NEW YORK (Reuters) - Aetna Inc sharply cut its full-year earnings forecast on Monday because of higher-than-projected medical costs as the health insurer posted a 28 percent drop in second-quarter net income.
The No. 3 U.S. health insurer, whose shares fell 7.7 percent in thin premarket trading, expects 2009 operating earnings of $2.75 to $2.90 per share. In June, Aetna lowered its full-year outlook to $3.55 to $3.70 per share from an initial forecast of $3.85 to $3.95.
Second-quarter net income fell to $346.6 million, or 77 cents per share, from $480.5 million, or 97 cents per share, a year earlier.
Excluding items, earnings of 68 cents per share fell 10 cents short of the average estimate of analysts, according to Reuters Estimates.
Revenue rose 10 percent to nearly $8.7 billion, compared to the analyst estimate of about $8.6 billion.
Aetna said higher medical costs stemmed from use of more services in the emergency room, laboratory and preventive services, which is a continuation of issues cited earlier this year.
"We continue to see upward pressure on medical costs beyond what we projected in early June, which we believe is driven in part by changing provider behavior in the face of a deep recession," Chief Executive Officer Ron Williams said in a statement. "We did not fully capture the impact of these forces in our 2009 pricing."
Even after Aetna cut its forecast in June, some on Wall Street expected the health insurer would slash its forecast again as industry-wide concerns over medical costs and underpricing catch up to the company.
Through Friday, Aetna shares had fallen 7 percent this year, underperforming most rivals. Aetna also reported higher-than-expected medical costs for the first quarter.
An Aetna spokesman declined to comment on a report in the Wall Street Journal that said the company was shopping its pharmacy benefit business, citing unnamed sources.
Rival insurer WellPoint Inc
(Reporting by Lewis Krauskopf, editing by Christopher Kaufman and Derek Caney)
