Oct. 29 - Aetna's profit rises but cutbacks in government funding of Medicare have pressured its margins. Fred Katayama reports.
***REFEED WITH TUESDAY STORY NUMBER*** Cuts in government funding to the private Medicare business are hurting Aetna. The cuts pushed up the percent of premium revenue it had to pay out in claims, causing its pre-tax margins to slide. As a result, Aetna produced third quarter profit that was weaker than expected. The cutbacks in government funding of Medicare have also pressured its rivals, UnitedHealth and WellPoint, and investors were further discouraged by the technical glitches hitting the healthcare exchanges established under President Obama's healthcare reform law. Over the summer following its acquisition of Coventry, Aetna pulled out of some states where it had planned to sell individual insurance. Aetna's shares, which are up 33 percent this year, were down at the market open even though the company's profit rose 4 percent. Aetna's purchase of Coventry had expanded its enrollment and revenue. Aetna is sticking to its forecasts for this year. Jefferies analyst David Windley said, "The absence of a full-year raise also suggests that Medicare utilization stands in the way of upside to earnings." Looking at next year, CEO Mark Bertolini said he sees no growth in Aetna's individual insurance business. And he says more big companies will switch over to private exchanges for their employee health benefit programs.