Aetna Q1 2010 Earnings Call Transcript

Aetna Q1 2010 Earnings Call Transcript
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Aetna (AET)

Q1 2010 Earnings Call

April 29, 2010 8:30 am ET

Executives

Mark Bertolini - President and Head of Business Operations

Ronald Williams - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Investment & Finance Committee

Kim Keck - Vice President of Investor Relations

Joseph Zubretsky - Chief Financial Officer and Executive Vice President

Analysts

Ana Gupte - Sanford C. Bernstein & Co., Inc.

Joshua Raskin - Barclays Capital

Charles Boorady - Citigroup Inc

Justin Lake - UBS Investment Bank

Carl McDonald - Oppenheimer & Co. Inc.

John Rex - JP Morgan Chase & Co

Scott Fidel - Deutsche Bank AG

Christine Arnold - Cowen and Company, LLC

Presentation

Operator

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Good morning. My name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aetna First Quarter 2010 Earnings Conference Call. [Operator Instructions] We will begin by turning the call over to Ms. Kim Keck, Vice President of Investor Relations and Treasures. Ms. Keck, please go ahead.

Kim Keck

Good morning, and thank you for joining Aetna's First Quarter 2010 Earnings Call and Webcast. This is Kim Keck, Head of Investor Relations and Treasures for Aetna. And with me this morning are Aetna's Chairman and CEO, Ron Williams; Mark Bertolini, President; and Joe Zubretsky, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will respond to your questions.

During this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently-projected results are described in Aetna’s 2009 Form 10-K and our first quarter 2010 Form 10-Q when filed with the SEC.

Pursuant to SEC Regulation G, we have provided reconciliations of metrics related to the company’s performance that are non-GAAP measures in our first quarter 2010 financial supplement and our 2010 guidance summary. These reconciliations are available on the Investor Information portion of aetna.com. Also, as you know, Regulation FD limits our ability to respond to certain inquiries from investors and analysts in non-public forums, so we invite you to ask all questions of a material nature on this call.

With that, I will turn the call over to Ron Williams. Ron?

Ronald Williams

Good morning. Thank you, Kim, and thank you all for joining us today. This morning, we reported first quarter operating earnings per share of $0.98. Excluding favorable prior-period development, first quarter operating earnings per share were $0.77, $0.05 higher than the consensus estimate of $0.72, as a result of sound operating fundamentals.

Our commercial medical benefit ratio was 81.1% or 82.9% excluding favorable prior-period development, which is 60 basis points better than our guidance of approximately 83.5%. This first quarter performance was generally in line with expectations as a result of disciplined pricing actions and effective medical quality and cost management. First quarter results also include better-than-projected medical membership of approximately 18.7 million members, reflecting better-than-projected ASC growth. We are strategically positioning the company for future success, with the aspiration of shaping more effective healthcare systems. The three components of our strategy are: First, obtaining deep insight into the evolving needs of our customers to identify areas for future profitable growth; second, providing information and decision support to help our customers make better informed health decisions; and third, aspiring to achieve operational excellence in everything we do. We are pleased to report strategic successes in each of these three areas during the first quarter.

First, with respect to deep customer insight. Through sophisticated segmentation, we continue to diversify our revenue streams. Of note this quarter, we achieved commercial ASO membership growth of 157,000 members despite economic-related attrition of approximately 80,000 members. And by combining our strong geographical presence and marketplace relationships with acquired Medicaid capabilities, we were successful in growing our Medicaid business. In particular, we were awarded the new Medicaid contract in Pennsylvania, which combined with our new Medicaid Florida launch has the potential to add up to 60,000 new members this year, demonstrating our ability to provide value-added solutions to this growing marketplace.

Second, with respect to information and decision support, our transparency, integration and engagement initiatives are designed to improve quality and lower total costs for our customers. By leveraging the power of technology to provide personalized evidence-based information, our goal is to create an information-driven marketplace. For example, we recently launched realtime payment estimators that allow members to get the care they need at the price that's right for them. These estimators display the costs of various procedures in different settings based upon their specific benefit plan and current deductible status before the service is rendered. This realtime price transparency is the next step in our strategy to drive true consumer behavior by enabling value-based purchasing. Our success in this area is also illustrated by the results of a recent study of Aetna HealthFund consumer-directed plans which demonstrated substantial savings and better engagement for our customers. The study found that employers with full-replacement health reimbursement arrangement and health savings account plans saved $18 million per 10,000 members over five years. Our growing consumer-directed health plan membership reflects our success in selling and effectively administering these plans and now stands at 2.2 million members as of March 31.

Third, with respect to operational excellence. Aetna was recognized by Fortune as the most admired healthcare company for the third year in a row. In addition, our continued focus on operational excellence produced sequentially improved performance during the quarter across many of our operating metrics.

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