Coventry slashes forecast; shares tumble

By Kim Dixon

WASHINGTON (Reuters) - Health insurer Coventry Health Care Inc (CVH.N) on Wednesday slashed its second-quarter profit forecast nearly in half and cut its 2008 view, blaming steeper-than-expected patient costs, sending shares in the sector tumbling.

Shares of Coventry were down 16.3 percent to $33.50 in extended trade following the announcement after the close of the market. Shares of WellPoint Inc (WLP.N), UnitedHealth Group (UNH.N) and Aetna Inc (AET.N), the three biggest U.S. health insurers, also fell.

"The health insurers are having a pretty bad year," said Morningstar analyst Matt Coffina, citing competitive pricing and faster-than-expected increases in medical costs.

After a bad first quarter driven in part by costs to treat the flu, "it's a little surprising in the second quarter that it's still getting worse," he added.

Coventry cut its second-quarter view to 55 cents to 57 cents per share from a prior forecast of $1.03 to $1.04 per share. It now expects to earn $3.65 to $3.75 per share in 2008, compared with a prior estimate of $4.39 to $4.50 per share.

Higher-than-expected claims in a lucrative arm of Coventry's Medicare business -- its fee-for-service business within Medicare, the government's insurance plan for 44 million elderly and disabled -- contributed to 42 cents of the 2008 downward revision.

Private companies have reaped healthy profits in recent years following a 2003 law that encouraged the plans to target Medicare beneficiaries. Still, the first-quarter reporting season was gloomy for health insurers amid profit warnings and fears of an economic downturn.

MEDICARE, COMMERCIAL