Aetna profit falls on costs and legal settlement

HARTFORD, Thu Jan 31, 2013 — Aetna Inc. fourth-quarter earnings fell sharply, the health insurer said on Thursday, as costs rose in parts of its employer-based insurance business and it took charges for settling litigation over out-of-network payments.

The company said CFO Joseph Zubretsky will lead a new business internally. His CFO slot will be filled by Shawn Guertin, who has been with Aetna since 2011 and was previously CFO of Coventry Health Care Inc., which Aetna is buying.

The company announced plans in August for the $5.6 billion acquisition of Coventry, part of a strategy to expand in government-sponsored healthcare programs like Medicare.

Zubretsky, Aetna’s CFO for six years, will now have broader responsibility, managing new businesses such as coordinated care.

“He’s been very well respected as a CFO so now he’s heading up operations of their largest business unit,” said Sarah James, an analyst at Wedbush Securities.

Shares in Aetna were off 1.4 percent, or 69 cents, at $48.26 in morning trading.

Aetna said fourth-quarter net income slid to $190.1 million, or 56 cents per share, from $372.6 million, or $1.02 per share, a year earlier.

Profit took a hit from a $78 million after-tax charge for the $120 million settlement reached in December for the class-action lawsuit. Patients and doctors had accused Aetna of systematically underpaying claims.

Excluding special items, the company reported earnings of 94 cents per share. Analysts on average were expecting 95 cents on that basis, according to Thomson Reuters I/B/E/S.

Aetna said operating earnings fell in its commercial business as healthcare costs rose. Increased costs related to a severe flu season were offset by a decline in the Northeast of medical services after Superstorm Sandy, which shut down businesses, schools and public transportation for weeks or more.

Leerink Swann analyst Jason Gurda said in a research note the decline in healthcare earnings came as the company collected less money than expected in insurance premiums.