Aetna Adds to Its Bottom Line
By Billy Fisher
July 30, 2007
As benefit ratios -- the percentage of a health care insurer's premiums spent on patient care -- rise across the industry, Aetna (NYSE: AET) is standing out from the crowd. The insurer announced drops in both its total medical benefit ratio and its commercial medical benefit ratio in its second-quarter results. Wary shareholders barely reacted to this news, announced before the market opened last Thursday.
The company's earnings release noted several positive trends that should keep this stock on the move; shares have already climbed 15.1% year to date. Aetna's earnings continued to sizzle, with a 28% increase in operating earnings on a 9% increase in total revenue. Management attributed these improvements to premium and fee rate increases. These gains should keep the company on track to hit its full-year earnings forecast, and they also help to dispel the notion that a competitive pricing environment among large-cap health insurance companies is driving everyone's medical benefit ratios higher.
Aetna also boasted an increase in its medical membership. The admittedly modest gain of 64,000 members, bringing its total to 15.8 million, was a favorable trend nonetheless. The company has also made a concerted effort to keep its expenses in check, and the quarter's operating expenses as a percentage of revenue continued to head in the right direction year over year.
It might take a few more quarters for Aetna to convince the market that it can maintain medical benefit ratios at their current levels, and that the large-cap insurers' pricing environment will still allow for healthy fee increases. For now, Aetna's earnings continue to impress, and both its membership and stock price seem headed in the right direction.
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Fool contributor Billy Fisher has no financial interest in any stocks mentioned. The Fool has a disclosure policy.
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