Big Nevada health insurers hurt by rising medical expenses

Monday, Aug. 7, 2000 | 11:41 a.m.

SUN WIRE SERVICES

PacifiCare Health Systems Inc., the nation's No. 1 operator of Medicare health maintenance organizations and a big player in the Nevada health industry, said its second quarter profit rose 2.7 percent as rising medical costs partly undercut the effect of higher premiums.

The Santa Ana, Calif., company last week said profit from operations rose to $70.8 million or $2.01 per share from $68.9 million or $1.49 a year earlier. Revenue rose 16 percent to $2.85 billion.

This beat the estimates of analysts surveyed by First Call/Thomson Financial of $1.90 per share.

PacifiCare said medical costs rose faster than payments under Medicare, the federal health-care program for the elderly. While many other insurers are dropping Medicare because of low government reimbursements, PacifiCare said it has enough customers to bargain with doctors for better prices.

Separately, second-quarter net profits at Aetna Inc. dropped 14 percent as the nation's largest health insurer confronted rising medical costs caused by more of its customers using hospitals and emergency rooms.

Aetna said it plans to increase premiums by an average of 13 percent on business being renewed in the fourth quarter to address the costs. To put that in perspective, health plans this year raised premiums on average of about 5 to 10 percent this year.

Aetna also said it would increase its emergency room co-payments to motivate its customers to use less costly health setting when appropriate.

Excluding one-time items, Aetna said last week it earned $134 million or 94 cents per share, compared with $160.9 million, or $1.03 per share. Results beat lowered Wall Street expectations by six cents, according to analysts surveyed by First Call/Thomson Financial.

The company warned of lower-than-expected earnings last month due to rising medical costs at its health maintenance organizations.

Revenues rose 36 percent to $8.15 billion from $5.95 billion, largely as a result of Aetna's purchase of Prudential Health Care last fall.

Aetna said it has noticed a significant rise in hospitalizations, emergency room use and longer maternity length of stays -- all which contributed to higher health costs.

The Hartford, Conn.-based company, which is in the midst of a major restructuring, announced last month it was significantly curtailing its Medicare HMO business because of inadequate government reimbursement. The move will result in canceling coverage on 350,000 seniors.

Aetna said it will change its managed care policies to improve relationships with doctors and hospitals. And it promised to develop new flexible managed care plans that give consumers more freedom to direct their own care. It did not disclose any specifics.

Separately, UnitedHealth Group's earnings rose 26 percent in the second quarter on strong performance by each of its businesses, and the managed care company expects its market share to keep growing.

Minneapolis-based UnitedHealth earned $170 million, or $1.01 a share, for the quarter ended June 30, compared with $135 million, or 76 cents a share, in the same period a year earlier. That beat Wall Street forecasts by three cents, according to First Call/Thomson Financial.

Revenues for the quarter rose 7 percent to $5.22 billion, from $4.86 billion.

And managed care giant Humana Inc. of Louisville, Ky., reported a 47 percent drop in net income for the second quarter as the company worked to peel off its non-core businesses.

Humana reported second quarter net income of $19 million, or 11 cents a share, down from $28 million, or 17 cents a share, for the same period last year. The 1999 figure included a gain of $27 million that reflected special charges and nonrecurring investment gains. Excluding the gain, net income a year ago was one cent a share.

The results for the quarter met the 11 cents expected by analysts surveyed by First Call/Thomson Financial.

Quarterly revenue increased 8 percent, driven primarily by premium increases, the company reported. Humana reported $2.7 billion in revenues, compared to $2.5 billion a year ago.

Premium increases also sparked about a 4 percent drop in total second quarter membership compared to the same period last year, the company reported. Commercial premium yields rose 5.1 percent from the second quarter of 1999.

The most dramatic drop came in the company's Small Group Commercial division, where about 93,000 members dropped out in reaction to premium increases, the company said. It represented a 5.9 percent decrease in Small Group membership, the company reported.