Now is not a fun time to be Aetna (NYSE:AET). While most solid companies outside of the tech sector can get away with a bad quarter every now and then, two straight disappointments are harder to swallow. What's more, when folks are already jittery about the fortunes of UnitedHealth (NYSE:UNH), WellPoint (NYSE:WLP), and other rivals, a spike in medical costs and dramatically lower membership guidance is a recipe for a lot of pain in the share price.

In the most recent quarter, Aetna announced that revenue rose 14% and operating earnings (excluding reserve developments) rose 19%. Unfortunately, those weren't the numbers that got all of the attention. While premium growth looked all right, the company's overall medical loss ratio jumped, and enrollment growth wasn't as strong as many people expected.

On the medical loss side, the company pinned the higher costs on three major issues:

  • Tougher underwriting competition in the small-group market.
  • Higher claims, particularly for relatively expensive diseases like cancer, in a government account.
  • Worse-than-expected claims in the company's Stop Loss products -- a sort of backup insurance plan that covers costs not covered by other plans.

Making matters worse, Aetna dramatically revised its customer enrollment targets, with the new midpoint estimate being about one-quarter less than the prior estimate. With Coventry (NYSE:CVH) and WellPoint also cautious on enrollment guidance, we now have renewed fears of the possibility of pricing competition. Companies may have to choose between maintaining margins and seeing less member (and revenue) growth, or cutting prices and sacrificing margins. Either way, it's not a great choice.

I may well be courting trouble here, but I think the reaction to this quarter's report was definitely overdone, and the shares seem cheap even with single-digit growth estimates. I still think management here is pretty solid, and since I've been expecting to see this sector slow down for some time now, I can't say Aetna's news shocks me. That said, bad news tends to travel in packs, and less risk-tolerant investors may want to wait for the dust to settle before jumping in with their own cash.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).