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's first-quarter net income fell 4 percent as acquisition-related costs and rising health care expenses more than offset government business gains for the health insurer.
But earnings still topped analyst expectations, and the Hartford, Conn., company raised its forecast for 2013, a year in which it will add business from Coventry Health Care once it completes the acquisition of that insurer.
Aetna recorded $24.6 million in after-tax costs in the first quarter tied to that acquisition. But the insurer expects a healthy return once it closes the $5.7 billion deal later this year.
Coventry serves customers in two markets primed for growth. It administers Medicaid, the state and federally funded program that covers the needy and disabled people, and it offers Medicare Advantage plans. Those are subsidized versions of the federal government's Medicare program for the elderly and also disabled people.
Aetna aims to close the deal by the middle of this year, a few months before millions of people are expected to become eligible for expanded Medicaid coverage under the health care overhaul. The acquisition also is expected to strengthen Aetna's Medicare business at a time when interest in these plans is growing in part because baby boomers are aging.
The insurer expects Coventry to modestly help earnings this year and then add more to its bottom line in the years that follow.
Aetna Inc. is the nation's third-largest health insurer, trailing only UnitedHealth Group Inc. and WellPoint in enrollment. Health insurance is Aetna's main product, but the company also sells dental, group life and disability coverage.
In the first quarter, Aetna earned $490.1 million, which was down from $511 million in last year's quarter. Earnings per share climbed to $1.48 in this year's first quarter from $1.43 last year because the company has fewer shares outstanding this year.
Adjusted earnings totaled $1.50 per share, not counting items like capital gains. That trumped average analyst expectations for earnings of $1.38 per share, according to FactSet.
Operating revenue, which also excludes capital gains and interest income, climbed 7 percent to $9.51 billion. That was short of analyst expectations for $9.56 billion.
Health care costs, or the amount Aetna paid in medical claims, also jumped 9 percent to $6.38 billion in the quarter. That is, by far, the company's largest expense.
Higher health care premiums from Aetna's Medicaid and Medicare businesses helped revenue climb to partially counter the higher expenses.
The insurer also recorded a larger gain of $325 million in this year's quarter because claims left over from previous quarters came in lower than expected, and it could release money it had held in reserve. It recorded a gain of $169 million in last year's quarter.
Enrollment climbed 2 percent to 18.3 million, compared to last year's quarter, largely on gains in the company's Medicare business, which also includes supplemental coverage for people with Medicare.
Aetna now expects 2013 earnings to range between $5.50 and $5.60 per share, up from its previous forecast for at least $5.40. Analysts expected $5.53 per share.
Citi analyst Carl McDonald said in a research note that higher guidance was still too low, in part because it doesn't include Coventry's results, which could add at least 20 cents per share.
Aetna shares finished at $56.16 on Monday.
Aetna joined WellPoint and another insurer, Health Net Inc., in beating analyst expectations for the first quarter and raising its 2013 earnings forecast. UnitedHealth also beat expectations, but the nation's largest health insurer just reaffirmed its earnings forecast earlier this month. It said widespread government spending cuts that will hit Medicare will make it harder to reach the top end of its forecast for 2013 earnings of $5.25 to $5.50 per share.
UnitedHealth also is the nation's largest Medicare Advantage coverage provider.