Aetna Profits Up 43%

By Steve Tuckey

July 28, 2005 at 08:00 PM

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New customers and reduced costs helped fuel a 43% rise in earnings at Aetna Inc.[@@]

Aetna, Hartford, reported $409 million in net income for the latest quarter on $5.5 billion in revenue, up from $286 million in net income on $4.9 billion in revenue for the second quarter of 2004.

The managed care company ended the second quarter providing or administering health coverage for 14 million people, up from 13 million people a year earlier.

Although enrollment was up, the increase was lower than some analysts had predicted, and analysts are asking whether employer cutbacks and rising coverage costs have started to hurt demand for health coverage.

Despite rising medical costs, operating expenses amounted to only 19.3% of revenue, down from 20.1% for the comparable quarter in 2004. Costs are down because the company is more efficient, Aetna says.

In the coming year, Aetna will be expanding its Medicare managed care operations and launching a major effort to participate in the new Medicare Part D prescription drug plan program, according to Aetna Chief Executive Dr. John Rowe.

Aetna will be investing about $50 million in Medicare initiatives, Rowe says.

One open question is whether Aetna will be making any big acquisitions over the next few months.

The company's major rivals, UnitedHealth Group Inc., Minnetonka, Minn., and WellPoint Inc., Indianapolis, have grown significantly in the past year as a result of acquisitions.

But Aetna had big problems with acquisitions in the mid-1990s, and company executives have suggested that the company is reluctant to pay more than $500 million to make a deal.

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