(Reuters) - Aetna Inc (>> Aetna Inc.) said on Thursday that fourth-quarter earnings fell sharply, as costs rose in parts of its employer-based insurance business and it took charges for settling litigation over payment practices for out-of-network care.
The health insurer also said Chief Financial Officer Joseph Zubretsky would lead a new business internally. Shawn Guertin, who has been with Aetna since 2011 and was previously CFO of Coventry Health Care Inc (>> Coventry Health Care, Inc.), which Aetna is buying, will replace Zubretsky on February 25.
The Hartford, Connecticut company announced plans in August for the $5.6 billion acquisition of Coventry, part of a strategy to expand in government-sponsored healthcare programs like Medicare.
Aetna said fourth-quarter net income declined to $190.1 million, or 56 cents per share, from $372.6 million, or $1.02 per share, a year earlier.
The latest results include a $78 million after-tax charge for the $120 million settlement reached in December for the class-action lawsuit. Patients and doctors had accused Aetna of systematically underpaying claims.
Excluding special items, the company reported earnings of 94 cents per share. Analysts on average were expecting 95 cents on that basis, according to Thomson Reuters I/B/E/S.
It said operating earnings fell in its commercial business as healthcare costs rose.
Leerink Swann analyst Jason Gurda said in a research note that the decline in healthcare earnings came as the company collected less money than expected in insurance premiums.
He noted that costs appeared to have risen due to an industry trend towards more aggressive pricing that was mentioned by competitors UnitedHealth Group Inc (>> UnitedHealth Group Inc.) and WellPoint Inc (>> WellPoint, Inc.), which already reported their fourth quarter financial details.
Aetna, which is facing a year in which healthcare reform could accelerate as state and federal governments start insurance exchanges for people to buy policies, affirmed that it expects profit to return to growth in 2013.
The 2010 Patient Protection and Affordable Care Act has put the insurers on the front lines of reform as the law requires policies to include more preventative services for free, added taxes and mandated access to health care for all Americans.
Aetna expects 2013 profit excluding items of at least $5.40 a share compared with $5.13 on that basis in 2012.
Analysts are expecting 2013 earnings of $5.53 per share and 2013 revenue of $38.7 billion on average, according to Thomson Reuters I/B/E/S.
Total revenue increased to $9.9 billion in the fourth quarter from $8.6 billion a year earlier.
Excluding capital gains and a $941 million revenue gain related to its annuity business, revenue increased 5 percent to $8.96 billion from $8.54 billion a year earlier, driven by higher health care premiums in its employer-based and Medicare and Medicaid government insurance.
It ended the year with 18.2 million members, an increase of 64,000 during the fourth quarter.
(Reporting by Caroline Humer; Editing by Gerald E. McCormick and Grant McCool)