Two of the largest U.S. health insurers, WellPoint Inc. and Aetna Inc., posted higher-than-expected profits on Wednesday and raised their full-year forecasts as investors cast their eyes on events in Washington.
Aetna, the No. 3 U.S. health insurer, said results were boosted by lower member use of healthcare services. The industry has benefited all year from lower medical costs as patients appear to be postponing procedures during the weak economy.
WellPoint, the largest U.S. health insurer by membership, pointed to lower administrative costs, underscored by savings from a cost-savings push and from the sale of its NextRx drug benefit unit to Express Scripts Inc.
WellPoint, which like rivals has been shedding members as employers cut jobs, nonetheless lifted its year-end enrollment forecast by 200,000 members to 33.3 million due to stabilizing trends in its commercial business.
"Both companies continue to benefit from overall lower healthcare utilization trends," Leerink Swann analyst Jason Gurda said. "Aetna's results are particularly strong, WellPoint's are very solid. But I think the stocks are going to continue to change on political and regulatory news."
Health insurer stocks were poised for a boost after Republicans captured the House of Representatives and made gains in the Senate in Tuesday's midterm elections.
Analysts have said the stocks could rise 5 percent to 15 percent over the next couple of months, but could sell off initially because they have already gained on expectations of a Republican win.
"The Republican victories in the House were largely priced in and expected at this point," Gurda said. "I wouldn't be surprised if there's a little bit of selling pressure on the news. But that said, with a Republican Congress I think that the political environment as well as the regulatory risks, we're in a modestly improved position from earlier in the year."
So far, health insurers have posted third-quarter results well ahead of targets, but declined to give specific forecasts for next year, keeping any positive market momentum in check.
The industry and Wall Street are waiting for the U.S. government to finalize regulations under the health reform law that will mandate how much the companies must spend on medical costs.
WellPoint's net income edged up to $739.1 million, or $1.84 per share, from $730.2 million, or $1.53 per share, a year earlier.
Excluding items, earnings of $1.74 per share were 16 cents ahead of the analysts' average estimate, according to Thomson Reuters I/B/E/S.
Revenue fell nearly 6 percent to $14.33 billion. Analysts looked for $14.21 billion.
Indianapolis-based WellPoint projected net income of "at least" $6.60 per share for 2010, or at least $6.45 excluding items. It previously projected net income of at least $6.30.
Aetna's net income jumped to $497.6 million, or $1.19 per share, from $326.2 million, or 73 cents per share, a year earlier.
Excluding items, the Hartford, Connecticut-based company reported operating earnings of $1.00 per share, and 84 cents per share excluding further positive claim reserves from prior periods. Analysts were looking for 67 cents.
Aetna's revenue slipped 2 percent to $8.54 billion, reflecting a decrease in lower membership in its commercial plans serving employers. Analysts looked for $8.47 billion.
Aetna's membership stood at 18.53 million at the end of September.
Aetna forecast 2010 earnings of about $3.60 per share, excluding items. It previously provided a range of $3.05 to $3.15 per share.
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