|
Aetna Sees Spike
in MLR, Will
Have To Raise
Prices
Aetna was forced
to eat some
major crow at
its earnings
conference
today, in effect
admitting that
analyst concerns
over its medical
costs in April
were justified.
Several top
analysts
insisted during
and after the
first quarter
conference that
Aetna’s costs
were rising
faster than the
earnings
announcement
suggested, but
the company
vociferously
denied that and
even held a rare
second
conference to
assert the
position that
nothing was
amiss. Aetna’s
stock price has
been suffering
ever since.
This time around
was like night
and day. Aetna
announced in
contrite voices
that indeed
there was a
major spike in
its 2Q medical
costs, shooting
the MLR up at a
shocking rate
and forcing
Aetna to jack
its
unrealistically-low
premiums running
about 7.0% by up
to a full
percentage point
in the next few
quarters – bring
it closer to its
major
competitors
quoting 7.5 –
8.0%. Things
should be back
to normal in a
quarter or two,
but many
analysts did not
like the way
things sounded
in the call.
Aetna’s stock
initially
spiraled down
22% in one day
and hit a
52-week low, to
some degree a
little payback
from analysts,
but started to
get back to
reality by the
end of the day.
Basically, the
problem is a
combination of
Aetna getting
ahead of the
curve on buying
market share
against regional
non-profits,
which can of
course be
rapidly
remedied, and a
failure to
detect some
major problems
with its
stop-loss and
large case
claims. We heard
nothing at the
conference that
suggests any
industry
lessons.
Aetna adjusted
its estimated
growth, from the
900,000 to a
million members
level for the
year to 700,000
added, another
case where the
optimists in the
company got
ahead of
themselves. Too
bad it came at
this at this
particular
moment: it’s a
really hefty
growth pop,
especially given
the atmosphere
two years ago
when the
landscape was
flat and some
were wondering
if things would
ever pick up. In
fact, we were
until this
quarter
disappointed by
Aetna’s CDH
growth, which
really stalled
out last year.
The latest CDH
numbers show
things are
picking up
nicely again. |
