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Aetna profit falls on costs and legal settlement

By Caroline Humer

(Reuters) - Aetna Inc fourth-quarter earnings fell sharply, the health insurer said on Thursday, as costs rose in parts of its employer-based insurance business and it took charges for settling litigation over out-of-network payments.

The company said Chief Financial Officer Joseph Zubretsky will lead a new business internally. His CFO slot will be filled by Shawn Guertin, who has been with Aetna since 2011 and was previously CFO of Coventry Health Care Inc , which Aetna is buying.

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.

Zubretsky, Aetna's CFO for six years, will now have broader responsibility, managing new businesses such as coordinated care.

"He's been very well respected as a CFO so now he's heading up operations of their largest business unit," said Sarah James, an analyst at Wedbush Securities.

Shares in Aetna were off 1.4 percent, or 69 cents, at $48.26 in morning trading.

Aetna said fourth-quarter net income slid to $190.1 million, or 56 cents per share, from $372.6 million, or $1.02 per share, a year earlier.

Profit took a hit from 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.

Aetna said operating earnings fell in its commercial business as healthcare costs rose. Increased costs related to a severe flu season were offset by a decline in the Northeast of medical services after Superstorm Sandy, which shut down businesses, schools and public transportation for weeks or more.

Leerink Swann analyst Jason Gurda said in a research note 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 toward more aggressive pricing that was mentioned by competitors UnitedHealth Group Inc and WellPoint Inc , which already reported fourth-quarter results.

RETURN TO GROWTH

Aetna, 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.

Zubretsky said in an interview that the company was preparing for the October 1 launch of health insurance exchanges by building its technology and meeting with providers such as hospitals to negotiate rates.

This spring and summer they will file rate proposals and negotiate with regulators on what they can charge for these products aimed at individuals and small businesses, he said.

Wall Street is looking closely for signs of what rates insurers will negotiate with providers for a clue as to how profitable the exchanges will be but the companies have said little. Zubretsky said Aetna will be pricing "conservatively."

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. It expects to increase membership in 2013 to 18.4 million members as it adds more Medicare and Medicaid patients.

(Editing by Gerald E. McCormick, Grant McCool and David Gregorio)

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