Exhibit 99.1
| | | | | | |
 | | | | Health Net, Inc. | | |
| | | | 21650 Oxnard Street | | |
| | | | Woodland Hills, CA 91367 | | |
| | | | 818.676.6000 | | |
| | | | 800.291.6911 | | |
| | | | www.healthnet.com | | |
| | | | | | |
| | | | | | |
| Investor | | | | Media | | |
| Contact: | | Angie McCabe | | Contact: | | Margita Thompson |
| | 818.676.8692 | | | | 818.676.7912 |
| | angeline.c.mccabe@healthnet.com | | | | margita.thompson@healthnet.com |
HEALTH NET REPORTS A LOSS OF $0.33 PER SHARE
FOR THE FIRST QUARTER OF 2008 AND REVISES 2008 OUTLOOK
THE COMPANY RECORDED $82.4 MILLIONIN LEGALAND
OPERATIONS STRATEGY-RELATED CHARGESINTHE FIRST QUARTEROF 2008
OPERATING RESULTS IMPACTEDBY
ADVERSE PRIOR PERIOD DEVELOPMENTANDAN ACTIVE FLU SEASON
LOS ANGELES, April 30, 2008 – Health Net, Inc. (NYSE: HNT) today announced a loss of $35.7 million, or $0.33 per share, in the first quarter of 2008. Net income for the first quarter of 2007 was $88.6 million, or $0.77 per diluted share.
Included in the results for the first quarter of 2008 is the full effect of $82.4 million pretax, or $53.8 million after-tax, legal and operations strategy-related charges.
Excluding the charges, earnings per diluted share were $0.16 in the first quarter of 2008, lower than previous guidance primarily due to adverse prior period development and an active flu season.
The company also announced that it is revising full-year 2008 guidance to a range of $2.47 to $2.65 per diluted share, which includes the impact of the charges taken in the first quarter of 2008 and anticipated pretax operations strategy-related charges of between $67 million and $87 million the company expects to take in the remainder of 2008. Excluding these charges, the company currently expects to earn between $3.45 and $3.55 per diluted share in 2008. Previous 2008 guidance, excluding the impact of any charges, was $4.14 to $4.17 per diluted share.
Factors contributing to the revised 2008 full-year guidance are:
| | • | | Unusual seasonal physician and hospital utilization patterns, primarily in the fourth quarter of 2007, resulted in $50 million pretax of adverse prior period development. |
| | • | | Higher than expected utilization in both Medicare Advantage and Medicare Part D stand-alone (PDP) plans resulted in a $24 million pretax impact in the first quarter of 2008. The company expects that the full year 2008 impact on earnings will be approximately $40 million pretax. The company expects to address this performance in its 2009 Medicare bid that will be submitted in June 2008. |
| | • | | An unusually active flu season during the first quarter of 2008 resulted in a $20 million pretax impact on earnings. |
| | • | | Due to a proposed substantial rate cut by the State of California for the company’s Medi-Cal plans, the company expects pretax income to be approximately $15 to $20 million lower in the second half of 2008 than previously planned. This rate reduction is scheduled for implementation on July 1, 2008. |
| | • | | A higher than planned effective tax rate of 39.5 percent due to a changing business mix is expected to impact operating earnings excluding charges by approximately $0.06 per diluted share for the full year 2008. |
“The results we experienced in the first quarter of 2008 caused us to lower our previous guidance,” said Jay Gellert, president and chief executive officer of Health Net. “Most of the negative factors impacted the first quarter of 2008. Despite the challenges we face in our Medicare and Medicaid businesses and the impact of the flu this year, we believe we can resume earnings growth in the second half of 2008 compared to the second half of 2007.”
Primarily due to the recording of the adverse prior period development in the first quarter of 2008, the relationship between commercial yields and costs was negative in the period. However, the company believes that this relationship will be positive in each of the remaining three quarters of 2008 when compared with the same periods in 2007.
“We remain focused on disciplined pricing, and as a result, we expect to achieve a positive spread between the commercial premium yield and cost trend in the remaining three quarters of 2008.” said Gellert.
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“While our strategy is to grow the smaller end of the market, we expect to be somewhat less active in the individual segment. In addition, we are maintaining our pricing discipline, and as the economy slows further, we expect commercial enrollment growth to decline by three to four percent in 2008 compared to 2007,” continued Gellert. The company had previously guided to a decline of one percent in commercial enrollment in 2008 compared to 2007.
The full-year per diluted share earnings estimates are based on a projected weighted average share count for the full year of 2008 of approximately 105.5 to 107 million diluted shares compared with the 108 to 110 million diluted shares for the full year that was incorporated into prior guidance.
Legal and Operations Strategy-Related Charges
The company recorded the following pretax charges totaling $82.4 million in the first quarter of 2008:
| | • | | Approximately $43.2 million, which is included in health plan services expenses, represents estimated liability for litigation and regulatory actions related to the company’s rescission practices in Arizona and California and additional liability calculated in connection with the execution of the settlement agreement in the McCoy, Wachtel and Scharfman lawsuits which the company previously disclosed. |
| | • | | Approximately $35.8 million, which is included in general and administrative (G&A) expenses and primarily covers severance and other costs associated with Health Net’s previously announced operations strategy which is aimed at achieving substantial reductions in G&A expenses over the next three years. A portion of this amount also covers estimated legal fees and fines associated with the company’s rescission practices. The company expects that any future operations strategy-related charges in 2008 will be included in G&A expenses. |
| | • | | Approximately $3.4 million, which is included in other income, covers the estimated loss on the sale of assets of a small, non-core subsidiary. |
Share Repurchase
Health Net repurchased approximately 3.2 million shares of its common stock at an average price of $44.64 per share in the first quarter of 2008.
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“We were an active purchaser of our stock in first quarter of 2008. We have $204 million in remaining repurchase authority, and we hope to continue repurchasing shares throughout 2008, consistent with our strong belief in the company’s long-term prospects,” noted Joseph Capezza, Health Net’s chief financial officer.
Revenues, Health Care Costs and G&A Expenses Including the Charges
Health Net’s total revenues increased 11.9 percent in the first quarter of 2008 to $3.8 billion from $3.4 billion in the first quarter of 2007. Health plan services premium revenues increased 12.4 percent to $3.1 billion in the first quarter of 2008 compared to $2.8 billion in the first quarter of 2007. The company’s Government contracts revenues increased 9.3 percent in the first quarter of 2008 to $664.4 million from $608.0 million in the first quarter of 2007.
Including the $43.2 million health plan services expenses charge, the health plan medical care ratio (MCR) was 89.3 percent in the first quarter of 2008, and the commercial MCR was 88.5 percent.
Including the impact from the health plan services expenses charges, per member per month (PMPM) commercial health care costs increased by 17.3 percent in the first quarter of 2008 compared to the first quarter of 2007.
The Government contracts cost ratio was 96.0 percent in the first quarter of 2008 compared to 93.3 percent in the first quarter of 2007. “We expect that Government contracts ratio will be approximately 94.5 percent for the full year of 2008. Although this is higher than our 2007 performance which was a result of both a health care cost underrun and a favorable settlement of a claim from Option Period 1, it represents a return to more normal levels,” said Jim Woys, Health Net’s chief operating officer. “We are honored and privileged to continue our current supportive role in the TRICARE program. We also are excited about the opportunity to compete in the TRICARE reprocurement, and we believe we are well positioned to continue to assist the Department of Defense in advancing its future TRICARE goals to even higher levels of performance excellence.”
Including the $39.2 million in operations strategy-related charges, of which $35.8 million was included in G&A expenses, total G&A expense was $352.3 million in the first quarter of 2008 compared with $291.3 million in the first quarter of 2007.
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Health Net’s selling expenses of $86.6 million in the first quarter of 2008 increased by $17.5 million compared to the first quarter of 2007. “As a result of our focus on growing the smaller end of the commercial market, our selling expense ratio increased by 30 basis points quarter-over-quarter,” said Gellert.
Health Care Costs and G&A Expenses Excluding the Charges1
Excluding the $43.2 million health plan services expenses charge in the first quarter of 2008:
| | • | | The commercial premium yield on a PMPM basis increased 10.2 percent in the first quarter of 2008 compared to the first quarter of 2007 (health plan premiums were unaffected by the charges). Commercial health care costs would have increased by 14.4 percent on a PMPM basis in the first quarter of 2008 compared to the first quarter of 2007 including the adverse prior period development for the second half of 2007. |
| | • | | The health plan MCR would have been 87.9 percent for the first quarter of 2008. |
| | • | | The commercial MCR for the first quarter of 2008 would have been 86.3 percent compared to 83.2 percent in the first quarter of 2007, and 81.8 percent in the fourth quarter of 2007. The MCR in the first quarter of 2008 was primarily driven by the adverse prior period development. |
Excluding the impact of the $35.8 million operations strategy-related charge, G&A expenses would have been $316.5 million in the first quarter of 2008, resulting in a G&A expense ratio of 10.1 percent.
“Excluding the impact of the operations strategy-related charge, the G&A expense ratio in the first quarter improved by 30 basis points from the 2007 first quarter and 70 basis points from the fourth quarter of 2007 as we continue to focus on managing our expenses,” said Capezza. “For the full year of 2008, we expect the G&A expense ratio to improve by approximately 20 to 30 basis points compared to the full year of 2007 as we begin to realize the positive impact of our operations strategy in the second half of 2008.”
1 | See the financial schedule attached to this release for reconciliation of this information to the comparable GAAP financial measure. |
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Membership
Total health plan enrollment as of March 31, 2008 was nearly 3.9 million members, an increase of 203,000 members, or 5.5 percent, compared to March 31, 2007. Sequentially, total health plan enrollment grew by 111,000 members, or 3.0 percent, from December 31, 2007.
Commercial risk enrollment increased by 3,000 members, or 0.1 percent, to approximately 2.2 million members as of March 31, 2008 compared to March 31, 2007. Sequentially, commercial risk enrollment decreased by 45,000 members, or 2.0 percent, since December 31, 2007. Administrative Services Only (ASO) membership decreased by 38,000 members, or 39.6 percent, to 58,000 members as of March 31, 2008 compared to March 31, 2007. Sequentially, ASO membership declined by 10,000, or 14.7 percent, from December 31, 2007, consistent with the company’s strategy to de-emphasize this segment.
Enrollment in the company’s Medicare Advantage plans grew by 53,000 members, or by 23.8 percent, to 276,000 members at the end of the first quarter of 2008 compared to the end of the first quarter of 2007. Sequentially, Medicare Advantage membership grew by 40,000 members, or 16.9 percent, from December 31, 2007. Membership in the company’s Medicare PDP plans was 522,000 at the end of the first quarter of 2008, an increase of 181,000 members, or 53.1 percent, compared to the end of the first quarter of 2007. Sequentially, PDP membership grew by 143,000 members, or 37.7 percent, from December 31, 2007.
Medicaid enrollment at March 31, 2008 was 829,000 members, an increase of 4,000 members, or 0.5 percent, from March 31, 2007. Sequentially, Medicaid membership decreased by 17,000 members, or 2.0 percent, from December 31, 2007.
Balance Sheet
Cash and investments as of March 31, 2008 were $2.4 billion compared with $2.3 billion as of March 31, 2007.
Reserves for claims and other settlements as of March 31, 2008 were $1.4 billion compared with $1.1 billion as of March 31, 2007. Reserves for claims and other settlements as of March 31, 2008 include $43.2 million of reserves for the legal charge. Reserves for claims and other settlements increased by $130.3 million from December 31, 2007 to March 31, 2008.
Days claims payable (DCP), including provider and other claims settlements (which includes the first quarter 2008 legal charges), capitation payments and Medicare Part D
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expenses, for the first quarter of 2008 increased by 3.3 days to 44.6 days compared to 41.3 days in the first quarter of 2007, and decreased sequentially by 5.3 days compared to the fourth quarter of 2007.
Excluding provider and other claim settlements (which includes the first quarter 2008 legal charges), capitation payments and Medicare Part D, DCP in the first quarter of 2008 decreased by 1.5 days to 52.9 days compared to the first quarter of 2007, and decreased by 2.0 days sequentially.2 This is a seasonal pattern that the company has experienced in previous years.
The company’s debt-to-total capital ratio was 27.5 percent as of March 31, 2008 compared to 22.5 percent as of December 31, 2007 and 17.7 percent as of March 31, 2007. The increase in the debt-to-total capital ratio is due to a $100 million draw on the company’s revolving credit facility combined with the impact of the charges and prior period development in the first quarter 2008.
Interest expense increased by $1.1 million in the first quarter of 2008 compared to the first quarter of 2007. The increase primarily is due to the $175 million financing facility that the company secured in late 2007. This imputed interest is offset by other income related to the same financing facility.
Cash Flow
Operating cash flow was negative $117.3 million in the first quarter of 2008. This amount reflects a $160 million payment related to the McCoy, Wachtel and Scharfman lawsuits and was fully reserved for in the third quarter of 2007.
2008 Guidance
Including the impact of operations strategy-related charges, the company expects to earn between $0.48 and $0.61 per diluted share in the second quarter of 2008. Excluding the impact of these charges, the company expects to earn between $0.77 to $0.79 per diluted share in the second quarter of 2008.
2 | See footnote (a) in the Notes to Consolidated Financial Statements in the financial schedules attached to this release for a reconciliation of this information to the comparable GAAP financial measure. |
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The table below updates previously issued full-year 2008 guidance on a number of operating metrics.
2008 Revised Outlook
| | | | |
| | | Revised Guidance | | Comment |
Year-end Membership | | Commercial Risk: -3% to -4% Medicaid: flat Medicare Advantage: +20% to 25% PDP: +40% to 45% | | Previously: flat to -1% Unchanged Unchanged Unchanged |
Consolidated Revenues | | $15 to $16 billion | | Unchanged |
Commercial Yields | | 8.0% | | Unchanged |
Commercial Health Care Cost Trends* | | 8.0% (Includes prior period development booked in 1Q08) | | Previously: 30 to 50 bps lower than premium yield |
Selling Cost Ratio Government Contracts Ratio G&A Expense Ratio* | | ~ 2.8% ~ 94.5% ~ 10.0% | | Unchanged Unchanged Unchanged |
Tax Rate* | | ~ 39.5% | | Previously: 38.5% |
Shares Outstanding | | 105.5-107 million | | Previously: 108-110 million |
EPS* | | $3.45 - $3.55 | | Previously: $4.14 - $4.17 |
| * | Excludes the impact of litigation and operations strategy-related charges. |
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Conference Call
As previously announced, Health Net will discuss the company’s first quarter 2008 results during a conference call on Wednesday, April 30, 2008, beginning at approximately 11:00 a.m. Eastern time. The conference call should be accessed at least 15 minutes prior to its start with the following numbers:
| | |
877.795.3604 (Domestic) | | 888.203.1112 (Replay – Domestic) |
719.325.4761 (International) | | 719.457.0820 (Replay – International) |
The access code for both the live conference call and the replay is 1842215. A replay of the conference call will be available through May 5, 2008. A live webcast and replay of the conference call also will be available at www.healthnet.com under “Investor Relations.” The conference call webcast is open to all interested parties. 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, 2007, 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 health plans and government contracts subsidiaries provide health benefits to approximately 6.8 million individuals across the country through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net’s behavioral health subsidiary, MHN, provides mental health benefits to approximately 6.9 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 at www.healthnet.com.
Cautionary Statements
All statements in this press release, other than statements of historical information provided herein, including but not limited to the guidance for future periods included herein and the assumptions underlying such projections, may be deemed to be forward-looking statements and as such are subject to a number of risks and uncertainties. These statements are based on
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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 guidance as to expected future period results and statements including 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, unexpected utilization patterns or unexpectedly severe or widespread illnesses, membership declines, rate cuts affecting our Medicare or Medicaid business, issues relating to provider contracts, litigation costs, regulatory issues, 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 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 its guidance, the assessment of the underlying assumptions or any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
# # #
[Eight pages of tables follow]
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Health Net, Inc.
Enrollment Data - By State
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | December 31, 2007 | | | March 31, 2007 | |
| | | March 31,
2008 | | Dec 31,
2007 | | March 31,
2007 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
California | | | | | | | | | | | | | | | | | | |
Large Group | | 984 | | 991 | | 1,009 | | (7 | ) | | (0.7 | )% | | (25 | ) | | (2.5 | )% |
Small Group and Individual | | 468 | | 477 | | 413 | | (9 | ) | | (1.9 | )% | | 55 | | | 13.3 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,452 | | 1,468 | | 1,422 | | (16 | ) | | (1.1 | )% | | 30 | | | 2.1 | % |
ASO | | 5 | | 6 | | 5 | | (1 | ) | | (16.7 | )% | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,457 | | 1,474 | | 1,427 | | (17 | ) | | (1.2 | )% | | 30 | | | 2.1 | % |
Medicare Advantage | | 123 | | 112 | | 108 | | 11 | | | 9.8 | % | | 15 | | | 13.9 | % |
Medi-Cal | | 720 | | 712 | | 694 | | 8 | | | 1.1 | % | | 26 | | | 3.7 | % |
| | | | | | | | | | | | | | | | | | |
Total California | | 2,300 | | 2,298 | | 2,229 | | 2 | | | 0.1 | % | | 71 | | | 3.2 | % |
| | | | | | | | | | | | | | | | | | |
Connecticut | | | | | | | | | | | | | | | | | | |
Large Group | | 127 | | 136 | | 143 | | (9 | ) | | (6.6 | )% | | (16 | ) | | (11.2 | )% |
Small Group and Individual | | 25 | | 25 | | 29 | | 0 | | | 0.0 | % | | (4 | ) | | (13.8 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 152 | | 161 | | 172 | | (9 | ) | | (5.6 | )% | | (20 | ) | | (11.6 | )% |
ASO | | 26 | | 32 | | 57 | | (6 | ) | | (18.8 | )% | | (31 | ) | | (54.4 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 178 | | 193 | | 229 | | (15 | ) | | (7.8 | )% | | (51 | ) | | (22.3 | )% |
Medicare Advantage | | 54 | | 45 | | 40 | | 9 | | | 20.0 | % | | 14 | | | 35.0 | % |
Medicaid | | 65 | | 90 | | 85 | | (25 | ) | | (27.8 | )% | | (20 | ) | | (23.5 | )% |
| | | | | | | | | | | | | | | | | | |
Total Connecticut | | 297 | | 328 | | 354 | | (31 | ) | | (9.5 | )% | | (57 | ) | | (16.1 | )% |
| | | | | | | | | | | | | | | | | | |
New York | | | | | | | | | | | | | | | | | | |
Large Group | | 105 | | 116 | | 116 | | (11 | ) | | (9.5 | )% | | (11 | ) | | (9.5 | )% |
Small Group and Individual | | 113 | | 118 | | 109 | | (5 | ) | | (4.2 | )% | | 4 | | | 3.7 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 218 | | 234 | | 225 | | (16 | ) | | (6.8 | )% | | (7 | ) | | (3.1 | )% |
ASO | | 11 | | 13 | | 15 | | (2 | ) | | (15.4 | )% | | (4 | ) | | (26.7 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 229 | | 247 | | 240 | | (18 | ) | | (7.3 | )% | | (11 | ) | | (4.6 | )% |
Medicare Advantage | | 6 | | 3 | | 8 | | 3 | | | 100.0 | % | | (2 | ) | | (25.0 | )% |
| | | | | | | | | | | | | | | | | | |
Total New York | | 235 | | 250 | | 248 | | (15 | ) | | (6.0 | )% | | (13 | ) | | (5.2 | )% |
| | | | | | | | | | | | | | | | | | |
New Jersey | | | | | | | | | | | | | | | | | | |
Large Group | | 25 | | 30 | | 36 | | (5 | ) | | (16.7 | )% | | (11 | ) | | (30.6 | )% |
Small Group and Individual | | 58 | | 60 | | 61 | | (2 | ) | | (3.3 | )% | | (3 | ) | | (4.9 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 83 | | 90 | | 97 | | (7 | ) | | (7.8 | )% | | (14 | ) | | (14.4 | )% |
ASO | | 16 | | 17 | | 19 | | (1 | ) | | (5.9 | )% | | (3 | ) | | (15.8 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 99 | | 107 | | 116 | | (8 | ) | | (7.5 | )% | | (17 | ) | | (14.7 | )% |
Medicaid | | 44 | | 44 | | 46 | | 0 | | | 0.0 | % | | (2 | ) | | (4.3 | )% |
| | | | | | | | | | | | | | | | | | |
Total New Jersey | | 143 | | 151 | | 162 | | (8 | ) | | (5.3 | )% | | (19 | ) | | (11.7 | )% |
| | | | | | | | | | | | | | | | | | |
Arizona | | | | | | | | | | | | | | | | | | |
Large Group | | 85 | | 81 | | 78 | | 4 | | | 4.9 | % | | 7 | | | 9.0 | % |
Small Group and Individual | | 54 | | 56 | | 52 | | (2 | ) | | (3.6 | )% | | 2 | | | 3.8 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 139 | | 137 | | 130 | | 2 | | | 1.5 | % | | 9 | | | 6.9 | % |
Medicare Advantage | | 62 | | 51 | | 45 | | 11 | | | 21.6 | % | | 17 | | | 37.8 | % |
| | | | | | | | | | | | | | | | | | |
Total Arizona | | 201 | | 188 | | 175 | | 13 | | | 6.9 | % | | 26 | | | 14.9 | % |
| | | | | | | | | | | | | | | | | | |
Oregon | | | | | | | | | | | | | | | | | | |
Large Group | | 101 | | 101 | | 96 | | 0 | | | 0.0 | % | | 5 | | | 5.2 | % |
Small Group and Individual | | 35 | | 34 | | 35 | | 1 | | | 2.9 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 136 | | 135 | | 131 | | 1 | | | 0.7 | % | | 5 | | | 3.8 | % |
Medicare Advantage | | 22 | | 21 | | 20 | | 1 | | | 4.8 | % | | 2 | | | 10.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Oregon | | 158 | | 156 | | 151 | | 2 | | | 1.3 | % | | 7 | | | 4.6 | % |
| | | | | | | | | | | | | | | | | | |
Other States | | | | | | | | | | | | | | | | | | |
Medicare Advantage | | 9 | | 4 | | 2 | | 5 | | | 125.0 | % | | 7 | | | 350.0 | % |
| | | | | | | | | | | | | | | | | | |
Medicare PDP (stand-alone) | | 522 | | 379 | | 341 | | 143 | | | 37.7 | % | | 181 | | | 53.1 | % |
| | | | | | | | | | | | | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 1,427 | | 1,455 | | 1,478 | | (28 | ) | | (1.9 | )% | | (51 | ) | | (3.5 | )% |
Small Group and Individual | | 753 | | 770 | | 699 | | (17 | ) | | (2.2 | )% | | 54 | | | 7.7 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 2,180 | | 2,225 | | 2,177 | | (45 | ) | | (2.0 | )% | | 3 | | | 0.1 | % |
ASO | | 58 | | 68 | | 96 | | (10 | ) | | (14.7 | )% | | (38 | ) | | (39.6 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 2,238 | | 2,293 | | 2,273 | | (55 | ) | | (2.4 | )% | | (35 | ) | | (1.5 | )% |
Medicare Advantage | | 276 | | 236 | | 223 | | 40 | | | 16.9 | % | | 53 | | | 23.8 | % |
Medicare PDP (stand-alone) | | 522 | | 379 | | 341 | | 143 | | | 37.7 | % | | 181 | | | 53.1 | % |
Medi-Cal/Medicaid | | 829 | | 846 | | 825 | | (17 | ) | | (2.0 | )% | | 4 | | | 0.5 | % |
| | | | | | | | | | | | | | | | | | |
Total Health Plans | | 3,865 | | 3,754 | | 3,662 | | 111 | | | 3.0 | % | | 203 | | | 5.5 | % |
| | | | | | | | | | | | | | | | | | |
TRICARE - North Contract Eligibles | | 2,895 | | 2,895 | | 2,930 | | 0 | | | 0.0 | % | | (35 | ) | | (1.2 | )% |
| | | | | | | | | | | | | | | | | | |
Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | December 31, 2007 | | | March 31, 2007 | |
| | | March 31,
2008 | | Dec 31,
2007 | | March 31,
2007 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
Large Group | | | | | | | | | | | | | | | | | | |
California | | 984 | | 991 | | 1,009 | | (7 | ) | | (0.7 | )% | | (25 | ) | | (2.5 | )% |
Connecticut | | 127 | | 136 | | 143 | | (9 | ) | | (6.6 | )% | | (16 | ) | | (11.2 | )% |
New York | | 105 | | 116 | | 116 | | (11 | ) | | (9.5 | )% | | (11 | ) | | (9.5 | )% |
New Jersey | | 25 | | 30 | | 36 | | (5 | ) | | (16.7 | )% | | (11 | ) | | (30.6 | )% |
Arizona | | 85 | | 81 | | 78 | | 4 | | | 4.9 | % | | 7 | | | 9.0 | % |
Oregon | | 101 | | 101 | | 96 | | 0 | | | 0.0 | % | | 5 | | | 5.2 | % |
| | | | | | | | | | | | | | | | | | |
| | 1,427 | | 1,455 | | 1,478 | | (28 | ) | | (1.9 | )% | | (51 | ) | | (3.5 | )% |
| | | | | | | | | | | | | | | | | | |
Small Group and Individual | | | | | | | | | | | | | | | | | | |
California | | 468 | | 477 | | 413 | | (9 | ) | | (1.9 | )% | | 55 | | | 13.3 | % |
Connecticut | | 25 | | 25 | | 29 | | 0 | | | 0.0 | % | | (4 | ) | | (13.8 | )% |
New York | | 113 | | 118 | | 109 | | (5 | ) | | (4.2 | )% | | 4 | | | 3.7 | % |
New Jersey | | 58 | | 60 | | 61 | | (2 | ) | | (3.3 | )% | | (3 | ) | | (4.9 | )% |
Arizona | | 54 | | 56 | | 52 | | (2 | ) | | (3.6 | )% | | 2 | | | 3.8 | % |
Oregon | | 35 | | 34 | | 35 | | 1 | | | 2.9 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 753 | | 770 | | 699 | | (17 | ) | | (2.2 | )% | | 54 | | | 7.7 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | | | | | | | | | | | | | | | | | |
California | | 1,452 | | 1,468 | | 1,422 | | (16 | ) | | (1.1 | )% | | 30 | | | 2.1 | % |
Connecticut | | 152 | | 161 | | 172 | | (9 | ) | | (5.6 | )% | | (20 | ) | | (11.6 | )% |
New York | | 218 | | 234 | | 225 | | (16 | ) | | (6.8 | )% | | (7 | ) | | (3.1 | )% |
New Jersey | | 83 | | 90 | | 97 | | (7 | ) | | (7.8 | )% | | (14 | ) | | (14.4 | )% |
Arizona | | 139 | | 137 | | 130 | | 2 | | | 1.5 | % | | 9 | | | 6.9 | % |
Oregon | | 136 | | 135 | | 131 | | 1 | | | 0.7 | % | | 5 | | | 3.8 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,180 | | 2,225 | | 2,177 | | (45 | ) | | (2.0 | )% | | 3 | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | |
ASO | | | | | | | | | | | | | | | | | | |
California | | 5 | | 6 | | 5 | | (1 | ) | | (16.7 | )% | | 0 | | | 0.0 | % |
Connecticut | | 26 | | 32 | | 57 | | (6 | ) | | (18.8 | )% | | (31 | ) | | (54.4 | )% |
New York | | 11 | | 13 | | 15 | | (2 | ) | | (15.4 | )% | | (4 | ) | | (26.7 | )% |
New Jersey | | 16 | | 17 | | 19 | | (1 | ) | | (5.9 | )% | | (3 | ) | | (15.8 | )% |
| | | | | | | | | | | | | | | | | | |
| | 58 | | 68 | | 96 | | (10 | ) | | (14.7 | )% | | (38 | ) | | (39.6 | )% |
Total Commercial | | | | | | | | | | | | | | | | | | |
California | | 1,457 | | 1,474 | | 1,427 | | (17 | ) | | (1.2 | )% | | 30 | | | 2.1 | % |
Connecticut | | 178 | | 193 | | 229 | | (15 | ) | | (7.8 | )% | | (51 | ) | | (22.3 | )% |
New York | | 229 | | 247 | | 240 | | (18 | ) | | (7.3 | )% | | (11 | ) | | (4.6 | )% |
New Jersey | | 99 | | 107 | | 116 | | (8 | ) | | (7.5 | )% | | (17 | ) | | (14.7 | )% |
Arizona | | 139 | | 137 | | 130 | | 2 | | | 1.5 | % | | 9 | | | 6.9 | % |
Oregon | | 136 | | 135 | | 131 | | 1 | | | 0.7 | % | | 5 | | | 3.8 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,238 | | 2,293 | | 2,273 | | (55 | ) | | (2.4 | )% | | (35 | ) | | (1.5 | )% |
Medicare Advantage | | | | | | | | | | | | | | | | | | |
California | | 123 | | 112 | | 108 | | 11 | | | 9.8 | % | | 15 | | | 13.9 | % |
Connecticut | | 54 | | 45 | | 40 | | 9 | | | 20.0 | % | | 14 | | | 35.0 | % |
New York | | 6 | | 3 | | 8 | | 3 | | | 100.0 | % | | (2 | ) | | (25.0 | )% |
Arizona | | 62 | | 51 | | 45 | | 11 | | | 21.6 | % | | 17 | | | 37.8 | % |
Oregon | | 22 | | 21 | | 20 | | 1 | | | 4.8 | % | | 2 | | | 10.0 | % |
Other States | | 9 | | 4 | | 2 | | 5 | | | 125.0 | % | | 7 | | | 350.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 276 | | 236 | | 223 | | 40 | | | 16.9 | % | | 53 | | | 23.8 | % |
Medi-Cal/Medicaid | | | | | | | | | | | | | | | | | | |
California | | 720 | | 712 | | 694 | | 8 | | | 1.1 | % | | 26 | | | 3.7 | % |
Connecticut | | 65 | | 90 | | 85 | | (25 | ) | | (27.8 | )% | | (20 | ) | | (23.5 | )% |
New Jersey | | 44 | | 44 | | 46 | | 0 | | | 0.0 | % | | (2 | ) | | (4.3 | )% |
| | | | | | | | | | | | | | | | | | |
| | 829 | | 846 | | 825 | | (17 | ) | | (2.0 | )% | | 4 | | | 0.5 | % |
Medicare PDP (stand-alone) | | 522 | | 379 | | 341 | | 143 | | | 37.7 | % | | 181 | | | 53.1 | % |
| | | | | | | | | | | | | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 1,427 | | 1,455 | | 1,478 | | (28 | ) | | (1.9 | )% | | (51 | ) | | (3.5 | )% |
Small Group and Individual | | 753 | | 770 | | 699 | | (17 | ) | | (2.2 | )% | | 54 | | | 7.7 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 2,180 | | 2,225 | | 2,177 | | (45 | ) | | (2.0 | )% | | 3 | | | 0.1 | % |
ASO | | 58 | | 68 | | 96 | | (10 | ) | | (14.7 | )% | | (38 | ) | | (39.6 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 2,238 | | 2,293 | | 2,273 | | (55 | ) | | (2.4 | )% | | (35 | ) | | (1.5 | )% |
Medicare Advantage | | 276 | | 236 | | 223 | | 40 | | | 16.9 | % | | 53 | | | 23.8 | % |
Medicare PDP (stand-alone) | | 522 | | 379 | | 341 | | 143 | | | 37.7 | % | | 181 | | | 53.1 | % |
Medi-Cal/Medicaid | | 829 | | 846 | | 825 | | (17 | ) | | (2.0 | )% | | 4 | | | 0.5 | % |
| | | | | | | | | | | | | | | | | | |
Total Health Plans | | 3,865 | | 3,754 | | 3,662 | | 111 | | | 3.0 | % | | 203 | | | 5.5 | % |
| | | | | | | | | | | | | | | | | | |
TRICARE - North Contract Eligibles | | 2,895 | | 2,895 | | 2,930 | | 0 | | | 0.0 | % | | (35 | ) | | (1.2 | )% |
| | | | | | | | | | | | | | | | | | |
Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share, PMPM and ratio data)
| | | | | | | | | | | | |
| | | Quarter Ended
March 31,
2007 | | | Quarter Ended
December 31,
2007 | | | Quarter Ended
March 31,
2008 | |
REVENUES: | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,777,259 | | | $ | 2,916,718 | | | $ | 3,122,988 | |
Government contracts | | | 607,995 | | | | 619,423 | | | | 664,449 | |
Net investment income | | | 31,364 | | | | 31,630 | | | | 35,371 | |
Administrative services fees and other income | | | 12,294 | | | | 15,482 | | | | 13,948 | |
| | | | | | | | | | | | |
| | | 3,428,912 | | | | 3,583,253 | | | | 3,836,756 | |
| | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | |
Health plan services | | | 2,341,074 | | | | 2,409,332 | | | | 2,788,403 | |
Government contracts | | | 567,099 | | | | 556,648 | | | | 637,577 | |
General and administrative | | | 291,285 | | | | 317,099 | | | | 352,278 | |
Selling | | | 69,129 | | | | 90,332 | | | | 86,592 | |
Depreciation and amortization | | | 7,633 | | | | 13,598 | | | | 12,279 | |
Interest | | | 9,560 | | | | 7,712 | | | | 10,657 | |
| | | | | | | | | | | | |
| | | 3,285,780 | | | | 3,394,721 | | | | 3,887,786 | |
Income (loss) from operations before income taxes | | | 143,132 | | | | 188,532 | | | | (51,030 | ) |
Income tax provision (benefit) | | | 54,547 | | | | 71,605 | | | | (15,350 | ) |
| | | | | | | | | | | | |
Net income (loss) | | $ | 88,585 | | | $ | 116,927 | | | $ | (35,680 | ) |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.79 | | | $ | 1.06 | | | $ | (0.33 | ) |
Diluted earnings (loss) per share | | $ | 0.77 | | | $ | 1.04 | | | $ | (0.33 | ) |
| | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 111,970 | | | | 110,087 | | | | 109,232 | |
Diluted | | | 114,759 | | | | 112,255 | | | | 109,232 | |
Pretax margin | | | 4.2 | % | | | 5.3 | % | | | -1.3 | % |
Health plan services MCR | | | 84.3 | % | | | 82.6 | % | | | 89.3 | % |
Government contracts cost ratio | | | 93.3 | % | | | 89.9 | % | | | 96.0 | % |
G&A expense ratio | | | 10.4 | % | | | 10.8 | % | | | 11.2 | % |
Selling costs ratio | | | 2.5 | % | | | 3.1 | % | | | 2.8 | % |
Days claims payable (a) | | | 41.3 | | | | 49.9 | | | | 44.6 | |
Days claims payable - adjusted (a) | | | 54.4 | | | | 54.9 | | | | 52.9 | |
Effective tax rate | | | 38.1 | % | | | 38.0 | % | | | 30.1 | % |
Health plan services premiums PMPM | | $ | 259.35 | | | $ | 266.88 | | | $ | 277.17 | |
Health plan services costs PMPM | | $ | 218.62 | | | $ | 220.45 | | | $ | 247.48 | |
Health Net, Inc.
Reconciliation of Non-GAAP Financial Measures
Operating Results Excluding Legal and Operations Strategy-Related Charges
(Amounts in thousands, except per share, PMPM and ratio data)
Note:
This table presents the company's consolidated operations for the quarter ended March 31, 2008 and the charges recorded in the consolidated statement of operations for the quarter ended March 31, 2008. Management believes that the presentation of certain financial information in the attached press release (such as Administrative service fees and other income, Health plan services costs, General and administrative expense, Income (loss) before income taxes, Income tax provision (benefit), Net income (loss), Basic and diluted earnings (loss) per share, Pretax margin, MCR, and G&A expense ratio), excluding the charges that were recorded in the quarter ended March 31, 2008, all of which is non-GAAP financial information, is important to investors as it excludes one-time items that are not indicative of our core operating results. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.
| | | | | | | | | | | | |
| | | As Reported
Quarter Ended
March 31,
2008 | | | Impact of Legal
and Operations
Strategy-Related
Charges | | | Excluding
Impact of Legal
and Operations
Strategy-Related
Charges | |
REVENUES: | | | | | | | | | | | | |
Health plan services premiums | | $ | 3,122,988 | | | | | | | $ | 3,122,988 | |
Government contracts | | | 664,449 | | | | | | | | 664,449 | |
Net investment income | | | 35,371 | | | | | | | | 35,371 | |
Administrative services fees and other income | | | 13,948 | | | | (3,400 | ) | | | 17,348 | |
| | | | | | | | | | | | |
| | | 3,836,756 | | | | (3,400 | ) | | | 3,840,156 | |
| | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | |
Health plan services | | | 2,788,403 | | | $ | 43,196 | | | | 2,745,207 | |
Government contracts | | | 637,577 | | | | | | | | 637,577 | |
General and administrative | | | 352,278 | | | | 35,823 | | | | 316,455 | |
Selling | | | 86,592 | | | | | | | | 86,592 | |
Depreciation and amortization | | | 12,279 | | | | | | | | 12,279 | |
Interest | | | 10,657 | | | | | | | | 10,657 | |
| | | | | | | | | | | | |
| | | 3,887,786 | | | | 79,019 | | | | 3,808,767 | |
(Loss) income from operations before income taxes | | | (51,030 | ) | | | (82,419 | ) | | | 31,389 | |
Income tax (benefit) provision | | | (15,350 | ) | | | (28,624 | ) | | | 13,274 | |
| | | | | | | | | | | | |
Net (loss) income | | $ | (35,680 | ) | | $ | (53,795 | ) | | $ | 18,115 | |
| | | | | | | | | | | | |
Basic (loss) earnings per share | | $ | (0.33 | ) | | $ | (0.50 | ) | | $ | 0.17 | |
Diluted (loss) earnings per share | | $ | (0.33 | ) | | $ | (0.49 | ) | | $ | 0.16 | |
| | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 109,232 | | | | | | | | 109,232 | |
Diluted | | | 109,232 | | | | | | | | 111,195 | |
Pretax margin | | | -1.3 | % | | | -2.1 | % | | | 0.8 | % |
Health plan services MCR | | | 89.3 | % | | | 1.4 | % | | | 87.9 | % |
Government contracts cost ratio | | | 96.0 | % | | | — | | | | 96.0 | % |
G&A expense ratio | | | 11.2 | % | | | 1.1 | % | | | 10.1 | % |
Selling costs ratio | | | 2.8 | % | | | — | | | | 2.8 | % |
Effective tax rate | | | 30.1 | % | | | -12.2 | % | | | 42.3 | % |
Health Net, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | |
| | | Quarter Ended
March 31,
2007 | | | Quarter Ended
December 31,
2007 | | | Quarter Ended
March 31,
2008 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income (loss) | | $ | 88,585 | | | $ | 116,927 | | | $ | (35,680 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Amortization and depreciation | | | 7,633 | | | | 13,598 | | | | 12,279 | |
Share-based compensation expense | | | 5,240 | | | | 6,457 | | | | 6,667 | |
Deferred income taxes | | | 74,977 | | | | (8,180 | ) | | | (26,862 | ) |
Excess tax benefits from share-based compensation | | | (10,399 | ) | | | (487 | ) | | | (774 | ) |
Other changes | | | (1,510 | ) | | | (3,498 | ) | | | (5,116 | ) |
Changes in assets and liabilities, net of the effects of dispositions/acquisitions: | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | 181,344 | | | | 24,037 | | | | (64,281 | ) |
Other receivables, deferred taxes and other assets | | | (91,957 | ) | | | 47,064 | | | | (16,665 | ) |
Amounts receivable/payable under government contracts | | | (1,122 | ) | | | 1,213 | | | | (71,770 | ) |
Reserves for claims and other settlements | | | 49,157 | | | | (12,672 | ) | | | 130,298 | |
Accounts payable and other liabilities | | | 42,079 | | | | 72,508 | | | | (45,429 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | 344,027 | | | | 256,967 | | | | (117,333 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Sales of investments | | | 383,857 | | | | 242,421 | | | | 341,197 | |
Maturities of investments | | | 60,004 | | | | 65,606 | | | | 46,820 | |
Purchases of investments | | | (419,172 | ) | | | (397,611 | ) | | | (377,638 | ) |
Proceeds from sale of property and equipment | | | 83,870 | | | | — | | | | 4 | |
Purchases of property and equipment | | | (19,629 | ) | | | (17,342 | ) | | | (14,765 | ) |
Net cash paid for acquisition of Guardian assets | | | (69,780 | ) | | | — | | | | — | |
Purchases and Sales of restricted investments and other | | | (3,970 | ) | | | 7,127 | | | | 11,150 | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 15,180 | | | | (99,799 | ) | | | 6,768 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | 30,652 | | | | 2,525 | | | | 5,559 | |
Repurchases of common stock | | | (55,893 | ) | | | (27,052 | ) | | | (142,978 | ) |
Excess tax benefits from share-based compensation | | | 10,399 | | | | 487 | | | | 774 | |
Borrowings under financing arrangements | | | 100,000 | | | | 175,000 | | | | 100,000 | |
Repayment of borrowings under financing arrangements | | | (200,000 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | (114,842 | ) | | | 150,960 | | | | (36,645 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 244,365 | | | | 308,128 | | | | (147,210 | ) |
Cash and cash equivalents, beginning of period | | | 704,806 | | | | 698,889 | | | | 1,007,017 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 949,171 | | | $ | 1,007,017 | | | $ | 859,807 | |
| | | | | | | | | | | | |
Health Net, Inc.
Consolidated Balance Sheet
(Amounts in thousands, except ratio data)
| | | | | | | | | | | | |
| | | March 31,
2007 | | | December 31,
2007 | | | March 31,
2008 | |
ASSETS | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 949,171 | | | $ | 1,007,017 | | | $ | 859,807 | |
Investments - available for sale | | | 1,393,161 | | | | 1,557,278 | | | | 1,547,236 | |
Premiums receivable, net | | | 234,795 | | | | 264,691 | | | | 335,085 | |
Amounts receivable under government contracts | | | 190,259 | | | | 189,976 | | | | 263,642 | |
Incurred but not reported (IBNR) health care costs receivable
under TRICARE North contract | | | 291,862 | | | | 266,767 | | | | 285,545 | |
Other receivables | | | 196,029 | | | | 72,518 | | | | 90,660 | |
Deferred taxes | | | 72,107 | | | | 132,818 | | | | 102,868 | |
Other assets | | | 175,270 | | | | 210,039 | | | | 265,758 | |
| | | | | | | | | | | | |
Total current assets | | | 3,502,654 | | | | 3,701,104 | | | | 3,750,601 | |
Property and equipment, net | | | 157,464 | | | | 178,758 | | | | 184,329 | |
Goodwill, net | | | 751,949 | | | | 751,949 | | | | 751,949 | |
Other intangible assets, net | | | 41,486 | | | | 109,386 | | | | 104,348 | |
Deferred taxes | | | 90,953 | | | | 47,765 | | | | 49,743 | |
Other noncurrent assets | | | 176,158 | | | | 144,093 | | | | 137,492 | |
| | | | | | | | | | | | |
Total Assets | | $ | 4,720,664 | | | $ | 4,933,055 | | | $ | 4,978,462 | |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 1,097,953 | | | $ | 1,300,432 | | | $ | 1,430,730 | |
Health care and other costs payable under government contracts | | | 41,952 | | | | 69,014 | | | | 70,910 | |
IBNR health care costs payable under TRICARE North contract | | | 291,862 | | | | 266,767 | | | | 285,545 | |
Unearned premiums | | | 402,613 | | | | 176,981 | | | | 183,094 | |
Loans payable and other financing arrangements | | | — | | | | 35,000 | | | | 25,356 | |
Accounts payable and other liabilities | | | 378,233 | | | | 463,823 | | | | 432,304 | |
| | | | | | | | | | | | |
Total current liabilities | | | 2,212,613 | | | | 2,312,017 | | | | 2,427,939 | |
Senior notes payable | | | — | | | | 398,071 | | | | 398,122 | |
Loans payable and other financing arrangements | | | 400,000 | | | | 112,363 | | | | 124,782 | |
Borrowings under revolving credit facility | | | — | | | | — | | | | 100,000 | |
Other noncurrent liabilities | | | 245,477 | | | | 235,022 | | | | 216,042 | |
| | | | | | | | | | | | |
Total Liabilities | | | 2,858,090 | | | | 3,057,473 | | | | 3,266,885 | |
| | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | |
Common stock and additional paid-in capital | | | 1,077,210 | | | | 1,151,395 | | | | 1,164,688 | |
Treasury common stock, at cost | | | (947,187 | ) | | | (1,123,750 | ) | | | (1,267,125 | ) |
Retained earnings | | | 1,743,985 | | | | 1,849,097 | | | | 1,813,417 | |
Accumulated other comprehensive (loss) income | | | (11,434 | ) | | | (1,160 | ) | | | 597 | |
| | | | | | | | | | | | |
Total Stockholders’ Equity | | | 1,862,574 | | | | 1,875,582 | | | | 1,711,577 | |
| | | | | | | | | | | | |
Total Liabilities and Stockholders' Equity | | $ | 4,720,664 | | | $ | 4,933,055 | | | $ | 4,978,462 | |
| | | | | | | | | | | | |
Debt-to-Total Capital Ratio | | | 17.7 | % | | | 22.5 | % | | | 27.5 | % |
Health Net, Inc.
Notes to Consolidated Financial Statements
Notes:
| (a) | Management believes that days claims payable (excluding capitation, provider and other claim 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 and other claim settlements and Medicare Part D) and days claims payable, the most directly comparable financial measure calculated and presented in accordance with GAAP: |
| | | | | | | | | | | | |
| | | Q1 2007 | | | Q4 2007 | | | Q1 2008 | |
| | | (Dollars in millions) | |
Reserve for Claims and Other Settlements | | $ | 1,098.0 | | | $ | 1,300.4 | | | $ | 1,430.7 | |
Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (101.1 | ) | | | (299.3 | ) | | | (286.4 | ) |
| | | | | | | | | | | | |
Adjusted Reserve for Claims and Other Settlements | | | 996.9 | | | | 1,001.1 | | | | 1,144.3 | |
(1) Average Reserve for Claims and Other Settlements | | | 1,073.4 | | | | 1,306.8 | | | | 1,365.6 | |
(2) Average Adjusted Reserve for Claims and Other Settlements | | | 980.2 | | | | 1,011.8 | | | | 1,072.7 | |
(3) Health Plan Services Cost | | | 2,341.1 | | | | 2,409.3 | | | | 2,788.4 | |
Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (720.9 | ) | | | (715.2 | ) | | | (943.9 | ) |
| | | | | | | | | | | | |
(4) Adjusted Health Plan Services Cost | | | 1,620.2 | | | | 1,694.1 | | | | 1,844.5 | |
(5) Number of Days in Period | | | 90 | | | | 92 | | | | 91 | |
= (1) / (3) * (5) Days Claims Payable | | | 41.3 | | | | 49.9 | | | | 44.6 | |
= (2) / (4) * (5) Days Claims Payable - Adjusted | | | 54.4 | | | | 54.9 | | | | 52.9 | |
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In millions)
| | | | | | | | | | |
| | | Health Plan Services | |
| | | Q1 2008 | | Year 2007 | | Year 2006 | |
Reserve for claims (a), beginning of period | | $ | 838.7 | | $ | 754.2 | | $ | 768.7 | |
Incurred claims related to: | | | | | | | | | | |
Current Year | | | 1,597.3 | | | 5,790.7 | | | 5,222.0 | |
Prior Years (c) | | | 7.1 | | | 0.6 | | | (77.3 | ) |
| | | | | | | | | | |
Total Incurred (b) | | | 1,604.4 | | | 5,791.3 | | | 5,144.7 | |
Paid claims related to: | | | | | | | | | | |
Current Year | | | 865.0 | | | 4,972.3 | | | 4,485.7 | |
Prior Years | | | 667.0 | | | 734.5 | | | 673.5 | |
| | | | | | | | | | |
Total Paid (b) | | | 1,532.0 | | | 5,706.8 | | | 5,159.2 | |
Reserve for claims (a), end of period | | | 911.1 | | | 838.7 | | | 754.2 | |
Add: | | | | | | | | | | |
Claims Payable (d) | | | 401.2 | | | 365.6 | | | 203.9 | |
Other (e) | | | 118.4 | | | 96.1 | | | 90.7 | |
| | | | | | | | | | |
Reserves for claims and other settlements, end of period | | $ | 1,430.7 | | $ | 1,300.4 | | $ | 1,048.8 | |
| | | | | | | | | | |
| (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 amount accrued for litigation and regulatory-related expenses. |
| (e) | Includes accrued capitation, shared risk settlements, provider incentives and other reserve items. |
