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Aetna(AET - Get Report) is a managed health care firm that provides benefits to more than 22 million Medicare, Medicaid, and private health care patients across the country. That 22 million number is important -- size matters in the health care industry. Because Aetna has such a big patient rolls, it's able to negotiate harder with care providers to bring down the rates that it ultimately pays out.
The firm has taken some of the risks off of its own balance sheet by pushing its services as a health care plan administrator. On the commercial side, it means that Aetna provides its network and resources to employees at a firm, but it's the employer who bears the risks of underwriting a health policy. That, coupled with Medicare and Medicaid give Aetna a lucrative market that's less burdened by regulation and less filled with the risks of poor underwriting.
While health care reform legislation has been a big concern for all insurers in recent years, Aetna has actually used new bills to its advantage as a bargaining chip, squeezing out concessions from its contracted healthcare providers. That's a fact that's showing through in AET's margins in 2012.
With plenty free cash generation on tap, AET looks likely to make a boost to its 17.5-cent quarterly dividend payout in the near-term. Aetna yields 1.6% right now.
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