Banc of America Securities 2008 Health Care Conference Banc of America Securities 2008 Health Care Conference May 14, 2008 Exhibit 99.1 |
2 Cautionary Statement Cautionary Statement All statements in this presentation, other than statements of historical information, 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 management’s analysis, judgment, belief and expectation only as of the date of this presentation, 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 presentation. |
3 Non-GAAP Measures Non-GAAP Measures This presentation includes quarterly and full year income statement measurements that are not calculated and presented in accordance with Generally Accepted Accounting Principles. Audience participants should refer to the reconciliation table available in the company’s first quarter 2008 earnings press release, available on the company’s Web site at www.healthnet.com, which reconciles certain non-GAAP financial information to GAAP financial information. Management believes that the non-GAAP financial information discussed in this presentation is useful as it provides the audience a basis to better understand the company’s results by excluding items that are not indicative of our core operating results for the periods presented. |
4 Investment Thesis Investment Thesis Strength from diverse business base – Stable commercial book – Medicare growth – TRICARE and Medicaid opportunities Margin improvement opportunities – Changing commercial mix – Operations strategy Share repurchases continue |
5 Company Profile Company Profile National health benefits company serving commercial and government (Medicare, Medicaid and TRICARE) customers Provide health care benefits to approximately 6.6 million individuals across the country Offer mental health and pharmacy benefit management services to approximately 10.3 million individuals 2007 revenues of $14.1 billion and net income of $416.1 million* Year-over-year net income and EPS growth** Northeast region: CT, NJ, NY Western region: AZ, CA, OR, WA *Excludes the impact of $222.4 million after-tax charges incurred in 2007 **Excludes the impact of $222.4 million after-tax charges incurred in 2007 and $31.6 million in after-tax charges incurred in 2006 |
6 Diverse Medical Membership Base Diverse Medical Membership Base Membership by Segment (As of 3/31/08; in thousands) Commercial 2,238 Medicare Advantage 276 Medicaid 829 Medicare PDP 522 TRICARE 2,895 Total 6,760 1Q08 Premium Revenue Contribution Commercial 52% Medicare 24% TRICARE 17% Medicaid 7% |
7 Commercial New Sales Commercial New Sales 40,000 60,000 80,000 100,000 120,000 140,000 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Targeted growth in the small and mid-size employer group segments Continue to diversify and refresh product portfolio Leverage all distribution channels |
8 Targeted Segment Growth Targeted Segment Growth 0 100 200 300 400 500 600 700 800 900 1,000 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 HNCA Commercial Membership: Large Group vs. Mid, Small and IFP Segments HNCA Commercial Membership (As of 3/31/08) Large 535,000 Mid-Market 413,000 Small and IFP 468,000 Medicare Supplement 35,000 ASO 6,000 Commercial 1,457,000 Mid, Small & IFP Segments Large Group Segment |
9 Medicare Growth Medicare Growth 0 50 100 150 200 250 300 350 400 450 500 550 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Medicare PDP Medicare Advantage Medicare PFFS 445 485 491 499 564 584 604 615 798 Total Medicare Membership (in thousands) 2008 Outlook +40-45% Medicare PDP +20-25% Medicare Advantage |
10 Medicare Market Expansion Strategy Medicare Market Expansion Strategy Core States (CA, OR, AZ, NY, CT): MAPD, PDP, PFFS (CA/CT/NY only) Expansion States (TX, NM, HI, WA, MA, VA, NC, GA): PDP, PFFS PDP National Launch (all states): PDP-only states |
11 Fully-insured Medicaid Opportunities Fully-insured Medicaid Opportunities Opportunities for growth through geographic expansion and reform $1.0 billion in annual revenue in 2007 829,000 members Northeast: New Jersey: 44,000 members in 13 counties California: 720,000 members Medicaid in 10 counties Healthy Families Program in 44 counties State may expand Medicaid managed care program to 14 more counties As of March 31, 2008 |
12 Strong Federal Services Position Strong Federal Services Position TRICARE (Department of Defense) North contract 1.8 million at-risk-eligible beneficiaries 550,000 active duty 600,000 Medicare-eligible beneficiaries U.S. Department of Veterans Affairs (VA) Claims repricing Community-based outpatient clinics National DRG Audit and Recovery Services Proud to Serve America’s Veterans As of March 31, 2008 |
13 Investment Thesis Investment Thesis Strength from diverse business base – Stable commercial book – Medicare growth – TRICARE and Medicaid opportunities Margin improvement opportunities – Changing commercial mix – Operations strategy Share repurchases continue |
14 Changing Commercial Mix Changing Commercial Mix December 31, 2005 Membership March 31, 2008 Membership Large Group Mid-market Small Group/Individual 37% 35% 28% Large Group Mid-market Small Group/Individual 48% 26% 26% Note: Represents HNCA membership mix only |
15 Multiple systems Inefficient ancillary systems Enrollment and billing Call centers Aging technology Reliant on manual processes and workarounds Multiple data warehouses Inconsistent operational metrics Redundant analytical functions High cost locations G&A Environment G&A Environment Result is higher G&A PMPM than other key competitors 2006 Membership Adjusted G&A PMPM* National and Regional Players *HNT Strategy Group Analysis $20 $22 $25 $27 $15 $18 $21 $24 $27 $30 Low Median High HNT |
16 Investment for the Future Investment for the Future Additional labor Consultants Accelerated depreciation Employee termination costs Contract termination costs Technology write-downs IT systems migration Outsourcing IT systems migration Outsourcing Performance improvements and efficiencies Year of Investment 2008 2008 $50 M in savings 2009 2009 $100 M in savings 2010 2010 |
17 Investment Thesis Investment Thesis Strength from diverse business base – Stable commercial book – Medicare growth – TRICARE and Medicaid opportunities Margin improvement opportunities – Changing commercial mix – Operations strategy Share repurchases continue |
18 Share Repurchase Update Share Repurchase Update Announced additional $250 million in share repurchase authority on October 30, 2007 Approximately $203 million in remaining authority Repurchased approximately 33 million shares at an average price of $35.18 since the inception of the share repurchase program in May 2002 Repurchased 13 million shares at an average price of $47.97 since the company resumed its share repurchase program in November 2006 As of March 31, 2008 |
2008 Revised Outlook 2008 Revised Outlook Year-end Membership Commercial Risk: -3 to -4% Medicaid: flat Medicare Advantage:+20-25% PDP: +40-45% Previously: flat to -1% Consolidated Revenues $15 - $16 billion Commercial Yields ~ 8.0% 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 ~ 2.8% Government Contracts Ratio ~ 94.5% G&A Expense Ratio* ~ 10% 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. Guidance Comment 19 |
20 Stable networks Solid commercial franchises with expanding margins Growing and diversified government business Excellent near- and long-term earnings prospects Medicare TRICARE Medicaid and the uninsured Low-cost products Behavioral health opportunities Well-Positioned for Potential Change Well-Positioned for Potential Change Positioned for Growth Positioned for Growth Positioned to Respond to Environmental Changes Positioned to Respond to Environmental Changes |
21 Investment Thesis Investment Thesis Strength from diverse business base – Stable commercial book – Medicare growth – TRICARE and Medicaid opportunities Margin improvement opportunities – Changing commercial mix – Operations strategy Share repurchases continue |
Banc of America Securities 2008 Health Care Conference Banc of America Securities 2008 Health Care Conference |