. Analysts polled by Thomson Reuters had estimates for earnings at $1.15 a share on revenues of $8.81 billion. Aetna expects operating earnings to be between $5 and $5.10 per share, up from previous forecasts of $5. On the other side of the tape, Humana said net income was $356 million, (or $2.16 per share). The company experienced a drop of more than 22 percent when compared with the $460 million, (or $2.76 a share), from the year-ago period. Revenue was $9.7 billion against last year's $9.3 billion. Humana said overall medical-loss ratio grew to 83.5 percent, compared to 82.1 percent a year earlier. For Aetna, the ratio was even higher, up 82.4 percent from 79.7 percent last year. The healthcare sector has had a difficult summer as it has been faced with rising costs and lower government subsidies puts further pressure on profit margins. However, the final ruling of the Supreme Court on Health Care Reform last month has resuscitated the industry by removing a major source of uncertainty. The healthcare sector still remains in a position to produce solid returns for investors.