Shares of Coventry Health Care slumped Friday after the health insurer said its third-quarter net income dropped 35 percent, partly because of rising medical costs. Those costs overshadowed even a more optimistic earnings forecast for the year.

Coventry said medical costs jumped 11 percent to about $2.19 billion, which outpaced the revenue increase.

Coventry earned $122.7 million, or 84 cents per share, in the three months that ended Sept. 30. That compares to net income of $189.9 million, or $1.29 per share, in last year's quarter. Revenue rose 5 percent to $2.98 billion.

Adjusted earnings, which exclude a Medicare Advantage product Coventry did not renew, were 82 cents per share. That topped analyst expectations of 81 cents per share, according to FactSet. But revenue fell short of the average forecast of $3.01 billion.

The company's medical membership climbed more than 3 percent to 3.4 million people compared to last year's third quarter and was up slightly over this year's second quarter.

Coventry said it now expects 2011 earnings, excluding one-time items, of $2.82 to $2.87. That's up from previous guidance of $2.69 to $2.84 but below expectations. Analysts forecast, on average, earnings of $3.03 per share.

Goldman Sachs analyst Matthew Borsch said in a research note both Coventry's quarter and outlook weren't as strong as expected, however.

Shares of Coventry Health Care Inc. fell 5.1 percent, or $1.69, to $31.26 in afternoon trading, while the Dow Jones industrial average was up slightly.