Exhibit 99.1
| | |
| | Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 818.676.6000 800.291.6911 www.healthnet.com |
| | |
| Investor Contact | | Media Contact |
| |
| Angie McCabe | | Margita Thompson |
| 818.676.8692 | | 818.676.7912 |
| angie.mccabe@healthnet.com | | margita.thompson@healthnet.com |
HEALTH NET REPORTS FIRST QUARTER 2010
GAAP NET INCOME OF $16.1 MILLION, OR $0.16 PER DILUTED SHARE
WESTERN REGION OPERATIONSAND GOVERNMENT CONTRACTS SEGMENTS
PRODUCE COMBINED EARNINGSOF $0.47PER DILUTED SHARE
LOS ANGELES, May 4, 2010– Health Net, Inc. (NYSE: HNT) today announced 2010 first quarter GAAP net income of $16.1 million, or $0.16 per diluted share, compared with $22.0 million, or $0.21 per diluted share, for the first quarter of 2009.
The GAAP results include:
| | 1. | $37.7 million in pretax losses from run-off and other operations related to the company’s Northeast businesses that were divested on December 11, 2009; and |
| | 2. | $14.5 million in pretax losses from the company’s operations strategy cost reduction efforts and other expenses. |
The company’s Western Region Operations and Government Contracts segments produced combined earnings of $0.47 per diluted share in the first quarter of 2010.
“We are very pleased with our first quarter 2010 results,” said Jay Gellert, Health Net’s chief executive officer. “Cash flow was strong, and our balance sheet is solid. We remain confident about the company’s performance for the balance of this year and are increasing our full year 2010 guidance for earnings per diluted share by $0.05.”
CONSOLIDATED RESULTS
Health Net’s total revenues decreased 13.1 percent in the first quarter of 2010 to $3.4 billion from $3.9 billion in the first quarter of 2009. Health plan services premium revenues decreased by approximately 19.5 percent to $2.5 billion in the first quarter of 2010 compared with $3.1 billion in the first quarter of 2009. Health Net’s consolidated results for the first quarter of 2009 and for the fourth quarter of 2009 until December 11, 2009 include the Northeast businesses.
Investment income decreased to $19.9 million in the first quarter of 2010 compared with $24.3 million in the first quarter of 2009.
Health plan services expenses decreased to $2.2 billion in the first quarter of 2010 from $2.7 billion in the first quarter of 2009.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total enrollment in the Western Region Operations segment (Western Region) at March 31, 2010 was approximately 3.0 million members, a decrease of approximately 2.6 percent compared with enrollment at March 31, 2009. Total enrollment in the company’s California health plan decreased approximately 1.5 percent from March 31, 2009 to March 31, 2010.
Western Region commercial enrollment declined by 10.5 percent from March 31, 2009 to 1.4 million members on March 31, 2010. The company believes that persistently high unemployment in its markets, particularly California, is the primary cause of the decrease.
Enrollment in the company’s small group and individual markets in the Western Region increased by 1.6 percent sequentially, from 440,000 at December 31, 2009 to 447,000 at March 31, 2010.
“We are very pleased that our focused sales strategy, based on affordable, narrow network products, is driving what we believe are market share gains in our small group business,” said Jim Woys, Health Net’s chief operating officer.
Enrollment in the company’s Medicare Advantage plans in the Western Region at March 31, 2010 was 218,000 members, a decrease of approximately 1.0 percent compared with March 31, 2009.
Membership in the company’s Medicare Part D plans was 457,000 at the end of the first quarter of 2010, a 1.8 percent increase compared with the end of the first quarter of 2009. The company’s Medicare Part D plans are currently offered in 49 states and the District of Columbia and were offered in 50 states and the District of Columbia in the first quarter of 2009.
Medicaid enrollment in California on March 31, 2010 increased by 80,000 members, or 10.1 percent, from March 31, 2009 to 873,000 members. The company attributes the increase in Medicaid enrollment to an increase in the Medicaid-eligible population due to the economy.
Revenues
Total revenues in the Western Region in the first quarter of 2010 increased 1.3 percent to more than $2.5 billion compared with the first quarter of 2009. Health plan services premiums revenues in the Western Region increased 1.0 percent to more than $2.5 billion in the first quarter of 2010 compared with the first quarter of 2009.
Investment income in the Western Region was $19.6 million in the first quarter of 2010 compared with $11.5 million in the first quarter of 2009 and $24.2 million in the fourth quarter of 2009.
Health Plan Services Expenses
Health plan services expenses in the Western Region were essentially flat at approximately $2.2 billion in the first quarter of 2010 compared with approximately $2.2 billion in the first quarter of 2009.
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Commercial Premium Yield and Health Care Cost Trends
In the Western Region, commercial premiums per member per month (PMPM) increased by 8.4 percent to $336 in the first quarter of 2010 compared with $310 in the first quarter of 2009.
Commercial health care costs PMPM in the Western Region increased by 8.3 percent to approximately $290 in the first quarter of 2010 compared with approximately $268 in the first quarter of 2009.
Medical Care Ratios (MCR)
The health plan services MCR in the Western Region was 87.5 percent in the first quarter of 2010 compared with 87.7 percent in the first quarter of 2009.
The Western Region commercial MCR was 86.3 percent in the first quarter of 2010 compared with 86.5 percent in the first quarter of 2009.
The Medicare Advantage MCR in the Western Region was 88.2 percent in the first quarter of 2010 compared with 89.7 percent in the first quarter of 2009. The 150 basis point improvement was the result of higher revenues and moderating health care cost trends that were consistent with the company’s expectations.
The Medicare Part D MCR was 96.9 percent in the first quarter of 2010 compared with 93.8 percent in the first quarter of 2009. The 310 basis point deterioration is consistent with the company’s expectations for the first quarter and the full year of 2010.
“The performance of both our Medicare Advantage and Medicare Part D businesses in the first quarter of 2010 is tracking with what our bids anticipated,” said Woys.
General & Administrative (G&A) and Selling Expenses
G&A expense in the Western Region was $223.9 million in the first quarter of 2010 compared with $208.7 million in the first quarter of 2009. The G&A expense ratio increased 50 basis points from 8.4 percent in the first quarter of 2009 to 8.9 percent in the first quarter of 2010 primarily as a result of higher premium taxes in the company’s Medicaid plan in California in the first quarter of 2010.
Selling expense in the Western Region was $57.7 million in the first quarter of 2010 compared with $58.5 million the first quarter of 2009.
GOVERNMENT CONTRACTS SEGMENT
The company’s Government Contracts revenues increased approximately 6.6 percent in the first quarter of 2010 to $809.5 million from $759.3 million in the first quarter of 2009.
The Government Contracts cost ratio was 95.3 percent in the first quarter of 2010 compared with 95.5 percent in the first quarter of 2009.
BALANCE SHEET
Health Net’s condensed consolidated balance sheets, attached as an exhibit to this press release, include the Northeast businesses in the first quarter of 2009. As a result of the sale of the Northeast businesses in December 2009, the balance sheets exclude those businesses from the fourth quarter of 2009 and the first quarter of 2010.
Cash and investments as of March 31, 2010 were $2.0 billion compared with $2.1 billion as of March 31, 2009.
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Reserves for claims and other settlements as of March 31, 2010 were $995.6 million compared with $1.3 billion as of March 31, 2009. The decline is due to the divestiture of the Northeast businesses. Compared with reserves at December 31, 2009, reserves for claims and other settlements rose sequentially by more than $43 million.
Days claims payable (DCP) for the first quarter of 2010 was 40.5 days compared with 43.9 days in the first quarter of 2009 and 34.2 days in the fourth quarter of 2009.
On an adjusted1 basis, DCP in the first quarter of 2010 was 55.8 days compared with 58.0 days in the first quarter of 2009 and 56.8 days in the fourth quarter of 2009. The sequential decline in adjusted1 DCP was primarily due to an approximate 7 percent decline in commercial and Medicare claims inventories on a dollar basis from December 31, 2009 to March 31, 2010.
The company’s debt-to-total capital ratio was 23.5 percent as of March 31, 2010 compared with 26.2 percent as of December 31, 2009 and 26.3 percent as of March 31, 2009. Both the quarter-over-quarter and sequential decreases were the result of a $100 million paydown of the company’s revolving credit facility in the first quarter of 2010.
Interest expense was $9.9 million in the first quarter of 2010 compared with $9.6 million in the first quarter of 2009.
CASH FLOW
Operating cash flow was $127.4 million in the first quarter of 2010 and included the December 2009 payment of approximately $44 million received in January 2010 for California Medicaid.
“Excluding the additional monthly Medi-Cal payment, cash flow was more than three-and-one-half times net income plus depreciation and amortization. This performance sets the stage for what we believe will be a strong year for operating cash flow,” said Joe Capezza, chief financial officer for Health Net, Inc.
NORTHEAST OPERATIONS SEGMENT
Health Net continues to serve the members of the sold Northeast companies under administrative services agreements (ASAs) that the company entered into with UnitedHealthcare and its affiliates on the closing date of the transaction. Health Net will serve these members until they are either transitioned to other UnitedHealthcare products or not renewed. The company expects the ASAs to remain in effect through 2011.
The revenues and expenses associated with providing services under the ASAs in the first quarter of 2010 were $50.4 million and $81.9 million, respectively, and they are shown separately in the accompanying consolidated statement of operations.
“This performance is consistent with our expectations and reflects the expected timing of payments from the transaction,” said Capezza. “We are maintaining our full year 2010 guidance for total Northeast-related costs of approximately $53 million. We also continue to expect to receive approximately $25 million in net cash proceeds from the Northeast in 2010.”
SHARE REPURCHASE UPDATE
Health Net resumed its share repurchase program in December 2009. On March 18, 2010, Health Net’s board of directors approved a new $300 million share repurchase program. In the first quarter of 2010,
| 1 | See “Disclosures Regarding Non-GAAP Financial Information” attached to this press release for a reconciliation of this information to the comparable GAAP financial measure. |
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Health Net repurchased 3.3 million shares for approximately $81.2 million at an average price of $24.37 per share. At March 31, 2010, approximately $298.2 million of authorization under the new program remained.
“The board’s action underscores its confidence about our future, and we remain committed to increasing shareholder value,” said Gellert.
2010 GUIDANCE
Health Net is increasing its 2010 annual guidance for GAAP earnings per diluted share to a range of $1.97 to $2.07, or $2.37 to $2.47 per diluted share for the combined Western Region Operations and Government Contracts segments.
| | |
Metric | | 2010 Guidance |
| Year-end Membership(a) | | Commercial: -1% to -2% Medicaid: +5% to +6% Medicare Advantage: -2% to - -3% PDP: +1% to +2% |
| |
| Consolidated Revenues | | $13.0 to $13.5 billion |
| |
| Commercial Yields(a) | | ~8.3% to 8.8% (Western Region 2009: ~ $316 PMPM) |
| |
Commercial Health Care Cost Trends(a) | | ~30 to 50 basis points < Premium Yields (Previously: ~20 to 40 basis points < Premium Yields) (Western Region 2009: ~$274 PMPM) |
| |
Selling Cost Ratio Government Contracts Ratio G&A Expense Ratio | | ~2.4% ~94.5% to 95.0% ~8.8% to 9.0% |
| |
| Tax Rate(b) | | ~39.0% |
| |
| Weighted-average Fully Diluted Shares Outstanding | | 101 million to 102 million (Previously: 103 million to 104 million) |
| |
| GAAP EPS | | $1.97 to $2.07 (previously $1.92 to $2.02) |
Combined Western Region Operations and Government Contracts EPS | | $2.37 to $2.47 (previously $2.32 to $2.42) |
| (a) | These metrics represent the company’s Western Region Operations. |
| (b) | Excludes costs relating to the Northeast divestiture and the operations strategy. |
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CONFERENCE CALL
As previously announced, Health Net will discuss the company’s first quarter 2010 results during a conference call on Tuesday, May 4, 2010, 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:
| | |
| 866.393.1637 (Domestic) | | 800.642.1687 (Replay – Domestic) |
| 706.643.5711 (International) | | 706.645.9291 (Replay – International) |
The access code for the live conference call and replay is 66994330. A replay of the conference call will be available through May 8, 2010. A live webcast and replay of the conference call also will be available atwww.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, 2009, 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 6.0 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 5.9 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 website atwww.healthnet.com.
CAUTIONARY STATEMENTS
All statements in this press release, other than statements of historical information provided herein, 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 hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, 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, costs, fees and expenses related to the post-closing administrative services to be provided under the administrative services agreements entered into in connection with the sale of our Northeast business; potential termination of the administrative services agreements by the service recipients should we breach such agreements or fail to perform all or a material part of the services required thereunder; any liabilities of the Northeast business that were incurred prior to the closing of its sale as well as those liabilities incurred through the winding-up and running-out period of the Northeast business; potential termination of our TRICARE North operations; health care reform; rising health care costs; continued recessionary economic conditions or a further decline in the economy; 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 businesses; litigation costs; regulatory issues; operational issues; investment portfolio impairment charges; volatility in the financial markets; and general business and market 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
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recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), and the risks discussed in the company’s other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
The financial information presented in this press release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the company’s Form 10-Q for the period ended March 31, 2010.
Eight pages of tables follow.
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Health Net, Inc.
Enrollment Data - By State
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | December 31, 2009 | | | March 31, 2009 | |
| | | Mar 31,
2010 | | Dec 31,
2009 | | Mar 31,
2009 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
California | | | | | | | | | | | | | | | | | | |
Large Group | | 839 | | 870 | | 920 | | (31 | ) | | (3.6 | )% | | (81 | ) | | (8.8 | )% |
Small Group and Individual | | 362 | | 357 | | 393 | | 5 | | | 1.4 | % | | (31 | ) | | (7.9 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,201 | | 1,227 | | 1,313 | | (26 | ) | | (2.1 | )% | | (112 | ) | | (8.5 | )% |
ASO | | 5 | | 5 | | 2 | | 0 | | | 0.0 | % | | 3 | | | 150.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,206 | | 1,232 | | 1,315 | | (26 | ) | | (2.1 | )% | | (109 | ) | | (8.3 | )% |
Medicare Advantage | | 130 | | 137 | | 132 | | (7 | ) | | (5.1 | )% | | (2 | ) | | (1.5 | )% |
Medi-Cal | | 873 | | 857 | | 793 | | 16 | | | 1.9 | % | | 80 | | | 10.1 | % |
| | | | | | | | | | | | | | | | | | |
Total California | | 2,209 | | 2,226 | | 2,240 | | (17 | ) | | (0.8 | )% | | (31 | ) | | (1.4 | )% |
| | | | | | | | | | | | | | | | | | |
Arizona | | | | | | | | | | | | | | | | | | |
Large Group | | 52 | | 59 | | 69 | | (7 | ) | | (11.9 | )% | | (17 | ) | | (24.6 | )% |
Small Group and Individual | | 38 | | 37 | | 43 | | 1 | | | 2.7 | % | | (5 | ) | | (11.6 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 90 | | 96 | | 112 | | (6 | ) | | (6.3 | )% | | (22 | ) | | (19.6 | )% |
Medicare Advantage | | 51 | | 65 | | 65 | | (14 | ) | | (21.5 | )% | | (14 | ) | | (21.5 | )% |
| | | | | | | | | | | | | | | | | | |
Total Arizona | | 141 | | 161 | | 177 | | (20 | ) | | (12.4 | )% | | (36 | ) | | (20.3 | )% |
| | | | | | | | | | | | | | | | | | |
Oregon | | | | | | | | | | | | | | | | | | |
Large Group | | 55 | | 72 | | 89 | | (17 | ) | | (23.6 | )% | | (34 | ) | | (38.2 | )% |
Small Group and Individual | | 47 | | 46 | | 46 | | 1 | | | 2.2 | % | | 1 | | | 2.2 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 102 | | 118 | | 135 | | (16 | ) | | (13.6 | )% | | (33 | ) | | (24.4 | )% |
Medicare Advantage | | 37 | | 25 | | 23 | | 12 | | | 48.0 | % | | 14 | | | 60.9 | % |
| | | | | | | | | | | | | | | | | | |
Total Oregon | | 139 | | 143 | | 158 | | (4 | ) | | (2.8 | )% | | (19 | ) | | (12.0 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 946 | | 1,001 | | 1,078 | | (55 | ) | | (5.5 | )% | | (132 | ) | | (12.2 | )% |
Small Group and Individual | | 447 | | 440 | | 482 | | 7 | | | 1.6 | % | | (35 | ) | | (7.3 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,393 | | 1,441 | | 1,560 | | (48 | ) | | (3.3 | )% | | (167 | ) | | (10.7 | )% |
ASO | | 5 | | 5 | | 2 | | 0 | | | 0.0 | % | | 3 | | | 150.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,398 | | 1,446 | | 1,562 | | (48 | ) | | (3.3 | )% | | (164 | ) | | (10.5 | )% |
Medicare Advantage | | 218 | | 227 | | 220 | | (9 | ) | | (4.0 | )% | | (2 | ) | | (0.9 | )% |
Medicare PDP (stand-alone) | | 457 | | 460 | | 449 | | (3 | ) | | (0.7 | )% | | 8 | | | 1.8 | % |
Medi-Cal/Medicaid | | 873 | | 857 | | 793 | | 16 | | | 1.9 | % | | 80 | | | 10.1 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,946 | | 2,990 | | 3,024 | | (44 | ) | | (1.5 | )% | | (78 | ) | | (2.6 | )% |
All Other States | | 21 | | 28 | | 553 | | (7 | ) | | (25.0 | )% | | (532 | ) | | (96.2 | )% |
| | | | | | | | | | | | | | | | | | |
| | 2,967 | | 3,018 | | 3,577 | | (51 | ) | | (1.7 | )% | | (610 | ) | | (17.1 | )% |
| | | | | | | | | | | | | | | | | | |
| TRICARE - North Contract Eligibles | | 3,067 | | 3,067 | | 3,004 | | 0 | | | 0.0 | % | | 63 | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | |
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Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | December 31, 2009 | | | March 31, 2009 | |
| | | Mar 31,
2010 | | Dec 31,
2009 | | Mar 31,
2009 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
Large Group | | | | | | | | | | | | | | | | | | |
California | | 839 | | 870 | | 920 | | (31 | ) | | (3.6 | )% | | (81 | ) | | (8.8 | )% |
Arizona | | 52 | | 59 | | 69 | | (7 | ) | | (11.9 | )% | | (17 | ) | | (24.6 | )% |
Oregon | | 55 | | 72 | | 89 | | (17 | ) | | (23.6 | )% | | (34 | ) | | (38.2 | )% |
| | | | | | | | | | | | | | | | | | |
| | 946 | | 1,001 | | 1,078 | | (55 | ) | | (5.5 | )% | | (132 | ) | | (12.2 | )% |
| | | | | | | | | | | | | | | | | | |
Small Group and Individual | | | | | | | | | | | | | | | | | | |
California | | 362 | | 357 | | 393 | | 5 | | | 1.4 | % | | (31 | ) | | (7.9 | )% |
Arizona | | 38 | | 37 | | 43 | | 1 | | | 2.7 | % | | (5 | ) | | (11.6 | )% |
Oregon | | 47 | | 46 | | 46 | | 1 | | | 2.2 | % | | 1 | | | 2.2 | % |
| | | | | | | | | | | | | | | | | | |
| | 447 | | 440 | | 482 | | 7 | | | 1.6 | % | | (35 | ) | | (7.3 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | | | | | | | | | | | | | | | | | |
California | | 1,201 | | 1,227 | | 1,313 | | (26 | ) | | (2.1 | )% | | (112 | ) | | (8.5 | )% |
Arizona | | 90 | | 96 | | 112 | | (6 | ) | | (6.3 | )% | | (22 | ) | | (19.6 | )% |
Oregon | | 102 | | 118 | | 135 | | (16 | ) | | (13.6 | )% | | (33 | ) | | (24.4 | )% |
| | | | | | | | | | | | | | | | | | |
| | 1,393 | | 1,441 | | 1,560 | | (48 | ) | | (3.3 | )% | | (167 | ) | | (10.7 | )% |
| | | | | | | | | | | | | | | | | | |
ASO | | 5 | | 5 | | 2 | | 0 | | | 0.0 | % | | 3 | | | 150.0 | % |
| | | | | | | |
Total Commercial | | | | | | | | | | | | | | | | | | |
California | | 1,206 | | 1,232 | | 1,315 | | (26 | ) | | (2.1 | )% | | (109 | ) | | (8.3 | )% |
Arizona | | 90 | | 96 | | 112 | | (6 | ) | | (6.3 | )% | | (22 | ) | | (19.6 | )% |
Oregon | | 102 | | 118 | | 135 | | (16 | ) | | (13.6 | )% | | (33 | ) | | (24.4 | )% |
| | | | | | | | | | | | | | | | | | |
| | 1,398 | | 1,446 | | 1,562 | | (48 | ) | | (3.3 | )% | | (164 | ) | | (10.5 | )% |
Medicare Advantage | | | | | | | | | | | | | | | | | | |
California | | 130 | | 137 | | 132 | | (7 | ) | | (5.1 | )% | | (2 | ) | | (1.5 | )% |
Arizona | | 51 | | 65 | | 65 | | (14 | ) | | (21.5 | )% | | (14 | ) | | (21.5 | )% |
Oregon | | 37 | | 25 | | 23 | | 12 | | | 48.0 | % | | 14 | | | 60.9 | % |
| | | | | | | | | | | | | | | | | | |
| | 218 | | 227 | | 220 | | (9 | ) | | (4.0 | )% | | (2 | ) | | (0.9 | )% |
Medi-Cal/Medicaid | | | | | | | | | | | | | | | | | | |
California | | 873 | | 857 | | 793 | | 16 | | | 1.9 | % | | 80 | | | 10.1 | % |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 946 | | 1,001 | | 1,078 | | (55 | ) | | (5.5 | )% | | (132 | ) | | (12.2 | )% |
Small Group and Individual | | 447 | | 440 | | 482 | | 7 | | | 1.6 | % | | (35 | ) | | (7.3 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,393 | | 1,441 | | 1,560 | | (48 | ) | | (3.3 | )% | | (167 | ) | | (10.7 | )% |
ASO | | 5 | | 5 | | 2 | | 0 | | | 0.0 | % | | 3 | | | 150.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,398 | | 1,446 | | 1,562 | | (48 | ) | | (3.3 | )% | | (164 | ) | | (10.5 | )% |
Medicare Advantage | | 218 | | 227 | | 220 | | (9 | ) | | (4.0 | )% | | (2 | ) | | (0.9 | )% |
Medicare PDP (stand-alone) | | 457 | | 460 | | 449 | | (3 | ) | | (0.7 | )% | | 8 | | | 1.8 | % |
Medi-Cal/Medicaid | | 873 | | 857 | | 793 | | 16 | | | 1.9 | % | | 80 | | | 10.1 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,946 | | 2,990 | | 3,024 | | (44 | ) | | (1.5 | )% | | (78 | ) | | (2.6 | )% |
All Other States | | 21 | | 28 | | 553 | | (7 | ) | | (25.0 | )% | | (532 | ) | | (96.2 | )% |
| | | | | | | | | | | | | | | | | | |
| | 2,967 | | 3,018 | | 3,577 | | (51 | ) | | (1.7 | )% | | (610 | ) | | (17.1 | )% |
| | | | | | | | | | | | | | | | | | |
TRICARE - North Contract Eligibles | | 3,067 | | 3,067 | | 3,004 | | 0 | | | 0.0 | % | | 63 | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | |
9
Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share, PMPM and ratio data)
| | | | | | | | | | |
| | | Quarter Ended
March 31,
2009 | | Quarter Ended
December 31,
2009 | | | Quarter Ended
March 31,
2010 |
REVENUES: | | | | | | | | | | |
Health plan services premiums | | | 3,139,251 | | $ | 2,981,678 | | | $ | 2,527,507 |
Government contracts | | | 759,339 | | | 754,766 | | | | 809,459 |
Net investment income | | | 24,321 | | | 33,486 | | | | 19,922 |
Administrative services fees and other income | | | 9,892 | | | 28,165 | | | | 8,856 |
Northeast administrative services fees and other | | | — | | | — | | | | 50,360 |
| | | | | | | | | | |
| | | 3,932,803 | | | 3,798,095 | | | | 3,416,104 |
| | | | | | | | | | |
EXPENSES: | | | | | | | | | | |
Health plan services | | | 2,721,779 | | | 2,557,149 | | | | 2,211,256 |
Government contracts | | | 725,002 | | | 707,353 | | | | 771,902 |
General and administrative | | | 354,910 | | | 355,407 | | | | 247,096 |
Selling | | | 81,410 | | | 84,068 | | | | 58,831 |
Depreciation and amortization | | | 16,040 | | | 8,605 | | | | 8,663 |
Interest | | | 9,567 | | | 9,538 | | | | 9,884 |
Northeast administrative services expenses | | | — | | | — | | | | 81,878 |
Asset impairments | | | — | | | 4,309 | | | | — |
Loss on sale of Northeast health plan subsidiaries | | | — | | | 105,931 | | | | — |
| | | | | | | | | | |
| | | 3,908,708 | | | 3,832,360 | | | | 3,389,510 |
| | | |
Income (loss) from operations before income taxes | | | 24,095 | | | (34,265 | ) | | | 26,594 |
Income tax provision (benefit) | | | 2,060 | | | 10,892 | | | | 10,504 |
| | | | | | | | | | |
Net income (loss) | | $ | 22,035 | | $ | (45,157 | ) | | $ | 16,090 |
| | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.21 | | $ | (0.43 | ) | | $ | 0.16 |
| | | |
Diluted earnings (loss) per share | | $ | 0.21 | | $ | (0.43 | ) | | $ | 0.16 |
| | | |
Weighted average shares outstanding: | | | | | | | | | | |
Basic | | | 103,766 | | | 103,902 | | | | 101,049 |
Diluted | | | 104,265 | | | 103,902 | | | | 102,115 |
10
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
| | | | | | | | | | | | |
| | | March 31,
2009 | | | December 31,
2009 | | | March 31,
2010 | |
ASSETS | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 739,824 | | | $ | 682,803 | | | $ | 537,414 | |
Investments - available for sale | | | 1,374,883 | | | | 1,376,142 | | | | 1,477,843 | |
Premiums receivable, net | | | 417,664 | | | | 288,719 | | | | 295,514 | |
Amounts receivable under government contracts | | | 265,028 | | | | 270,810 | | | | 298,827 | |
Incurred but not reported (IBNR) health care costs receivable | | | | | | | | | | | | |
under TRICARE North contract | | | 290,835 | | | | 281,140 | | | | 255,925 | |
Other receivables | | | 198,688 | | | | 111,608 | | | | 80,260 | |
Deferred taxes | | | 104,154 | | | | 46,527 | | | | 51,389 | |
Other assets | | | 199,517 | | | | 187,086 | | | | 205,036 | |
| | | | | | | | | | | | |
Total current assets | | | 3,590,593 | | | | 3,244,835 | | | | 3,202,208 | |
Property and equipment, net | | | 178,248 | | | | 131,480 | | | | 124,235 | |
Goodwill, net | | | 751,949 | | | | 611,886 | | | | 611,886 | |
Other intangible assets, net | | | 86,935 | | | | 28,108 | | | | 27,059 | |
Deferred taxes | | | 55,549 | | | | 89,479 | | | | 83,885 | |
Investments - available for sale- noncurrent | | | — | | | | 20,870 | | | | 531 | |
Other noncurrent assets | | | 141,344 | | | | 155,993 | | | | 164,379 | |
| | | | | | | | | | | | |
Total Assets | | $ | 4,804,618 | | | $ | 4,282,651 | | | $ | 4,214,183 | |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 1,328,709 | | | $ | 951,655 | | | $ | 995,594 | |
Health care and other costs payable under government contracts | | | 71,486 | | | | 90,815 | | | | 95,194 | |
IBNR health care costs payable under TRICARE North contract | | | 290,835 | | | | 281,140 | | | | 255,925 | |
Unearned premiums | | | 209,019 | | | | 135,772 | | | | 152,219 | |
Borrowings under amortizing financing facility | | | 133,519 | | | | 104,007 | | | | 105,579 | |
Accounts payable and other liabilities | | | 317,862 | | | | 366,125 | | | | 412,575 | |
| | | | | | | | | | | | |
Total current liabilities | | | 2,351,430 | | | | 1,929,514 | | | | 2,017,086 | |
Senior notes payable | | | 398,327 | | | | 398,480 | | | | 398,532 | |
Borrowings under revolving credit facility | | | 100,000 | | | | 100,000 | | | | — | |
Other noncurrent liabilities | | | 179,944 | | | | 158,874 | | | | 159,036 | |
| | | | | | | | | | | | |
Total Liabilities | | | 3,029,701 | | | | 2,586,868 | | | | 2,574,654 | |
| | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | |
Common stock | | | 144 | | | | 154 | | | | 145 | |
Additional paid-in capital | | | 1,185,153 | | | | 1,190,203 | | | | 1,201,904 | |
Treasury common stock, at cost | | | (1,368,825 | ) | | | (1,389,722 | ) | | | (1,476,327 | ) |
Retained earnings | | | 1,966,135 | | | | 1,895,096 | | | | 1,911,186 | |
Accumulated other comprehensive (loss) income | | | (7,690 | ) | | | 52 | | | | 2,621 | |
| | | | | | | | | | | | |
Total Stockholders’ Equity | | | 1,774,917 | | | | 1,695,783 | | | | 1,639,529 | |
| | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 4,804,618 | | | $ | 4,282,651 | | | $ | 4,214,183 | |
| | | | | | | | | | | | |
Debt-to-Total Capital Ratio | | | 26.3 | % | | | 26.2 | % | | | 23.5 | % |
11
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | |
| | | First Quarter
Ended
March 31,
2009 | | | Fourth Quarter
Ended
December 31,
2009 | | | First Quarter
Ended
March 31,
2010 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net Income (loss) | | $ | 22,035 | | | $ | (45,157 | ) | | $ | 16,090 | |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | | | | |
Amortization and depreciation | | | 16,040 | | | | 8,605 | | | | 8,663 | |
Share-based compensation | | | 5,838 | | | | 4,914 | | | | 14,555 | |
Deferred income taxes | | | 10,424 | | | | 22,060 | | | | (638 | ) |
Excess tax benefits from share-based compensation | | | — | | | | (23 | ) | | | (473 | ) |
Loss on sale of business | | | — | | | | 105,931 | | | | — | |
Asset and investment impairment charges | | | 11,893 | | | | 4,309 | | | | — | |
Net realized (gain) loss on sale on investments | | | (9,380 | ) | | | (17,619 | ) | | | (6,853 | ) |
Other changes | | | 6,661 | | | | 5,931 | | | | 6,058 | |
Changes in assets and liabilities, net of the effects of dispositions: | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | (81,664 | ) | | | 27,352 | | | | 9,652 | |
Other current assets, receivables and noncurrent assets | | | 44,979 | | | | 120,941 | | | | 8,431 | |
Amounts receivable/payable under government contracts | | | (22,149 | ) | | | (16,537 | ) | | | (23,638 | ) |
Reserves for claims and other settlements | | | (9,440 | ) | | | (19,533 | ) | | | 43,939 | |
Accounts payable and other liabilities | | | (1,062 | ) | | | (48,002 | ) | | | 51,661 | |
| | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | (5,825 | ) | | | 153,172 | | | | 127,447 | |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Sales of investments | | | 331,926 | | | | 680,676 | | | | 444,200 | |
Maturities of investments | | | 55,038 | | | | 48,194 | | | | 36,631 | |
Purchases of investments | | | (257,567 | ) | | | (689,740 | ) | | | (557,102 | ) |
Proceeds from sale of property and equipment | | | 3,835 | | | | — | | | | — | |
Purchases of property and equipment | | | (4,782 | ) | | | (7,461 | ) | | | (3,549 | ) |
Net cash paid for acquisition and sale of businesses | | | — | | | | (173,422 | ) | | | — | |
Sales and purchases of restricted investments and other | | | 504 | | | | (924 | ) | | | (130 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 128,954 | | | | (142,677 | ) | | | (79,950 | ) |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | — | | | | 869 | | | | 850 | |
Repurchases of common stock | | | (1,506 | ) | | | (12,615 | ) | | | (94,209 | ) |
Excess tax benefits from share-based compensation | | | — | | | | 23 | | | | 473 | |
Borrowings under financing arrangements | | | — | | | | 55,000 | | | | — | |
Repayment of borrowings under financing arrangements | | | (50,000 | ) | | | (72,540 | ) | | | (100,000 | ) |
| | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | (51,506 | ) | | | (29,263 | ) | | | (192,886 | ) |
| | | | | | | | | | | | |
| | | |
Net increase (decrease) in cash and cash equivalents | | | 71,623 | | | | (18,768 | ) | | | (145,389 | ) |
| | | |
Net change in cash and cash equivalents classified as assets held for sale | | | — | | | | 238,260 | | | | — | |
Cash and cash equivalents, beginning of period | | | 668,201 | | | | 463,311 | | | | 682,803 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 739,824 | | | $ | 682,803 | | | $ | 537,414 | |
| | | | | | | | | | | | |
12
Health Net, Inc.
SEGMENT INFORMATION
(Amounts in thousands, except per share, PMPM and ratio data)
(Unaudited)
The following table presents Health Net’s operating segment information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended March 31, 2009 | | Quarter Ended December 31, 2009 | | | Quarter Ended March 31, 2010 |
| | | Western
Region
Opera-
tions1 | | | Govern-
ment
Contracts2 | | | Northeast
Opera-
tions3 | | | Cor-
porate/
Other4 | | | Consoli-
dated | | Western
Region
Opera-
tions1 | | | Govern-
ment
Contracts2 | | | Northeast
Opera-
tions3 | | | Cor-
porate/
Other5 | | | Consoli-
dated | | | Western
Region
Opera-
tions1 | | | Govern-
ment
Contracts2 | | | Northeast
Opera-
tions3 | | | Cor-
porate/
Other6 | | | Consoli-
dated |
Health plan services premiums | | $ | 2,479,172 | | | | | | | $ | 660,079 | | | | | | | $ | 3,139,251 | | $ | 2,435,709 | | | | | | | $ | 545,969 | | | | | | | $ | 2,981,678 | | | $ | 2,502,358 | | | | | | | $ | 25,149 | | | | | | | $ | 2,527,507 |
Government contracts | | | | | | | 759,339 | | | | | | | | | | | | 759,339 | | | | | | | 754,766 | | | | | | | | | | | | 754,766 | | | | | | | | 809,459 | | | | | | | | | | | | 809,459 |
Net investment income | | | 11,510 | | | | | | | | 12,811 | | | | | | | | 24,321 | | | 24,234 | | | | | | | | 9,252 | | | | | | | | 33,486 | | | | 19,577 | | | | | | | $ | 345 | | | | | | | | 19,922 |
Administrative services fees and other income | | | 7,400 | | | | | | | | 2,492 | | | | | | | | 9,892 | | | 11,528 | | | | | | | | 16,637 | | | | | | | | 28,165 | | | | 8,832 | | | | | | | | 24 | | | | | | | | 8,856 |
Northeast administrative services fees and other | | | — | | | | | | | | — | | | | | | | | — | | | — | | | | | | | | — | | | | | | | | — | | | | — | | | | | | | | 50,360 | | | | | | | | 50,360 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 2,498,082 | | | | 759,339 | | | | 675,382 | | | | — | | | | 3,932,803 | | | 2,471,471 | | | | 754,766 | | | | 571,858 | | | | — | | | | 3,798,095 | | | | 2,530,767 | | | | 809,459 | | | | 75,878 | | | | — | | | | 3,416,104 |
Health plan services | | | 2,173,938 | | | | | | | | 550,019 | | | | (2,178 | ) | | | 2,721,779 | | | 2,089,248 | | | | | | | | 467,901 | | | | | | | | 2,557,149 | | | | 2,189,893 | | | | | | | | 21,363 | | | | | | | | 2,211,256 |
Government contracts | | | | | | | 725,002 | | | | | | | | | | | | 725,002 | | | | | | | 703,721 | | | | | | | | 3,632 | | | | 707,353 | | | | | | | | 771,436 | | | | | | | | 466 | | | | 771,902 |
General and administrative excluding insurance, taxes and fees | | | 195,642 | | | | | | | | 99,272 | | | | 46,934 | | | | 341,848 | | | 195,391 | | | | | | | | 101,507 | | | | 38,723 | | | | 335,621 | | | | 204,838 | | | | | | | | 9,157 | | | | 14,062 | | | | 228,057 |
Insurance, taxes and fees | | | 13,062 | | | | | | | | — | | | | — | | | | 13,062 | | | 19,786 | | | | | | | | — | | | | — | | | | 19,786 | | | | 19,039 | | | | | | | | — | | | | — | | | | 19,039 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative including insurance, taxes and fees | | | 208,704 | | | | | | | | 99,272 | | | | 46,934 | | | | 354,910 | | | 215,177 | | | | | | | | 101,507 | | | | 38,723 | | | | 355,407 | | | | 223,877 | | | | | | | | 9,157 | | | | 14,062 | | | | 247,096 |
Selling | | | 58,494 | | | | | | | | 22,916 | | | | | | | | 81,410 | | | 58,877 | | | | | | | | 25,191 | | | | | | | | 84,068 | | | | 57,725 | | | | | | | | 1,106 | | | | | | | | 58,831 |
Depreciation and amortization | | | 9,622 | | | | | | | | 6,418 | | | | | | | | 16,040 | | | 7,905 | | | | | | | | 700 | | | | | | | | 8,605 | | | | 8,621 | | | | | | | | 42 | | | | | | | | 8,663 |
Interest | | | 9,567 | | | | | | | | | | | | | | | | 9,567 | | | 10,225 | | | | | | | | (687 | ) | | | | | | | 9,538 | | | | 9,884 | | | | | | | | | | | | | | | | 9,884 |
Asset impairments on Northeast operations | | | — | | | | | | | | | | | | | | | | — | | | — | | | | | | | | | | | | 4,309 | | | | 4,309 | | | | — | | | | | | | | | | | | | | | | — |
Northeast administrative services expenses | | | — | | | | | | | | | | | | | | | | — | | | — | | | | | | | | | | | | | | | | — | | | | — | | | | | | | | 81,878 | | | | | | | | 81,878 |
Loss on sale of Northeast health plan subsidiaries | | | — | | | | | | | | | | | | | | | | — | | | — | | | | | | | | | | | | 105,931 | | | | 105,931 | | | | — | | | | | | | | | | | | | | | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total expenses | | | 2,460,325 | | | | 725,002 | | | | 678,625 | | | | 44,756 | | | | 3,908,708 | | | 2,381,432 | | | | 703,721 | | | | 594,612 | | | | 152,595 | | | | 3,832,360 | | | | 2,490,000 | | | | 771,436 | | | | 113,546 | | | | 14,528 | | | | 3,389,510 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations before income taxes | | | 37,757 | | | | 34,337 | | | | (3,243 | ) | | | (44,756 | ) | | | 24,095 | | | 90,039 | | | | 51,045 | | | | (22,754 | ) | | | (152,595 | ) | | | (34,265 | ) | | | 40,767 | | | | 38,023 | | | | (37,668 | ) | | | (14,528 | ) | | | 26,594 |
Income tax provision (benefit) | | | 14,172 | | | | 14,044 | | | | (1,640 | ) | | | (24,516 | ) | | | 2,060 | | | 38,074 | | | | 20,660 | | | | (9,693 | ) | | | (38,149 | ) | | | 10,892 | | | | 15,379 | | | | 15,503 | | | | (14,993 | ) | | | (5,385 | ) | | | 10,504 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 23,585 | | | $ | 20,293 | | | $ | (1,603 | ) | | $ | (20,240 | ) | | $ | 22,035 | | $ | 51,965 | | | $ | 30,385 | | | $ | (13,061 | ) | | $ | (114,446 | ) | | $ | (45,157 | ) | | $ | 25,388 | | | $ | 22,520 | | | $ | (22,675 | ) | | $ | (9,143 | ) | | $ | 16,090 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.23 | | | $ | 0.20 | | | $ | (0.02 | ) | | $ | (0.20 | ) | | $ | 0.21 | | $ | 0.50 | | | $ | 0.29 | | | $ | (0.13 | ) | | $ | (1.10 | ) | | $ | (0.43 | ) | | $ | 0.25 | | | $ | 0.22 | | | $ | (0.22 | ) | | $ | (0.09 | ) | | $ | 0.16 |
Diluted earnings (loss) per share | | $ | 0.23 | | | $ | 0.19 | | | $ | (0.02 | ) | | $ | (0.20 | ) | | $ | 0.21 | | $ | 0.50 | | | $ | 0.29 | | | $ | (0.13 | ) | | $ | (1.10 | ) | | $ | (0.43 | ) | | $ | 0.25 | | | $ | 0.22 | | | $ | (0.22 | ) | | $ | (0.09 | ) | | $ | 0.16 |
Basic weighted average shares outstanding | | | 103,766 | | | | 103,766 | | | | 103,766 | | | | 103,766 | | | | 103,766 | | | 103,902 | | | | 103,902 | | | | 103,902 | | | | 103,902 | | | | 103,902 | | | | 101,049 | | | | 101,049 | | | | 101,049 | | | | 101,049 | | | | 101,049 |
Diluted weighted average shares outstanding | | | 104,265 | | | | 104,265 | | | | 103,766 | | | | 103,766 | | | | 104,265 | | | 104,626 | | | | 104,626 | | | | 103,902 | | | | 103,902 | | | | 103,902 | | | | 102,115 | | | | 102,115 | | | | 101,049 | | | | 101,049 | | | | 102,115 |
Pretax margin | | | 1.5 | % | | | 4.5 | % | | | | | | | | | | | | | | 3.6 | % | | | 6.8 | % | | | | | | | | | | | | | | | 1.6 | % | | | 4.7 | % | | | | | | | | | | | |
Commercial premium yield | | | 10.0 | % | | | | | | | | | | | | | | | | | | 8.7 | % | | | | | | | | | | | | | | | | | | | 8.4 | % | | | | | | | | | | | | | | | |
Commercial premium PMPM | | $ | 310.35 | | | | | | | | | | | | | | | | | | $ | 322.00 | | | | | | | | | | | | | | | | | | | $ | 336.44 | | | | | | | | | | | | | | | | |
Commercial health care cost trend | | | 10.1 | % | | | | | | | | | | | | | | | | | | 9.7 | % | | | | | | | | | | | | | | | | | | | 8.3 | % | | | | | | | | | | | | | | | |
Commercial health care cost PMPM | | $ | 268.32 | | | | | | | | | | | | | | | | | | $ | 278.14 | | | | | | | | | | | | | | | | | | | $ | 290.47 | | | | | | | | | | | | | | | | |
Commercial MCR | | | 86.5 | % | | | | | | | | | | | | | | | | | | 86.4 | % | | | | | | | | | | | | | | | | | | | 86.3 | % | | | | | | | | | | | | | | | |
Medicare Advantage MCR | | | 89.7 | % | | | | | | | | | | | | | | | | | | 88.6 | % | | | | | | | | | | | | | | | | | | | 88.2 | % | | | | | | | | | | | | | | | |
Medicare Part D MCR | | | 93.8 | % | | | | | | | | | | | | | | | | | | 59.7 | % | | | | | | | | | | | | | | | | | | | 96.9 | % | | | | | | | | | | | | | | | |
Health plan services MCR | | | 87.7 | % | | | | | | | | | | | | | | | | | | 85.8 | % | | | | | | | | | | | | | | | | | | | 87.5 | % | | | | | | | | | | | | | | | |
Government contracts cost ratio | | | | | | | 95.5 | % | | | | | | | | | | | | | | | | | | 93.2 | % | | | | | | | | | | | | | | | | | | | 95.3 | % | | | | | | | | | | | |
G&A expense ratio | | | 8.4 | % | | | | | | | | | | | | | | | | | | 8.8 | % | | | | | | | | | | | | | | | | | | | 8.9 | % | | | | | | | | | | | | | | | |
Selling costs ratio | | | 2.4 | % | | | | | | | | | | | | | | | | | | 2.4 | % | | | | | | | | | | | | | | | | | | | 2.3 | % | | | | | | | | | | | | | | | |
Effective tax rate | | | 37.5 | % | | | | | | | | | | | | | | | | | | 42.3 | % | | | | | | | | | | | | | | | | | | | 37.7 | % | | | | | | | | | | | | | | | |
| 1 | Includes the operations of the company’s commercial, Medicare (including Part D) and Medicaid health plans, the operations of the company’s health and life insurance companies in California, Arizona and Oregon and the company’s behavioral health and pharmaceutical services subsidiaries in Arizona, California and Oregon. |
| 2 | Includes government-sponsored managed care plans through the TRICARE program and other health care-related Department of Defense and Veterans Affairs government contracts. |
| 3 | Includes the operations of the company’s Northeast health plans that were sold on December 11, 2009 and the operations of the company’s health and life insurance companies in Connecticut, New Jersey and New York. Subsequent to the sale, it also includes the operations of the administrative services provided to the buyer. |
| 4 | Includes a $2.2 million pretax benefit for a litigation reserve true-up related to a previously accrued for class action lawsuit and $46.9 million in pretax costs related to the company’s operations strategy. |
| 5 | Includes costs related to the company’s operations strategy and an asset impairment and loss on the sale of the company’s Northeast businesses. |
| 6 | Includes costs related to the company’s operations strategy. |
13
Health Net, Inc.
Disclosures Regarding Non-GAAP Financial Information
(Dollars in millions)
(Unaudited)
Management believes that adjusted days claims payable (adjusted for divested businesses, capitation, provider and other claim settlements and Medicare Part D), a non-GAAP financial measure, provides useful information to investors because the adjusted days claims payable calculation excludes amounts related to divested businesses and health care costs for which no or minimal reserves are maintained. Therefore, management believes that adjusted days claims payable presents a more accurate reflection of days claims payable calculated from claims-based reserves than GAAP 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 adjusted days claims payable and days claims payable, the most directly comparable GAAP financial measure. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating the adjusted amounts, you should be aware that we have incurred expenses that are the same as or similar to some of the adjustments in the current presentation and we may incur them again in the future.
Our presentation of the adjusted amounts should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
| | | | | | | | | | | | |
| | | Q1 2009 | | | Q4 2009 | | | Q1 2010 | |
Reconciliation of Days Claims Payable: | | | | | | | | | | | | |
(1) Reserve for Claims and Other Settlements | | $ | 1,328.7 | | | $ | 951.7 | | | $ | 995.6 | |
Less: Reserve for Claims and Other Settlements for Divested Businesses | | | (264.5 | ) | | | — | | | | — | |
Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (196.5 | ) | | | (162.8 | ) | | | (174.0 | ) |
| | | | | | | | | | | | |
(2) Reserve for Claims and Other Settlements - Adjusted | | $ | 867.7 | | | $ | 788.9 | | | $ | 821.6 | |
| | | |
(3) Health Plan Services Cost | | $ | 2,721.8 | | | $ | 2,557.1 | | | $ | 2,211.3 | |
Less: Health Plan Services Cost for Divested Businesses | | | (529.0 | ) | | | (460.7 | ) | | | — | |
Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (847.4 | ) | | | (818.4 | ) | | | (885.2 | ) |
| | | | | | | | | | | | |
(4) Health Plan Services Cost - Adjusted | | $ | 1,345.4 | | | $ | 1,278.0 | | | $ | 1,326.1 | |
| | | |
(5) Number of Days in Period | | | 90 | | | | 92 | | | | 90 | |
| | | |
= (1) / (3) * (5) Days Claims Payable - (using end of period reserve amount) | | | 43.9 | | | | 34.2 | | | | 40.5 | |
= (2) / (4) * (5) Days Claims payable - Adjusted (using end of period reserve amount) | | | 58.0 | | | | 56.8 | | | | 55.8 | |
14
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In millions)
| | | | | | | | | | | | |
| | | Health Plan Services | |
| | | Q1 2010 | | | Year 2009 | | | Year 2008 | |
Reserve for claims (a), beginning of period | | $ | 692.2 | | | $ | 957.1 | | | $ | 838.7 | |
| | | |
Incurred claims related to: | | | | | | | | | | | | |
Current Year | | | 1,192.7 | | | | 6,422.8 | | | | 6,372.2 | |
Prior Years (c) | | | (52.9 | ) | | | (80.0 | ) | | | (8.3 | ) |
| | | | | | | | | | | | |
Total Incurred (b) | | | 1,139.8 | | | | 6,342.8 | | | | 6,363.9 | |
| | | |
Paid claims related to: | | | | | | | | | | | | |
Current Year | | | 602.4 | | | | 5,572.2 | | | | 5,443.2 | |
Prior Years | | | 510.9 | | | | 857.8 | | | | 802.3 | |
| | | | | | | | | | | | |
Total Paid (b) | | | 1,113.3 | | | | 6,430.0 | | | | 6,245.5 | |
| | | |
Less: Divested businesses | | | — | | | | (177.7 | ) | | | — | |
| | | | | | | | | | | | |
| | | |
Reserve for claims (a), end of period | | | 718.7 | | | | 692.2 | | | | 957.1 | |
Add: | | | | | | | | | | | | |
Claims Payable (d) | | | 164.9 | | | | 165.6 | | | | 284.8 | |
Other (e) | | | 112.0 | | | | 93.9 | | | | 96.2 | |
| | | | | | | | | | | | |
Reserves for claims and other settlements, end of period | | $ | 995.6 | | | $ | 951.7 | | | $ | 1,338.1 | |
| | | | | | | | | | | | |
| (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. |
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