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Aetna profit tops estimates as medical spending declines

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(Bloomberg) — Aetna Inc. (NYSE:AET) posted operating profit that beat analysts’ expectations after the company spent less on medical care than a year ago.

In the fourth quarter, net income rose 38 percent to $321 million, or 91 cents a share, from $232 million, or 65 cents a share, a year before, the company said in a statement on Monday. Operating earnings were $1.37 a share, compared with the $1.21 average of analysts’ estimates.

One of Aetna’s biggest lines of business is Medicare, where it runs private-sector plans to care for the elderly. The insurer is expanding its bet on the program with an agreement to buy Humana Inc. (NYSE:HUM) for about $37 billion in cash and stock, a deal that could close this year. Humana, with about 3.2 million Medicare Advantage clients, is No. 2 in that line of business behind UnitedHealth Group Inc. (NYSE:UNH). Aetna said it had 1.25 million people in the program at the end of last year.

For the fourth quarter, Aetna said that its costs to care for patients dropped in both its commercial and government businesses, which includes Medicare Advantage as well as privately run Medicaid plans. It spent 81.9 cents of every premium dollar on care, compared with 83 cents a year before, leaving more money for profits.

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The company also forecast 2016 results, which don’t include the acquisition of Humana:

  • Medical costs may rise slightly, to 81.6 cents of every premium dollar in 2016, from 80.8 cents for all of 2015.

  • Operating margins may narrow, to at least 8 percent from 8.3 percent last year.

  • Operating earnings will be at least $7.75 a share, compared with analysts’ estimates of $8.03 a share.

  • Membership will decline to 22.7 million to 22.8 million people at the end of the first quarter, from 23.5 million people at the end of 2015.

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