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EXHIBIT 99.1
151 Farmington Avenue
Hartford, Conn. 06156
MEDIA CONTACT:
Joyce A. Oberdorf
860-273-7392
[email protected]
INVESTOR CONTACT:
Robyn S. Walsh
860-273-6184
[email protected]
AETNA SEES RISE IN COMMERCIAL HMO MEDICAL COSTS
-- TREND TO NEGATIVELY IMPACT 2Q EARNINGS --
HARTFORD, CT, JULY 18, 2000 - Aetna (NYSE: AET) announced today that preliminary
second quarter data show higher-than-anticipated commercial HMO medical costs
for the second quarter of 2000.
Based on current information, which represents approximately 50 percent of
second quarter claim data and excluding Prudential HealthCare, the commercial
HMO medical cost trend(1) appears to have increased approximately 10 percent to
12 percent year-over-year during the second quarter. The company believes the
primary reason for the increase in commercial HMO medical costs is an increase
in utilization. The company also is experiencing higher medical costs in its
Medicare HMO and Prudential HealthCare HMO businesses.
Specifically, current claim information shows:
* A significant rise in inpatient utilization;
* A higher number of emergency room visits and outpatient surgeries; and
* To a lesser extent, longer maternity length of stays, more specialist
office visits, and increased costs for physician-administered injectables.
As a result, Aetna expects second quarter operating earnings in the range of
$0.85 to $0.95 per share, compared with the mean analysts' consensus estimate of
$1.20 per share as reported by First Call on July 17.
(1) Medical cost trend is defined as changes in utilization plus unit costs.
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"We are very disappointed with this increase in medical cost trends," said Aetna
Chairman and CEO William H. Donaldson. "While our current-period information is
not complete, we wanted to alert our shareholders to this rise in medical costs.
At this point, no single reason has emerged; instead there are a number of
causes, which vary in importance by region and by market.
"We are highly focused on actions we are taking to address the underlying causes
of these higher costs and to offset their impact on our customers and on
earnings going forward."
These actions include:
* Shifting resources to enhance on-site concurrent reviews, and conducting a
thorough review of other utilization management processes to improve their
effectiveness;
* Reviewing our business and operational processes to increase efficiencies
and further reduce costs;
* Implementing premium increases on health plan business renewing in the
fourth quarter of the year and going forward to reflect the rise in
medical costs;
* Evaluating markets and products with the goal of either fixing or exiting
those that do not meet financial or strategic targets, and
* Redesigning benefit offerings to include features, such as tiered co-pays,
which have been shown to impact utilization.
"We are strongly committed to eliminating the immediate obstacles to better
financial performance and to remaking our business model to be not only more
consumer-focused, responsive and flexible, but also more efficient and
cost-effective," Donaldson said. "Achieving these twin goals is our highest
priority.
"Despite these current problems, our health business remains profitable, with
strong cash flows. We believe it has the potential to deliver industry-leading
financial performance and significant value to our shareholders long term,"
Donaldson said.
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The company will announce second quarter financial results on August 4, 2000.
CAUTIONARY STATEMENT - Certain information in this press release is forward
looking, including our preliminary projections of medical cost trends for the
second quarter of 2000 and the reasons for their increase, our projections as to
our operating earnings for the second quarter of 2000 and our expectations as to
the future impact of certain actions and plans we are implementing in our health
business. Forward-looking information is based on management's estimates,
assumptions and projections, and is subject to significant uncertainties, many
of which are beyond Aetna's control. Important risk factors could cause actual
future results to differ materially from those currently estimated by
management. Those risk factors include, but are not limited to: continued or
further unanticipated increases in medical costs (including increased medical
utilization, increased pharmacy costs, increases resulting from unfavorable
changes in contracting or recontracting with providers, changes in membership
mix to lower premium or higher cost products or membership adverse selection);
the ability to successfully integrate the Prudential HealthCare transaction on a
timely basis and in a cost-efficient manner, and to achieve projected operating
earnings targets for that acquisition (which also is affected by the ability to
retain acquired membership and the ability to eliminate duplicative
administrative functions and integrate management information systems); adverse
government regulation (including legislative proposals to eliminate or reduce
ERISA pre-emption of state laws that would increase potential litigation
exposure, other proposals that would increase potential litigation exposure or
proposals that would mandate coverage of certain health benefits); and the
outcome of litigation and regulatory matters, including numerous purported
health care actions and ongoing reviews of business practices by various
regulatory agencies.
For further discussion of important risk factors that may materially affect
management's estimates, Aetna's results and the forward-looking statements
herein, please see the risk factors contained in Aetna's Securities and Exchange
Commission filings, which risk factors are incorporated herein by reference. You
also should read those filings, particularly Aetna's 1999 Report on Form 10-K
and Report on Form 10-Q for the period ended March 31, 2000 filed with the SEC,
for a discussion of Aetna's results of operations and financial condition.
