Exhibit 99.1
![]() | Health Net, Inc. | |||
21650 Oxnard Street | ||||
Woodland Hills, CA 91367 | ||||
818.676.6000 | ||||
800.291.6911 | ||||
www.healthnet.com | ||||
Contacts: David Olson
818.676.6978
david.w.olson@healthnet.com
Michael Engelhard
818.676.7620
michael.engelhard@healthnet.com
HEALTH NET’S IMPROVEMENT CONTINUES AS IT REPORTS
NET INCOME OF $77 MILLION, OR $.65 PER DILUTED SHARE
220 Basis Point Improvement in Health Plan MCR Key to Better Performance
Medicare Part D Enrollment at 255,000
LOS ANGELES, May 8, 2006 – Health Net, Inc. (NYSE: HNT) today announced 2006 first quarter net income per diluted share of $.65 compared with net income per diluted share of $.19 in the first quarter of 2005.
Health Net’s net income climbed more than 250 percent, reaching $76,593,000 in the first quarter of 2006 compared to net income of $21,348,000 in the first quarter of 2005. Net income in the first quarter of 2005 included $67,042,000 in pretax charges for the settlement of the MDL
physician-class action lawsuit and severance and related benefit costs related to the May 2004 workforce reduction.
Key highlights behind Health Net’s improved performance in 2006’s first quarter included:
• | An increase in the pretax margin to 3.9 percent compared to the first quarter 2005 pretax margin of 1.1 percent (the pretax charges in the first quarter of 2005 reduced pretax margin for that quarter by 2.3 percentage points). |
• | A more than 20 percent gain in the commercial gross margin on a per member per month (PMPM) basis compared with the first quarter of 2005, underscoring the company’s pricing discipline and favorable health care cost trends. |
• | Health Net’s health plan medical care ratio (MCR) was 82.8 percent in the first quarter of 2006, compared with 85.0 percent in the first quarter of 2005, a 220 basis point improvement, driven in large part by lower hospital utilization. Commercial premiums PMPM rose 9.1 percent while commercial health care costs rose 6.6 percent compared with the first quarter of 2005. |
• | Total health plan enrollment at March 31, 2006 was approximately 3.4 million members, an increase of 10,000 compared with the fourth quarter of 2005. This total includes 112,000 members added as a result of Health Net’s acquisition of certain health plan assets of Universal Care, Inc. on March 31, 2006. |
• | Enrollment of 255,000 new members in the company’s Medicare Part D prescription drug benefit plans. Additionally, Health Net’s Medicare Advantage plans added approximately 16,000 new members in the first quarter of 2006, a 9 percent increase |
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compared to the fourth quarter of 2005. Approximately 7,000 members came from the Universal Care acquisition. |
“We are pleased to have achieved further progress as we use the strength of our diverse businesses to build a better Health Net,” said Jay Gellert, president and chief executive officer of Health Net. “Our improved performance enables us to make key investments in our future, such as the Universal Care acquisition and our Medicare efforts. We can see the momentum building across the company. Coupled with our ongoing strong financial metrics and substantial improvements in TRICARE, we remain confident that we’re on the right track.
“Our commercial enrollment was essentially on plan in the first quarter. We are seeing early encouraging signs that lapse rates are declining and new sales are increasing as investments in product innovations, marketing, sales and advertising are gaining traction in the marketplace. In California, for example, April commercial enrollment was higher than March. At the same time, we are maintaining our commercial pricing discipline,” Gellert added.
Medicare
The company began offering the new Part D prescription drug benefit to seniors in 10 states on January 1, 2006. “We are pleased with Part D results as they were essentially breakeven in the first quarter as expected,” said Gellert. “Now that we’re nearing the end of the open enrollment period for the Part D program, the company is exploring additional product opportunities for Medicare expansion in 2007.”
Revenues
Health Net’s total revenues increased 9.4 percent in the first quarter of 2006 to $3,186,630,000 from $2,911,745,000 in the first quarter of 2005. Health plan premiums increased 6.2 percent to $2,546,130,000 in the first quarter of 2006 compared to $2,397,689,000
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in the first quarter of 2005. In the first quarter of 2006, Health Net’s Government contracts revenue rose 24.0 percent from the first quarter of 2005, increasing by $119,187,000 to $615,897,000.
“TRICARE revenues were consistent with expectations as the impact of heightened military activity continues to drive revenues and costs higher,” said Buddy Piszel, executive vice president and chief financial officer of Health Net.
Commercial premium yields PMPM climbed 9.1 percent in the first quarter of 2006 compared to the first quarter of 2005. “The commercial premium yield increases are consistent with expectations,” noted Piszel.
Total health plan enrollment increased by approximately 10,000 members in the first quarter of 2006 compared to the fourth quarter of 2005. The same comparison shows that Medicaid enrollment increased by approximately 14,000 members, as the Universal Care acquisition added 23,000 new members.
Commercial enrollment, including both at-risk and Administrative Services Only (ASO) membership, declined by approximately 20,000 members, or 0.9 percent, in the first quarter of 2006 compared to the fourth quarter of 2005. Excluding the 81,000 Universal Care commercial members added on March 31, 2006, commercial enrollment declined by 101,000 members, or 4.2 percent, from December 31, 2005.
Health Care Costs
The health plan MCR improved to 82.8 percent in the first quarter of 2006 from 85.0 percent in the first quarter of 2005.
“This was very gratifying performance as it demonstrated that the initiatives we’ve undertaken to improve our health care cost structure are showing results,” Piszel noted.
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Commercial health care costs rose by 6.6 percent PMPM between the first quarters of 2005 and 2006. “Commercial hospital bed days were down by 2 percent in the quarter, compared with last year’s first quarter. Physician and pharmacy costs came in a bit better than expected. We now believe that our commercial health care costs are at a competitive level, and that’s a vital accomplishment in our ongoing company-wide improvement process,” Piszel explained.
The Government contracts cost ratio of 95.5 percent in the first quarter of 2006 represented a 110 basis point improvement compared with the first quarter of 2005.
“As our experience with the TRICARE North contract grows, we are gaining efficiencies on the administrative side and we are better managing the increased beneficiary use of private sector health care resources,” Piszel added.
Administrative Expenses
In the first quarter of 2006, total general, administrative and depreciation expenses increased by $68,798,000 to $295,581,000 compared to $226,783,000 in the first quarter of 2005.
“Our administrative spending is up as we invest in our future. We continue to support Medicare efforts and increased marketing in the commercial arena. These commitments are essential if we are to continue to build a stronger, more competitive company,” Piszel commented.
Health Net recorded $4,229,000, or $.02 per diluted share, in stock option expenses for the first time in the first quarter of 2006.
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Balance Sheet Highlights
Cash and investments as of March 31, 2006 were $2,226,610,000 compared with $2,106,303,000 as of December 31, 2005.
Reserves for claims and other settlements decreased by $53,646,000 to $986,525,000 at March 31, 2006, from $1,040,171,000 at December 31, 2005. Days claims payable (DCP) declined by 6.2 days, to 43.2 days at March 31, 2006, from 49.4 days at December 31, 2005, and by 8.2 days compared with the 51.4 days at March 31, 2005. These amounts include the effects of provider settlements, capitation payments and Medicare Part D.
DCP, excluding provider settlements, capitation payments and the impact of Medicare Part D expenses, declined by only 1.8 days to 58.1 days in the first quarter of 2006, compared to the 59.9 days in the first quarter of 2005. DCP declined by 5.4 days compared to the fourth quarter of 2005, as a result of the higher paid claims in the first quarter of 2006 compared with the fourth quarter of 2005, and the resulting reduction in claims inventory on hand (see Footnote (d) in the attached tables).
The company’s debt-to-total capital ratio was 18.5 percent as of March 31, 2006 compared to 19.6 percent as of December 31, 2005.
Interest expense increased in the first quarter of 2006 by $1,617,000 compared with the first quarter of 2005, due to higher market interest rates.
Cash Flow
Operating cash flow was $185,904,000 in the first quarter of 2006 compared to operating cash flow of $95,151,000 in the first quarter of 2005, reflecting, in part, the company’s receipt of its April 2006 Centers for Medicare & Medicaid Services (CMS) payment of approximately $169,000,000 in March 2006.
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The higher levels of claims paid and the provider settlement payments referenced above also affected operating cash flow.
Universal Care Acquisition
The acquisition of certain health plan assets of Universal Care, Inc. closed on March 31, 2006. Because the acquisition closed on the last day of the quarter, Universal Care did not have a material impact on the company’s operating results in the first quarter of 2006.
Outlook
Health Net continues to believe that its earnings per diluted share for the full year 2006 will be between $2.90 and $3.10. The company historically experiences earnings distribution of approximately 45 percent in the first half of the year and approximately 55 percent in the second half of the year. The company previously noted that it expects earnings distribution to be more weighted to the second half of the year due to the anticipated impact of the Universal Care acquisition and the concentration of earnings from Medicare Part D expected to occur in the third and fourth quarters of 2006.
Accordingly, Health Net expects earnings per diluted share in the second quarter of 2006 to be in a range of $.61 to $.66. The company noted that it expects to absorb approximately $6.5 million in one-time general and administrative transition expenses in the second quarter related to the Universal Care acquisition.
Conference Call
As previously announced, Health Net will discuss the company’s first quarter results during a conference call scheduled on Monday, May 8, 2006, at approximately 11:00 a.m. Eastern Time. To listen to the call, please dial 800.474.8920, code 9496826. A live webcast and replay of the conference call also will be available atwww.healthnet.com. The conference call
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webcast is open to all interested parties. A replay of the conference call will be available from May 8, 2006 through May 12, 2006, by dialing 888.203.1112, code 9496826. Anyone listening to the company’s conference call will be presumed to have read Health Net’s Annual Report on Form 10-K for the year ended December 31, 2005, and other reports filed by the company from time to time with the Securities and Exchange Commission.
About Health Net
Health Net, Inc. is among the nation’s largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company’s HMO, POS, insured PPO and government contracts subsidiaries provide health benefits to approximately 6.6 million individuals in 27 states and the District of Columbia through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net’s behavioral health subsidiary, MHN, provides mental health benefits to approximately 7.3 million individuals in all 50 states. The company’s subsidiaries also offer managed health care products related to prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs.
For more information on Health Net, Inc., please visit the company’s Web site atwww.healthnet.com.
Cautionary Statements
This release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking
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statements. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, rising health care costs, negative prior period claims reserve developments, trends in medical care ratios, issues relating to provider contracts, litigation costs, operational issues, health care reform and general business conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this release.
# # #
[Six pages of tables follow]
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Health Net, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share and ratio data)
First Quarter Ended March 31, 2005 | Second Quarter June 30, 2005 | Third Quarter September 30, 2005 | Fourth Quarter December 31, 2005 | First Quarter 2006 | ||||||||||||||||
REVENUES: | ||||||||||||||||||||
Health plan services premiums | $ | 2,397,689 | $ | 2,390,679 | $ | 2,398,100 | $ | 2,367,057 | $ | 2,546,130 | ||||||||||
Government contracts | 496,710 | 610,656 | 639,626 | 560,491 | 615,897 | |||||||||||||||
Net investment income | 15,763 | 17,213 | 19,536 | 20,239 | 23,359 | |||||||||||||||
Other income | 1,583 | 1,309 | 1,511 | 2,371 | 1,244 | |||||||||||||||
Total revenues | 2,911,745 | 3,019,857 | 3,058,773 | 2,950,158 | 3,186,630 | |||||||||||||||
EXPENSES: | ||||||||||||||||||||
Health plan services | 2,036,873 | 2,023,174 | 2,000,661 | 1,952,309 | 2,108,712 | |||||||||||||||
Government contracts | 479,974 | 580,685 | 614,794 | 535,800 | 587,980 | |||||||||||||||
General and administrative | 215,227 | 233,723 | 241,847 | 266,043 | 290,823 | |||||||||||||||
Selling | 57,273 | 56,082 | 55,000 | 53,200 | 56,611 | |||||||||||||||
Depreciation | 11,556 | 10,467 | 4,007 | 4,220 | 4,758 | |||||||||||||||
Amortization | 861 | 861 | 861 | 861 | 591 | |||||||||||||||
Interest | 10,609 | 10,543 | 11,789 | 11,690 | 12,226 | |||||||||||||||
2,812,373 | 2,915,535 | 2,928,959 | 2,824,123 | 3,061,701 | ||||||||||||||||
Litigation and severance related costs | 67,04 2 | (a) | 16,237 | (c) | — | — | — | |||||||||||||
Total expenses | 2,879,415 | 2,931,772 | 2,928,959 | 2,824,123 | 3,061,701 | |||||||||||||||
Income from operations before income taxes | 32,330 | 88,085 | 129,814 | 126,035 | 124,929 | |||||||||||||||
Income tax provision | 10,982 | (b) | 34,522 | 51,609 | 49,366 | 48,336 | ||||||||||||||
Net income | $ | 21,348 | $ | 53,563 | $ | 78,205 | $ | 76,669 | $ | 76,593 | ||||||||||
Basic earnings per share | $ | 0.19 | $ | 0.48 | $ | 0.69 | $ | 0.67 | $ | 0.67 | ||||||||||
Diluted earnings per share | $ | 0.19 | $ | 0.47 | $ | 0.67 | $ | 0.65 | $ | 0.65 | ||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 111,544 | 112,451 | 113,371 | 114,276 | 114,594 | |||||||||||||||
Diluted | 113,235 | 114,851 | 116,543 | 117,902 | 118,398 | |||||||||||||||
Pretax margin (Income from operations before income taxes / Total revenues) | 1.1 | % | 2.9 | % | 4.2 | % | 4.3 | % | 3.9 | % | ||||||||||
Health plan services MCR | 85.0 | % | 84.6 | % | 83.4 | % | 82.5 | % | 82.8 | % | ||||||||||
Government contracts cost ratio | 96.6 | % | 95.1 | % | 96.1 | % | 95.6 | % | 95.5 | % | ||||||||||
Administrative ratio ((G&A+Dep) / (HP serv rev + Other income)) | 9.5 | % | 10.2 | % | 10.2 | % | 11.4 | % | 11.6 | % | ||||||||||
Selling costs ratio (Selling costs / HP serv rev) | 2.4 | % | 2.3 | % | 2.3 | % | 2.2 | % | 2.2 | % | ||||||||||
Days claims payable(d) | 51.4 | 49.9 | 48.8 | 49.4 | 43.2 | |||||||||||||||
Days claims payable (excluding capitation, provider settlements and Medicare Part D)(d) | 59.9 | 60.3 | 61.1 | 63.5 | 58.1 | |||||||||||||||
Effective tax rate | 34.0 | % | 39.2 | % | 39.8 | % | 39.2 | % | 38.7 | % | ||||||||||
Health plan services premiums PMPM | $ | 231.84 | $ | 235.03 | $ | 240.10 | $ | 241.13 | $ | 246.89 | ||||||||||
Health plan services costs PMPM | $ | 196.96 | $ | 198.90 | $ | 200.31 | $ | 198.88 | $ | 204.48 |
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Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
March 31, 2005 | June 30, 2005 | September 30, 2005 | December 31, 2005 | March 31, 2006 | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 765,842 | $ | 939,057 | $ | 1,027,848 | $ | 742,485 | $ | 870,224 | ||||||||||
Investments - available for sale | 1,129,760 | 1,060,936 | 1,150,738 | 1,363,818 | 1,356,386 | |||||||||||||||
Premiums receivable, net | 124,041 | 119,776 | 127,020 | 132,019 | 171,977 | |||||||||||||||
Amounts receivable under government contracts | 134,447 | 139,540 | 122,295 | 122,796 | 143,625 | |||||||||||||||
Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract | 216,740 | 184,214 | 263,329 | 265,517 | 295,800 | |||||||||||||||
Other receivables | 82,401 | 89,437 | 85,873 | 79,572 | 84,414 | |||||||||||||||
Deferred taxes | 106,150 | 100,277 | 110,445 | 93,899 | 99,866 | |||||||||||||||
Other assets | 112,044 | 118,904 | 107,618 | 111,512 | 147,600 | |||||||||||||||
Total current assets | 2,671,425 | 2,752,141 | 2,995,166 | 2,911,618 | 3,169,892 | |||||||||||||||
Property and equipment, net | 183,176 | 103,314 | 112,218 | 125,773 | 136,727 | |||||||||||||||
Goodwill, net | 723,595 | 723,595 | 723,595 | 723,595 | 751,949 | |||||||||||||||
Other intangible assets, net | 20,993 | 20,132 | 19,271 | 18,409 | 47,062 | |||||||||||||||
Deferred taxes | 24,917 | 26,941 | 29,527 | 31,060 | 46,560 | |||||||||||||||
Other noncurrent assets | 163,732 | 148,647 | 143,555 | 130,267 | 137,645 | |||||||||||||||
Total Assets | $ | 3,787,838 | $ | 3,774,770 | $ | 4,023,332 | $ | 3,940,722 | $ | 4,289,835 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Reserves for claims and other settlements | $ | 1,155,291 | $ | 1,065,465 | $ | 1,057,848 | $ | 1,040,171 | $ | 986,525 | ||||||||||
Health care and other costs payable under government contracts | 128,570 | 131,909 | 62,778 | 62,536 | 62,529 | |||||||||||||||
IBNR health care costs payable under TRICARE North contract | 216,740 | 184,214 | 263,329 | 265,517 | 295,800 | |||||||||||||||
Unearned premiums | 115,859 | 97,038 | 218,527 | 106,586 | 324,063 | |||||||||||||||
Accounts payable and other liabilities | 348,068 | 385,995 | 404,362 | 364,266 | 434,605 | |||||||||||||||
Total current liabilities | 1,964,528 | 1,864,621 | 2,006,844 | 1,839,076 | 2,103,522 | |||||||||||||||
Senior notes payable | 388,981 | 400,659 | 391,106 | 387,954 | 379,983 | |||||||||||||||
Other noncurrent liabilities | 126,471 | 116,824 | 123,376 | 124,617 | 129,507 | |||||||||||||||
Total Liabilities | 2,479,980 | 2,382,104 | 2,521,326 | 2,351,647 | 2,613,012 | |||||||||||||||
Stockholders’ Equity | ||||||||||||||||||||
Common stock and additional paid-in capital | 838,176 | 861,595 | 899,400 | 911,672 | 932,254 | |||||||||||||||
Treasury common stock, at cost | (632,926 | ) | (632,926 | ) | (633,153 | ) | (633,375 | ) | (636,252 | ) | ||||||||||
Retained earnings | 1,115,728 | 1,169,291 | 1,247,496 | 1,324,165 | 1,400,758 | |||||||||||||||
Accumulated other comprehensive loss | (13,120 | ) | (5,294 | ) | (11,737 | ) | (13,387 | ) | (19,937 | ) | ||||||||||
Total Stockholders’ Equity | 1,307,858 | 1,392,666 | 1,502,006 | 1,589,075 | 1,676,823 | |||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 3,787,838 | $ | 3,774,770 | $ | 4,023,332 | $ | 3,940,722 | $ | 4,289,835 | ||||||||||
Debt-to-Total Capital Ratio | 22.9 | % | 22.3 | % | 20.7 | % | 19.6 | % | 18.5 | % |
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Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
First Quarter Ended March 31, 2005 | Second Quarter June 30, 2005 | Third Quarter September 30, 2005 | Fourth Quarter December 31, 2005 | First Quarter March 31, 2006 | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Net income | $ | 21,348 | $ | 53,563 | $ | 78,205 | $ | 76,669 | $ | 76,593 | ||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||
Amortization and depreciation | 12,417 | 11,328 | 4,868 | 5,081 | 5,349 | |||||||||||||||
Share-based compensation expense | — | — | — | — | 4,435 | |||||||||||||||
Other changes | 3,189 | 3,100 | 3,229 | 3,032 | 4,344 | |||||||||||||||
Changes in assets and liabilities, net of the effects of dispositions: | ||||||||||||||||||||
Premiums receivable and unearned premiums | (29,427 | ) | (14,556 | ) | 114,245 | (116,940 | ) | 177,519 | ||||||||||||
Other receivables, deferred taxes and other assets | (6,685 | ) | (14,336 | ) | 4,901 | 18,476 | (41,899 | ) | ||||||||||||
Amounts receivable/payable under government contracts | 4,387 | (1,754 | ) | (51,886 | ) | (743 | ) | (20,836 | ) | |||||||||||
Reserves for claims and other settlements | (14,006 | ) | (89,826 | ) | (7,617 | ) | (17,677 | ) | (53,647 | ) | ||||||||||
Accounts payable and other liabilities | 103,928 | 41,761 | 28,826 | (35,706 | ) | 34,046 | ||||||||||||||
Net cash provided by (used in) operating activities | 95,151 | (10,720 | ) | 174,771 | (67,808 | ) | 185,904 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Sales of investments | 23,090 | 184,483 | 13,283 | 179,102 | 228,995 | |||||||||||||||
Maturities of investments | 13,777 | 38,653 | 20,215 | 41,037 | 15,770 | |||||||||||||||
Purchases of investments | (125,650 | ) | (143,776 | ) | (126,917 | ) | (437,250 | ) | (252,973 | ) | ||||||||||
Proceeds from sale of property and equipment | 33 | 79,395 | 417 | — | — | |||||||||||||||
Purchases of property and equipment | (10,425 | ) | (7,441 | ) | (13,242 | ) | (17,738 | ) | (15,730 | ) | ||||||||||
Cash received from sale (paid for acquisition) of businesses | 1,949 | — | — | — | (73,100 | ) | ||||||||||||||
Sales and purchases of restricted investments and other | 29,246 | 13,460 | (8,840 | ) | 9,093 | (9,027 | ) | |||||||||||||
Net cash (used in) provided by investing activities | (67,980 | ) | 164,774 | (115,084 | ) | (225,756 | ) | (106,065 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Proceeds from exercise of stock options and employee stock purchases | 16,569 | 19,161 | 29,331 | 8,423 | 10,380 | |||||||||||||||
Repurchases of common stock | — | — | (227 | ) | (222 | ) | (1,724 | ) | ||||||||||||
Excess tax benefits from share-based compensation | — | — | — | — | 3,099 | |||||||||||||||
Medicare Part D deposits | — | — | — | — | 36,145 | |||||||||||||||
Net cash provided by financing activities | 16,569 | 19,161 | 29,104 | 8,201 | 47,900 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 43,740 | 173,215 | 88,791 | (285,363 | ) | 127,739 | ||||||||||||||
Cash and cash equivalents, beginning of period | 722,102 | 765,842 | 939,057 | 1,027,848 | 742,485 | |||||||||||||||
Cash and cash equivalents, end of period | $ | 765,842 | $ | 939,057 | $ | 1,027,848 | $ | 742,485 | $ | 870,224 | ||||||||||
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Health Net, Inc.
Notes to Condensed Consolidated Statements of Operations
Notes:
(a) | Pretax $67.0 million charge for litigation settlement and restructuring charges included the following: $65.6 million related to settlement of the MDL physician-class lawsuit $1.4 million for severance and related benefit costs related to our workforce reduction announced in May 2004 |
(b) | Includes $2.2 million of income tax benefit related to the sale of a small subsidiary. |
(c) | Pretax $15.9 million charge representing total estimated legal defense costs associated with the AmCareco case, and$0.3 million for severance and related benefit costs related to our workforce reduction announced in May 2004. |
(d) | Management believes that days claims payable (excluding capitation, provider settlements and Medicare Part D), a non-GAAP financial measure, provides useful information to investors because, in excluding those health care costs for which no or minimal reserves are maintained, it is a more accurate reflection of days claims payable calculated from claims-based reserves than is days claims payable, which does not exclude such costs. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. The following table provides a reconciliation of the differences between days claims payable (excluding capitation, provider settlements and Medicare Part D) and days claims payable, the most directly comparable financial measure calculated and presented in accordance with GAAP: |
Calculation of Days Claims Payable (Excluding Capitation, Provider Settlements and Medicare Part D)
Q1 2005 | Q2 2005 | Q3 2005 | Q4 2005 | Q1 2006 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Reserve for Claims and Other Settlements | $ | 1,155,291 | $ | 1,065,465 | $ | 1,057,848 | $ | 1,040,171 | $ | 986,525 | ||||||||||
Less: Capitation Payable, Provider Settlements and Medicare Part D | (169,733 | ) | (132,795 | ) | (105,154 | ) | (95,422 | ) | (120,477 | ) | ||||||||||
Adjusted Reserve for Claims and Other Settlements | $ | 985,558 | $ | 932,670 | $ | 952,694 | $ | 944,749 | $ | 866,048 | ||||||||||
(1) Average Reserve for Claims and Other Settlements | $ | 1,162,294 | $ | 1,110,378 | $ | 1,061,657 | $ | 1,049,010 | $ | 1,013,348 | ||||||||||
(2) Average Adjusted Reserve for Claims and Other | $ | 975,551 | $ | 959,114 | $ | 942,682 | $ | 948,722 | $ | 905,399 | ||||||||||
(3) Health Plan Services Cost | 2,036,873 | 2,023,174 | 2,000,661 | 1,952,309 | 2,108,712 | |||||||||||||||
Less: Capitation Payments, Provider Settlements and Medicare Part D | (571,593 | ) | (576,367 | ) | (580,791 | ) | (578,504 | ) | (705,919 | ) | ||||||||||
(4) Adjusted Health Plan Services Cost | $ | 1,465,280 | $ | 1,446,807 | $ | 1,419,870 | $ | 1,373,805 | $ | 1,402,793 | ||||||||||
(5) Number of Days in Period | 90 | 91 | 92 | 92 | 90 | |||||||||||||||
= (1) / (3) * (5) Days Claims Payable | 51.4 | 49.9 | 48.8 | 49.4 | 43.2 | |||||||||||||||
= (2) / (4) * (5) Days Claims Payable (Excl. Capitation, Provider Settlements and Medicare Part D) | 59.9 | 60.3 | 61.1 | 63.5 | 58.1 |
13
HEALTH NET, INC.
Medical Covered Lives at March 31, 2006
(in Thousands)
Commercial - Large Group* | Commercial - Small Group & Individual | Commercial Risk Subtotal | ASO | Commercial Subtotal | ||||||||||||||||||||||||||
3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | ||||||||||||||||
Arizona | 71 | 69 | 66 | 47 | 48 | 54 | 118 | 117 | 120 | — | — | — | 118 | 117 | 120 | |||||||||||||||
California | 1,031 | 1,083 | 1,113 | 365 | 373 | 433 | 1,396 | 1,457 | 1,546 | 6 | 7 | 7 | 1,402 | 1,464 | 1,552 | |||||||||||||||
Universal Care | 24 | — | — | 56 | — | — | 81 | — | — | — | — | — | 81 | — | — | |||||||||||||||
California | 1,055 | 1,083 | 1,113 | 421 | 373 | 433 | 1,477 | 1,457 | 1,546 | 6 | 7 | 7 | 1,482 | 1,464 | 1,552 | |||||||||||||||
Connecticut | 161 | 176 | 182 | 28 | 30 | 38 | 189 | 207 | 220 | 70 | 69 | 48 | 259 | 276 | 268 | |||||||||||||||
New Jersey | 47 | 53 | 71 | 64 | 74 | 98 | 110 | 127 | 169 | 20 | 20 | 18 | 130 | 147 | 188 | |||||||||||||||
New York | 117 | 116 | 124 | 98 | 102 | 106 | 215 | 218 | 230 | 17 | 20 | 21 | 232 | 238 | 251 | |||||||||||||||
Oregon | 101 | 102 | 103 | 37 | 37 | 34 | 138 | 138 | 137 | — | — | 1 | 138 | 138 | 138 | |||||||||||||||
Total | 1,552 | 1,599 | 1,659 | 694 | 664 | 763 | 2,247 | 2,264 | 2,422 | 113 | 116 | 95 | 2,360 | 2,380 | 2,516 | |||||||||||||||
Year over Year | (6)% | (9)% | (7)% | 19% | (6)% | |||||||||||||||||||||||||
Sequential | (3)% | 4% | (1)% | (3)% | (1)% | |||||||||||||||||||||||||
Medicare Risk | Medicaid | Health Plan Total | ||||||||||||||||||||||||||||
3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | ||||||||||||||||||||||
Arizona | 33 | 31 | 32 | — | — | — | 151 | 148 | 152 | |||||||||||||||||||||
California | 95 | 93 | 93 | 690 | 698 | 696 | 2,187 | 2,255 | 2,341 | |||||||||||||||||||||
Universal Care | 7 | — | — | 23 | — | — | 112 | — | — | |||||||||||||||||||||
California | 103 | 93 | 93 | 713 | 698 | 696 | 2,298 | 2,255 | 2,341 | |||||||||||||||||||||
Connecticut | 29 | 27 | 27 | 87 | 88 | 93 | 375 | 391 | 388 | |||||||||||||||||||||
New Jersey | — | — | — | 45 | 44 | 42 | 175 | 191 | 229 | |||||||||||||||||||||
New York | 7 | 7 | 6 | — | — | — | 239 | 244 | 256 | |||||||||||||||||||||
Oregon | 18 | 16 | 12 | — | — | — | 157 | 155 | 150 | |||||||||||||||||||||
— | — | |||||||||||||||||||||||||||||
Total | 190 | 174 | 169 | 845 | 830 | 831 | 3,394 | 3,384 | 3,517 | |||||||||||||||||||||
Year over Year | 12% | 2% | (3)% | |||||||||||||||||||||||||||
Sequential | 9% | 2% | 0% |
Commercial - Large Group* | Commercial - Small Group & Individual | Commercial Risk Subtotal | ASO | Commercial Subtotal | ||||||||||||||||||||||||||
3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | 3/06 | 12/05 | 3/05 | ||||||||||||||||
Medicare PDP (Stand-Alone) | 255 | — | — |
3/06 | 12/05 | 3/05 | ||||
TRICARE | ||||||
Previous TRICARE Contracts ** | — | — | — | |||
North Contract *** | 2,941 | 2,962 | 2,941 | |||
Total TRICARE | 2,941 | 2,962 | 2,941 |
* | Commercial Large Group includes Medicare Supplement |
** | Includes only Tricare eligible for which we have health care risk |
*** | Includes Tricare eligible for which we have health care risk, and those for which we provide Administrative Services Only (ASO), primarily active duty |
14
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In thousands)
Health Plan Services | |||||||||||
Q1 2006 | Year 2005 | Year 2004 | |||||||||
Reserve for claims (a), beginning of period | $ | 768,737 | $ | 794,614 | $ | 777,059 | |||||
Incurred claims related to: | |||||||||||
Current Year | 1,287,821 | 5,130,415 | 5,048,289 | ||||||||
Prior Years (c) | (64,278 | ) | (114,540 | ) | 8,769 | ||||||
Total Incurred (b) | 1,223,543 | 5,015,875 | 5,057,058 | ||||||||
Paid claims related to: | |||||||||||
Current Year | 745,793 | 4,401,247 | 4,286,929 | ||||||||
Prior Years | 565,493 | 640,505 | 752,574 | ||||||||
Total Paid (b) | 1,311,286 | 5,041,752 | 5,039,503 | ||||||||
Reserve for claims (a), end of period | 680,994 | 768,737 | 794,614 | ||||||||
Add: | |||||||||||
Claims Payable | 200,213 | 177,233 | 288,331 | ||||||||
Other (d) | 105,318 | 94,201 | 86,352 | ||||||||
Reserves for claims and other settlements, end of period | $ | 986,525 | $ | 1,040,171 | $ | 1,169,297 | |||||
(a) | Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss adjustment expenses. |
(b) | Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are not included. |
(c) | This line represents the change in reserves attributable to the difference between the original estimate of incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been no changes in the approach used to determine the key actuarial assumptions, which are the completion factor and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and generally accepted accounting principles. The majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred services because these are the services for which the fewest claims have been paid. The majority of the adjustments to reserves relate to variables and uncertainties associated with actuarial assumptions. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services. Revised estimates for prior years are determined in each quarter based on the most recent updates of paid claims for prior years. |
(d) | Includes accrued capitation, shared risk settlements, provider incentives and other reserve items. |
15