Exhibit 99.1
| | |
 | | Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 818.676.6000 800.291.6911 www.healthnet.com |
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| | |
| Investor Contact | | Media Contact |
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| Angie McCabe | | Margita Thompson |
| 818.676.8692 | | 818.676.7912 |
| angie.mccabe@healthnet.com | | margita.thompson@healthnet.com |
HEALTH NET REPORTS THIRD QUARTER 2010
GAAP NET INCOME OF $62.7 MILLION, OR $0.64 PER DILUTED SHARE
WESTERN REGION OPERATIONSAND GOVERNMENT CONTRACTS SEGMENTS
PRODUCE COMBINED EARNINGSOF $0.74 PER DILUTED SHARE
COMMERCIAL RISK ENROLLMENT GROWS SEQUENTIALLY
LOS ANGELES, November 4, 2010– Health Net, Inc. (NYSE: HNT) today announced 2010 third quarter GAAP net income of $62.7 million, or $0.64 per diluted share, compared with a GAAP net loss of $66.0 million, or $0.64 per diluted share, for the third quarter of 2009.
The third quarter 2010 GAAP results include $8.6 million in expenses primarily related to severance costs.
The company’s Western Region Operations and Government Contracts segments produced combined net earnings of $0.74 per diluted share in the third quarter of 2010 and $0.75 per diluted share in the third quarter of 2009.
“We are pleased that the third quarter of 2010 produced further evidence of our solid and consistent financial performance,” said Jay Gellert, president and chief executive officer of Health Net, Inc. “Our commercial risk enrollment grew by 3,000 members sequentially, reversing recent trends and demonstrating that our focus on efficient-network products is working.”
The company announced that it is raising its full year 2010 guidance for earnings per diluted share to $2.07 to $2.17 on a GAAP basis, and $2.55 to $2.58 for the combined Western Region Operations and Government Contracts segments.
“Based on our current outlook, we believe that operating income for the full year 2011 will be greater than in 2010,” said Gellert. “In addition, we currently anticipate continued share repurchase activity in 2011.”
CONSOLIDATED RESULTS
Health Net’s total revenues decreased 14.5 percent in the third quarter of 2010 to $3.4 billion from $4.0 billion in the third quarter of 2009. Health plan services premium revenues decreased by approximately 22.0 percent to $2.5 billion in the third quarter of 2010 compared with $3.2 billion in the third quarter of 2009. Health plan services expenses decreased to $2.1 billion in the third quarter of 2010 from $2.7 billion in the third quarter of 2009.
Investment income decreased to $19.5 million in the third quarter of 2010 compared with $27.7 million in the third quarter of 2009.
The decreases on these year-over-year comparisons are primarily the result of the company’s sale of its Northeast businesses in December 2009.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total enrollment in the Western Region Operations segment at September 30, 2010 was approximately 2.5 million members, a decrease of approximately 1.7 percent compared with enrollment at September 30, 2009. Total enrollment in the company’s California health plan decreased approximately 0.5 percent from September 30, 2009 to September 30, 2010.
Western Region commercial risk enrollment grew by 3,000 members from June 30, 2010 to September 30, 2010.
“In light of the current economic environment, we find this growth in our Western Region commercial risk products very encouraging,” said James Woys, Health Net’s chief operating officer. “Also, our strategy of emphasizing efficient-network products continues to produce share gains in our key markets. These products grew by 11.2 percent, or 30,000 new members, from September 30, 2009 to September 30, 2010.”
As of September 30, 2010, efficient-network products accounted for 22 percent of the company’s Western Region commercial enrollment compared with 19 percent at September 30, 2009.
Commercial enrollment in the Western Region declined by 6.4 percent from September 30, 2009 to approximately 1.4 million members on September 30, 2010. The decline in commercial enrollment is consistent with the overall weak economy in the company’s western markets.
Medicaid enrollment in California at September 30, 2010 was 896,000 members, an increase of 55,000 members, or 6.5 percent, from September 30, 2009.
Enrollment in the company’s Medicare Advantage plans in the Western Region at September 30, 2010 was 221,000 members, a decrease of 1.8 percent compared with September 30, 2009.
Membership in the company’s Medicare Part D plans was 432,000 at the end of the third quarter of 2010, a 7.3 percent decrease compared with the end of the third 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 all 50 states and the District of Columbia in the third quarter of 2009.
Revenues
Total revenues for the Western Region in the third quarter of 2010 were flat at approximately $2.5 billion compared with the third quarter of 2009.
Investment income for the Western Region was $19.2 million in the third quarter of 2010 compared with $21.2 million in the third quarter of 2009 and $16.3 million in the second quarter of 2010.
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Health Plan Services Expenses
Health plan services expenses in the Western Region were flat at approximately $2.1 billion in the third quarter of 2010 compared with the third quarter of 2009.
Commercial Premium Yield and Health Care Cost Trends
In the Western Region, commercial premiums per member per month (PMPM) increased by 7.2 percent to approximately $343 in the third quarter of 2010 compared with $320 in the third quarter of 2009.
Commercial health care costs PMPM in the Western Region increased by 5.2 percent to approximately $296 in the third quarter of 2010 compared with approximately $281 in the third quarter of 2009.
“The positive spread between commercial premium yields PMPM and health care costs PMPM and the resulting year-over-year increase in the commercial gross margin PMPM in the Western Region is further affirmation of both our product strategy and pricing discipline,” said Woys.
Medical Care Ratios (MCR)
The health plan services MCR in the Western Region was 86.3 percent in the third quarter of 2010 compared with 86.9 percent in the third quarter of 2009.
The Western Region commercial MCR was 86.3 percent in the third quarter of 2010 compared with 87.9 percent in the third quarter of 2009 and was flat sequentially.
“The year-over-year improvement in our commercial MCR is the result of continued pricing discipline and more moderate health care cost increases,” Woys added.
The Medicare Advantage MCR in the Western Region was 89.4 percent in the third quarter of 2010 compared with 88.4 percent in the third quarter of 2009 and was in-line with company expectations.
The Medicare Part D MCR was 64.6 percent in the third quarter of 2010 compared with 65.9 percent in the third quarter of 2009. The 130 basis point improvement is consistent with the company’s 2010 bid strategy.
General & Administrative (G&A) and Selling Expenses
G&A expense in the Western Region was $214.3 million in the third quarter of 2010 compared with $201.8 million in the third quarter of 2009. The G&A expense ratio increased 60 basis points from 8.1 percent in the third quarter of 2009 and 20 basis points sequentially from 8.5 percent in the second quarter of 2010 to 8.7 percent in the third quarter of 2010.
“The year-over-year increase in the G&A ratio in the Western Region segment was consistent with our expectations,” said Woys. “We continue to expect that the G&A ratio for the full year 2010 will be 8.8 percent to 9.0 percent.”
Selling expense in the Western Region was $58.3 million in the third quarter of 2010 compared with $58.0 million in the third quarter of 2009.
GOVERNMENT CONTRACTS SEGMENT
The company’s Government Contracts revenues increased 13.5 percent in the third quarter of 2010 to $860.7 million from $758.5 million in the third quarter of 2009.
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The Government Contracts cost ratio increased slightly from 94.4 percent in the third quarter of 2009 to 94.5 percent in the third quarter of 2010.
BALANCE SHEET
Health Net’s Condensed Consolidated Balance Sheets, attached as an exhibit to this press release, included the Northeast businesses in the third quarter of 2009. The company sold its Northeast businesses in December 2009, and as a result, the balance sheets exclude those businesses in the fourth quarter of 2009 and the first, second and third quarters of 2010.
Cash and investments as of September 30, 2010 were $1.9 billion compared with $1.8 billion as of September 30, 2009.
Reserves for claims and other settlements as of September 30, 2010 were $904.4 million compared with $951.8 million as of September 30, 2009 and $934.9 million as of June 30, 2010. The year-over-year decline is primarily due to a reduction in claims inventory. The sequential decline is primarily due to a $22.0 million payment to providers related to Medicare risk adjusters and a $15.0 million decline in claims inventory.
Days claims payable (DCP) for the third quarter of 2010 was 39.0 days compared with 40.2 days in the third quarter of 2009 and 39.3 days in the second quarter of 2010.
On an adjusted1 basis, DCP in the third quarter of 2010 was 53.6 days compared with 53.7 days in the third quarter of 2009 and 53.6 days in the second quarter of 2010.
The company’s debt-to-total capital ratio was 22.7 percent as of September 30, 2010 compared with 26.2 percent as of December 31, 2009 and 23.4 percent as of June 30, 2010.
Interest expense was $8.2 million in the third quarter of 2010 compared with $10.3 million in the third quarter of 2009. The decline was due to the decrease in the company’s total outstanding debt.
CASH FLOW
Operating cash flow was negative $54.3 million in the third quarter of 2010 due to delays in the receipt of approximately $164 million in Medicaid payments. The company received these payments in October 2010.
“If we had received the Medicaid payments during the third quarter of 2010, operating cash flow would have been approximately $109.7 million, or 1.5 times net income plus depreciation and amortization,” said Joseph Capezza, Health Net’s chief financial officer.
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 the company’s Northeast Operations in the third quarter of 2010 were $50.1 million and $57.8 million, respectively, and they are shown separately in the accompanying Segment Information table.
| 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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SHARE REPURCHASE UPDATE
In the third quarter of 2010, Health Net repurchased 722,900 shares for approximately $19.4 million at an average price of $26.82 per share. At September 30, 2010, approximately $208.7 million of authorization under the company’s existing $300 million share repurchase program remained.
“We are pleased that our strong cash position at the parent has supported our ongoing share repurchase efforts,” said Capezza.
2010 GUIDANCE
Health Net is increasing its 2010 annual guidance for GAAP earnings per diluted share to a range of $2.07 to $2.17, or $2.55 to $2.58 per diluted share for the combined Western Region Operations and Government Contracts segments.
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Metric | | 2010 Guidance |
| Year-end Membership(a) | | Commercial: -3% to -4% (previously -1% to -2%) Medicaid: +5% to +6% Medicare Advantage: Flat (previously -2% to -3%) Total Western Region medical membership: Flat PDP: -6% to -7% |
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| Consolidated Revenues(b) | | $13.0 to $13.5 billion |
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| Commercial Yields(a) | | ~8.0% to 8.3% (previously ~8.3% to 8.8%) |
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Commercial Health Care Cost Trends(a) | | ~80 to 100 basis points < premium yields (previously: ~60 to 80 basis points < premium yields) |
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Selling Cost Ratio Government Contracts Ratio G&A Expense Ratio | | ~2.4% ~94.5% to 95.0% ~8.8% to 9.0% |
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| Tax Rate(b) | | ~39.0% |
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| Weighted-average Fully Diluted Shares Outstanding | | 98 million to 100 million (previously 99 million to 100 million) |
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GAAP EPS Combined Western Region Operations and Government Contracts EPS | | $2.07 to $2.17 $2.55 to $2.58 (previously $2.50 to $2.55) |
| (a) | For the company’s Western Region Operations |
| (b) | For the combined Western Region and Government Contracts segments |
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CONFERENCE CALL
As previously announced, Health Net will discuss the company’s third quarter 2010 results during a conference call on Thursday, November 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:
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866.393.1637 (Domestic) 706.643.5711 (International) | | 800.642.1687 (Replay – Domestic) 706.645.9291 (Replay – International) |
The access code for the live conference call and replay is 10742408. A replay of the conference call will be available through November 9, 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 Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010, 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 5.4 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, health care reform, including the ultimate impact of the Patient Protection and Affordable Care Act, which could materially adversely affect the company’s financial condition, results of operations and cash flows through, among other things, reduced revenues, new taxes, expanded liability, and increased costs (including medical, administrative, technology or other costs), or require changes to the ways in which the company does business; rising health care costs; continued slow economic growth or a further decline in the economy; negative prior period claims reserve developments; trends in medical care ratios; membership declines; unexpected utilization patterns or unexpectedly severe or widespread illnesses; rate cuts affecting the company’s Medicare or Medicaid businesses; costs, fees and expenses related to the post-closing administrative services provided under the administrative services agreements entered into in connection with the sale of the company’s Northeast business; potential termination of the administrative services agreements by the service recipients should Health Net 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
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running-out period of the Northeast business; litigation costs; regulatory issues with agencies such as the California Department of Managed Health Care, the Centers for Medicare and Medicaid Services and state departments of insurance; 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 recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q 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 September 30, 2010.
Eight pages of tables follow.
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Health Net, Inc.
Enrollment Data - By State
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Change from | |
| | | | | | | | | | | | June 30, 2010 | | | September 30, 2009 | |
| | | Sept 30,
2010 | | | June 30,
2010 | | | Sept 30,
2009 | | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
California | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 844 | | | | 836 | | | | 888 | | | | 8 | | | | 1.0 | % | | | (44 | ) | | | (5.0 | )% |
Small Group and Individual | | | 351 | | | | 355 | | | | 365 | | | | (4 | ) | | | (1.1 | )% | | | (14 | ) | | | (3.8 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 1,195 | | | | 1,191 | | | | 1,253 | | | | 4 | | | | 0.3 | % | | | (58 | ) | | | (4.6 | )% |
ASO | | | 0 | | | | 5 | | | | 5 | | | | (5 | ) | | | (100.0 | )% | | | (5 | ) | | | (100.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial | | | 1,195 | | | | 1,196 | | | | 1,258 | | | | (1 | ) | | | (0.1 | )% | | | (63 | ) | | | (5.0 | )% |
Medicare Advantage | | | 133 | | | | 132 | | | | 136 | | | | 1 | | | | 0.8 | % | | | (3 | ) | | | (2.2 | )% |
Medi-Cal | | | 896 | | | | 877 | | | | 841 | | | | 19 | | | | 2.2 | % | | | 55 | | | | 6.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total California | | | 2,224 | | | | 2,205 | | | | 2,235 | | | | 19 | | | | 0.9 | % | | | (11 | ) | | | (0.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Arizona | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 53 | | | | 53 | | | | 59 | | | | 0 | | | | 0.0 | % | | | (6 | ) | | | (10.2 | )% |
Small Group and Individual | | | 39 | | | | 39 | | | | 38 | | | | 0 | | | | 0.0 | % | | | 1 | | | | 2.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 92 | | | | 92 | | | | 97 | | | | 0 | | | | 0.0 | % | | | (5 | ) | | | (5.2 | )% |
Medicare Advantage | | | 49 | | | | 49 | | | | 65 | | | | 0 | | | | 0.0 | % | | | (16 | ) | | | (24.6 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Arizona | | | 141 | | | | 141 | | | | 162 | | | | 0 | | | | 0.0 | % | | | (21 | ) | | | (13.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Oregon | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 52 | | | | 52 | | | | 78 | | | | 0 | | | | 0.0 | % | | | (26 | ) | | | (33.3 | )% |
Small Group and Individual | | | 46 | | | | 47 | | | | 47 | | | | (1 | ) | | | (2.1 | )% | | | (1 | ) | | | (2.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 98 | | | | 99 | | | | 125 | | | | (1 | ) | | | (1.0 | )% | | | (27 | ) | | | (21.6 | )% |
Medicare Advantage | | | 39 | | | | 38 | | | | 24 | | | | 1 | | | | 2.6 | % | | | 15 | | | | 62.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Oregon | | | 137 | | | | 137 | | | | 149 | | | | 0 | | | | 0.0 | % | | | (12 | ) | | | (8.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 949 | | | | 941 | | | | 1,025 | | | | 8 | | | | 0.9 | % | | | (76 | ) | | | (7.4 | )% |
Small Group and Individual | | | 436 | | | | 441 | | | | 450 | | | | (5 | ) | | | (1.1 | )% | | | (14 | ) | | | (3.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 1,385 | | | | 1,382 | | | | 1,475 | | | | 3 | | | | 0.2 | % | | | (90 | ) | | | (6.1 | )% |
ASO | | | 0 | | | | 5 | | | | 5 | | | | (5 | ) | | | (100.0 | )% | | | (5 | ) | | | (100.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial | | | 1,385 | | | | 1,387 | | | | 1,480 | | | | (2 | ) | | | (0.1 | )% | | | (95 | ) | | | (6.4 | )% |
Medicare Advantage | | | 221 | | | | 219 | | | | 225 | | | | 2 | | | | 0.9 | % | | | (4 | ) | | | (1.8 | )% |
Medi-Cal/Medicaid | | | 896 | | | | 877 | | | | 841 | | | | 19 | | | | 2.2 | % | | | 55 | | | | 6.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Western Region | | | 2,502 | | | | 2,483 | | | | 2,546 | | | | 19 | | | | 0.8 | % | | | (44 | ) | | | (1.7 | )% |
Medicare PDP (stand-alone) | | | 432 | | | | 434 | | | | 466 | | | | (2 | ) | | | (0.5 | )% | | | (34 | ) | | | (7.3 | )% |
All Other States | | | 10 | | | | 19 | | | | 586 | | | | (9 | ) | | | (47.4 | )% | | | (576 | ) | | | (98.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2,944 | | | | 2,936 | | | | 3,598 | | | | 8 | | | | 0.3 | % | | | (654 | ) | | | (18.2 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TRICARE - North Contract Eligibles | | | 3,077 | | | | 3,077 | | | | 3,040 | | | | 0 | | | | 0.0 | % | | | 37 | | | | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Page 8
Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Change from | |
| | | | | | | | | | | | June 30, 2010 | | | September 30, 2009 | |
| | | Sept 30,
2010 | | | June 30,
2010 | | | Sept 30,
2009 | | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
Large Group | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 844 | | | | 836 | | | | 888 | | | | 8 | | | | 1.0 | % | | | (44 | ) | | | (5.0 | )% |
Arizona | | | 53 | | | | 53 | | | | 59 | | | | 0 | | | | 0.0 | % | | | (6 | ) | | | (10.2 | )% |
Oregon | | | 52 | | | | 52 | | | | 78 | | | | 0 | | | | 0.0 | % | | | (26 | ) | | | (33.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 949 | | | | 941 | | | | 1,025 | | | | 8 | | | | 0.9 | % | | | (76 | ) | | | (7.4 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Small Group and Individual | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 351 | | | | 355 | | | | 365 | | | | (4 | ) | | | (1.1 | )% | | | (14 | ) | | | (3.8 | )% |
Arizona | | | 39 | | | | 39 | | | | 38 | | | | 0 | | | | 0.0 | % | | | 1 | | | | 2.6 | % |
Oregon | | | 46 | | | | 47 | | | | 47 | | | | (1 | ) | | | (2.1 | )% | | | (1 | ) | | | (2.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 436 | | | | 441 | | | | 450 | | | | (5 | ) | | | (1.1 | )% | | | (14 | ) | | | (3.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 1,195 | | | | 1,191 | | | | 1,253 | | | | 4 | | | | 0.3 | % | | | (58 | ) | | | (4.6 | )% |
Arizona | | | 92 | | | | 92 | | | | 97 | | | | 0 | | | | 0.0 | % | | | (5 | ) | | | (5.2 | )% |
Oregon | | | 98 | | | | 99 | | | | 125 | | | | (1 | ) | | | (1.0 | )% | | | (27 | ) | | | (21.6 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,385 | | | | 1,382 | | | | 1,475 | | | | 3 | | | | 0.2 | % | | | (90 | ) | | | (6.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ASO | | | 0 | | | | 5 | | | | 5 | | | | (5 | ) | | | (100.0 | )% | | | (5 | ) | | | (100.0 | )% |
| | | | | | | |
Total Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 1,195 | | | | 1,196 | | | | 1,258 | | | | (1 | ) | | | (0.1 | )% | | | (63 | ) | | | (5.0 | )% |
Arizona | | | 92 | | | | 92 | | | | 97 | | | | 0 | | | | 0.0 | % | | | (5 | ) | | | (5.2 | )% |
Oregon | | | 98 | | | | 99 | | | | 125 | | | | (1 | ) | | | (1.0 | )% | | | (27 | ) | | | (21.6 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,385 | | | | 1,387 | | | | 1,480 | | | | (2 | ) | | | (0.1 | )% | | | (95 | ) | | | (6.4 | )% |
Medicare Advantage | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 133 | | | | 132 | | | | 136 | | | | 1 | | | | 0.8 | % | | | (3 | ) | | | (2.2 | )% |
Arizona | | | 49 | | | | 49 | | | | 65 | | | | 0 | | | | 0.0 | % | | | (16 | ) | | | (24.6 | )% |
Oregon | | | 39 | | | | 38 | | | | 24 | | | | 1 | | | | 2.6 | % | | | 15 | | | | 62.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 221 | | | | 219 | | | | 225 | | | | 2 | | | | 0.9 | % | | | (4 | ) | | | (1.8 | )% |
Medi-Cal/Medicaid | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 896 | | | | 877 | | | | 841 | | | | 19 | | | | 2.2 | % | | | 55 | | | | 6.5 | % |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 949 | | | | 941 | | | | 1,025 | | | | 8 | | | | 0.9 | % | | | (76 | ) | | | (7.4 | )% |
Small Group and Individual | | | 436 | | | | 441 | | | | 450 | | | | (5 | ) | | | (1.1 | )% | | | (14 | ) | | | (3.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 1,385 | | | | 1,382 | | | | 1,475 | | | | 3 | | | | 0.2 | % | | | (90 | ) | | | (6.1 | )% |
ASO | | | 0 | | | | 5 | | | | 5 | | | | (5 | ) | | | (100.0 | )% | | | (5 | ) | | | (100.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Commercial | | | 1,385 | | | | 1,387 | | | | 1,480 | | | | (2 | ) | | | (0.1 | )% | | | (95 | ) | | | (6.4 | )% |
Medicare Advantage | | | 221 | | | | 219 | | | | 225 | | | | 2 | | | | 0.9 | % | | | (4 | ) | | | (1.8 | )% |
Medi-Cal/Medicaid | | | 896 | | | | 877 | | | | 841 | | | | 19 | | | | 2.2 | % | | | 55 | | | | 6.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Western Region | | | 2,502 | | | | 2,483 | | | | 2,546 | | | | 19 | | | | 0.8 | % | | | (44 | ) | | | (1.7 | )% |
Medicare PDP (stand-alone) | | | 432 | | | | 434 | | | | 466 | | | | (2 | ) | | | (0.5 | )% | | | (34 | ) | | | (7.3 | )% |
All Other States | | | 10 | | | | 19 | | | | 586 | | | | (9 | ) | | | (47.4 | )% | | | (576 | ) | | | (98.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2,944 | | | | 2,936 | | | | 3,598 | | | | 8 | | | | 0.3 | % | | | (654 | ) | | | (18.2 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TRICARE - North Contract Eligibles | | | 3,077 | | | | 3,077 | | | | 3,040 | | | | 0 | | | | 0.0 | % | | | 37 | | | | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Page 9
Health Net, Inc.
Consolidated Statements of Operations
($ in thousands, except per share data)
| | | | | | | | | | | | |
| | | Quarter Ended
September 30,
2010 | | | Quarter Ended
June 30,
2010 | | | Quarter Ended
September 30,
2009 | |
REVENUES: | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,470,939 | | | $ | 2,507,318 | | | $ | 3,166,877 | |
Government contracts | | | 860,697 | | | | 851,939 | | | | 758,507 | |
Net investment income | | | 19,466 | | | | 16,567 | | | | 27,691 | |
Administrative services fees and other income | | | 5,487 | | | | 1,837 | | | | 15,578 | |
Northeast administrative services fees and other | | | 36,863 | | | | 59,301 | | | | — | |
| | | | | | | | | | | | |
| | | 3,393,452 | | | | 3,436,962 | | | | 3,968,653 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | |
Health plan services | | | 2,134,701 | | | | 2,163,191 | | | | 2,734,984 | |
Government contracts | | | 814,385 | | | | 811,386 | | | | 716,323 | |
General and administrative | | | 225,929 | | | | 237,378 | | | | 319,451 | |
Selling | | | 59,021 | | | | 56,574 | | | | 83,275 | |
Depreciation and amortization | | | 8,659 | | | | 8,466 | | | | 12,689 | |
Interest | | | 8,150 | | | | 8,761 | | | | 10,264 | |
Northeast administrative services expenses | | | 61,878 | | | | 71,951 | | | | — | |
Adjustment to loss on sale of Northeast subsidiaries | | | (21,457 | ) | | | (8,171 | ) | | | — | |
Asset impairments | | | — | | | | 6,000 | | | | 170,570 | |
Early debt extinguishment | | | — | | | | 3,532 | | | | — | |
| | | | | | | | | | | | |
| | | 3,291,266 | | | | 3,359,068 | | | | 4,047,556 | |
| | | |
Income (loss) from operations before income taxes | | | 102,186 | | | | 77,894 | | | | (78,903 | ) |
Income tax provision (benefit) | | | 39,503 | | | | 32,828 | | | | (12,881 | ) |
| | | | | | | | | | | | |
Net income (loss) | | $ | 62,683 | | | $ | 45,066 | | | $ | (66,022 | ) |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.64 | | | $ | 0.46 | | | $ | (0.64 | ) |
| | | |
Diluted earnings (loss) per share | | $ | 0.64 | | | $ | 0.45 | | | $ | (0.64 | ) |
| | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 97,349 | | | | 98,896 | | | | 103,873 | |
Diluted | | | 98,304 | | | | 99,687 | | | | 103,873 | |
Page 10
Health Net, Inc.
Condensed Consolidated Balance Sheets
($ in thousands)
| | | | | | | | | | | | |
| | | September 30,
2010 | | | June 30,
2010 | | | March 31,
2010 | |
ASSETS | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 446,301 | | | $ | 425,663 | | | $ | 537,414 | |
Investments - available for sale | | | 1,420,124 | | | | 1,487,497 | | | | 1,477,843 | |
Premiums receivable, net | | | 407,467 | | | | 351,953 | | | | 295,514 | |
Amounts receivable under government contracts | | | 213,000 | | | | 277,465 | | | | 298,827 | |
Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract | | | 348,249 | | | | 280,151 | | | | 255,925 | |
Other receivables | | | 107,156 | | | | 101,602 | | | | 80,260 | |
Deferred taxes | | | 63,573 | | | | 39,217 | | | | 51,389 | |
Other assets | | | 207,545 | | | | 188,578 | | | | 205,036 | |
| | | | | | | | | | | | |
Total current assets | | | 3,213,415 | | | | 3,152,126 | | | | 3,202,208 | |
Property and equipment, net | | | 125,039 | | | | 119,356 | | | | 124,235 | |
Goodwill, net | | | 605,886 | | | | 605,886 | | | | 611,886 | |
Other intangible assets, net | | | 25,164 | | | | 26,111 | | | | 27,059 | |
Deferred taxes | | | 56,987 | | | | 83,403 | | | | 83,885 | |
Investments - available for sale- noncurrent | | | — | | | | 2,985 | | | | 531 | |
Other noncurrent assets | | | 165,922 | | | | 161,098 | | | | 164,379 | |
| | | | | | | | | | | | |
Total Assets | | $ | 4,192,413 | | | $ | 4,150,965 | | | $ | 4,214,183 | |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 904,377 | | | $ | 934,879 | | | $ | 995,594 | |
Health care and other costs payable under government contracts | | | 58,628 | | | | 91,930 | | | | 95,194 | |
IBNR health care costs payable under TRICARE North contract | | | 348,249 | | | | 280,151 | | | | 255,925 | |
Unearned premiums | | | 153,539 | | | | 145,590 | | | | 152,219 | |
Borrowings under amortizing financing facility | | | — | | | | — | | | | 105,579 | |
Accounts payable and other liabilities | | | 379,414 | | | | 410,961 | | | | 412,575 | |
| | | | | | | | | | | | |
Total current liabilities | | | 1,844,207 | | | | 1,863,511 | | | | 2,017,086 | |
Senior notes payable | | | 398,634 | | | | 398,583 | | | | 398,532 | |
Borrowings under revolving credit facility | | | 100,000 | | | | 100,000 | | | | — | |
Other noncurrent liabilities | | | 156,098 | | | | 155,131 | | | | 159,036 | |
| | | | | | | | | | | | |
Total Liabilities | | | 2,498,939 | | | | 2,517,225 | | | | 2,574,654 | |
| | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | |
Common stock | | | 145 | | | | 145 | | | | 145 | |
Additional paid-in capital | | | 1,214,253 | | | | 1,209,130 | | | | 1,201,904 | |
Treasury common stock, at cost | | | (1,567,603 | ) | | | (1,548,166 | ) | | | (1,476,327 | ) |
Retained earnings | | | 2,018,935 | | | | 1,956,252 | | | | 1,911,186 | |
Accumulated other comprehensive income | | | 27,744 | | | | 16,379 | | | | 2,621 | |
| | | | | | | | | | | | |
Total Stockholders’ Equity | | | 1,693,474 | | | | 1,633,740 | | | | 1,639,529 | |
| | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 4,192,413 | | | $ | 4,150,965 | | | $ | 4,214,183 | |
| | | | | | | | | | | | |
Debt-to-Total Capital Ratio | | | 22.7 | % | | | 23.4 | % | | | 23.5 | % |
Page 11
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
| | | | | | | | | | | | |
| | | Quarter Ended
September 30,
2010 | | | Quarter Ended
June 30,
2010 | | | Quarter Ended
September 30,
2009 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income (loss) | | $ | 62,683 | | | $ | 45,066 | | | $ | (66,022 | ) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | | | | |
Amortization and depreciation | | | 8,659 | | | | 8,466 | | | | 12,689 | |
Share-based compensation | | | 4,856 | | | | 8,566 | | | | (5,025 | ) |
Deferred income taxes | | | (4,875 | ) | | | 4,016 | | | | (45,976 | ) |
Net realized (gain) on sale on investments | | | (7,742 | ) | | | (4,028 | ) | | | (12,312 | ) |
Loss on sale of Northeast subsidiaries | | | — | | | | — | | | | 170,570 | |
Asset impairments | | | — | | | | 6,000 | | | | | |
Other changes | | | (6,554 | ) | | | (15,826 | ) | | | 6,950 | |
Changes in assets and liabilities, net of the effects of dispositions: | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | (47,565 | ) | | | (63,068 | ) | | | 48,341 | |
Other current assets, receivables and noncurrent assets | | | (34,674 | ) | | | (7,167 | ) | | | (30,470 | ) |
Amounts receivable/payable under government contracts | | | 31,163 | | | | 18,098 | | | | 39,123 | |
Reserves for claims and other settlements | | | (30,502 | ) | | | (60,715 | ) | | | (48,570 | ) |
Accounts payable and other liabilities | | | (29,740 | ) | | | 44,289 | | | | 85,055 | |
| | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | (54,291 | ) | | | (16,303 | ) | | | 154,353 | |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Sales of investments | | | 248,354 | | | | 215,870 | | | | 465,732 | |
Maturities of investments | | | 47,243 | | | | 72,327 | | | | 37,355 | |
Purchases of investments | | | (203,530 | ) | | | (278,523 | ) | | | (520,733 | ) |
Proceeds from sale of property and equipment | | | — | | | | 19 | | | | 12 | |
Purchases of property and equipment | | | (15,989 | ) | | | (5,460 | ) | | | (8,018 | ) |
Net cash received (paid) for business divestitures | | | 4,541 | | | | (8,415 | ) | | | — | |
Sales and purchases of restricted investments and other | | | 2,567 | | | | 4,594 | | | | 6,558 | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 83,186 | | | | 412 | | | | (19,094 | ) |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | 568 | | | | 196 | | | | 485 | |
Repurchases of common stock | | | (8,825 | ) | | | (79,285 | ) | | | (29 | ) |
Borrowings under financing arrangements | | | — | | | | 100,000 | | | | — | |
Repayment of borrowings under financing arrangements | | | — | | | | (116,771 | ) | | | — | |
| | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | (8,257 | ) | | | (95,860 | ) | | | 456 | |
| | | | | | | | | | | | |
| | | |
Net increase (decrease) in cash and cash equivalents | | | 20,638 | | | | (111,751 | ) | | | 135,715 | |
Net change in cash and cash equivalents classified as assets held for sale | | | — | | | | — | | | | (238,260 | ) |
Cash and cash equivalents, beginning of period | | | 425,663 | | | | 537,414 | | | | 565,856 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 446,301 | | | $ | 425,663 | | | $ | 463,311 | |
| | | | | | | | | | | | |
Page 12
Health Net, Inc.
SEGMENT INFORMATION
($ in thousands, except per share and PMPM data)
The following table presents Health Net’s operating segment information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended September 30, 2010 | | | Quarter Ended June 30, 2010 | | | Quarter Ended September 30, 2009 | |
| | | Western
Region
Opera-
tions1 | | | Govern-
ment
Contracts2 | | | Northeast
Opera-
tions3 | | | Cor-
porate/
Other4, 5 | | | Consoli-
dated | | | Western
Region
Opera-
tions1 | | | Govern-
ment
Contracts2 | | | Northeast
Opera-
tions3 | | | Cor-
porate/
Other4, 5 | | | Consoli-
dated | | | Western
Region
Opera-
tions1 | | | Govern-
ment
Contracts2 | | | Northeast
Opera-
tions3 | | | Cor-
porate/
Other4, 5 | | | Consoli-
dated | |
Health plan services premiums | | $ | 2,457,977 | | | | | | | $ | 12,962 | | | | | | | $ | 2,470,939 | | | $ | 2,484,282 | | | | | | | $ | 23,036 | | | | | | | $ | 2,507,318 | | | $ | 2,467,023 | | | | | | | $ | 699,854 | | | | | | | $ | 3,166,877 | |
Government contracts | | | | | | | 860,697 | | | | | | | | | | | | 860,697 | | | | | | | | 851,939 | | | | | | | | | | | | 851,939 | | | | | | | | 758,507 | | | | | | | | | | | | 758,507 | |
Net investment income | | | 19,240 | | | | | | | | 226 | | | | | | | | 19,466 | | | | 16,324 | | | | | | | $ | 243 | | | | | | | | 16,567 | | | | 21,182 | | | | | | | | 6,509 | | | | | | | | 27,691 | |
Administrative services fees and other income | | | 5,487 | | | | | | | | 0 | | | | | | | | 5,487 | | | | 7,275 | | | | | | | | 22 | | | | (5,460 | ) | | | 1,837 | | | | 13,662 | | | | | | | | 1,916 | | | | | | | | 15,578 | |
Northeast administrative services fees and other | | | — | | | | | | | | 36,863 | | | | | | | | 36,863 | | | | — | | | | | | | | 59,301 | | | | | | | | 59,301 | | | | | | | | | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 2,482,704 | | | | 860,697 | | | | 50,051 | | | | — | | | | 3,393,452 | | | | 2,507,881 | | | | 851,939 | | | | 82,602 | | | | (5,460 | ) | | | 3,436,962 | | | | 2,501,867 | | | | 758,507 | | | | 708,279 | | | | — | | | | 3,968,653 | |
Health plan services | | | 2,122,005 | | | | | | | | 12,696 | | | | | | | | 2,134,701 | | | | 2,164,164 | | | | | | | | 20,660 | | | | (21,633 | ) | | | 2,163,191 | | | | 2,143,481 | | | | | | | | 592,067 | | | | (564 | ) | | | 2,734,984 | |
Government contracts | | | | | | | 813,524 | | | | | | | | 861 | | | | 814,385 | | | | | | | | 810,466 | | | | | | | | 920 | | | | 811,386 | | | | | | | | 716,323 | | | | | | | | | | | | 716,323 | |
G&A excluding insurance, taxes and fees | | | 196,014 | | | | | | | | 3,466 | | | | 7,771 | | | | 207,251 | | | | 194,704 | | | | | | | | 687 | | | | 23,992 | | | | 219,383 | | | | 175,342 | | | | | | | | 97,516 | | | | 19,495 | | | | 292,353 | |
Insurance, taxes and fees | | | 18,272 | | | | | | | | 406 | | | | — | | | | 18,678 | | | | 17,995 | | | | | | | | — | | | | — | | | | 17,995 | | | | 26,457 | | | | | | | | 641 | | | | — | | | | 27,098 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
G&A including insurance, taxes and fees | | | 214,286 | | | | | | | | 3,872 | | | | 7,771 | | | | 225,929 | | | | 212,699 | | | | | | | | 687 | | | | 23,992 | | | | 237,378 | | | | 201,799 | | | | | | | | 98,157 | | | | 19,495 | | | | 319,451 | |
Selling | | | 58,267 | | | | | | | | 754 | | | | | | | | 59,021 | | | | 55,750 | | | | | | | | 824 | | | | | | | | 56,574 | | | | 57,966 | | | | | | | | 25,309 | | | | | | | | 83,275 | |
Depreciation and amortization | | | 8,585 | | | | | | | | 74 | | | | | | | | 8,659 | | | | 8,448 | | | | | | | | 18 | | | | | | | | 8,466 | | | | 9,692 | | | | | | | | 2,997 | | | | | | | | 12,689 | |
Interest | | | 8,150 | | | | | | | | | | | | | | | | 8,150 | | | | 8,761 | | | | | | | | | | | | | | | | 8,761 | | | | 10,069 | | | | | | | | 195 | | | | | | | | 10,264 | |
Early debt extinguishment | | | | | | | | | | | | | | | | | | | 0 | | | | | | | | | | | | | | | | 3,532 | | | | 3,532 | | | | | | | | | | | | | | | | | | | | | |
Asset impairments | | | | | | | | | | | 0 | | | | | | | | — | | | | | | | | | | | | 6,000 | | | | | | | | 6,000 | | | | | | | | | | | | | | | | 170,570 | | | | 170,570 | |
Northeast administrative services expenses | | | | | | | | | | | 61,878 | | | | | | | | 61,878 | | | | | | | | | | | | 71,951 | | | | | | | | 71,951 | | | | | | | | | | | | | | | | | | | | — | |
Adjustment to loss on sale of Northeast health plans | | | | | | | | | | | (21,457 | ) | | | | | | | (21,457 | ) | | | | | | | | | | | (8,171 | ) | | | | | | | (8,171 | ) | | | | | | | | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total expenses | | | 2,411,293 | | | | 813,524 | | | | 57,817 | | | | 8,632 | | | | 3,291,266 | | | | 2,449,822 | | | | 810,466 | | | | 91,969 | | | | 6,811 | | | | 3,359,068 | | | | 2,423,007 | | | | 716,323 | | | | 718,725 | | | | 189,501 | | | | 4,047,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations before income taxes | | | 71,411 | | | | 47,173 | | | | (7,766 | ) | | | (8,632 | ) | | | 102,186 | | | | 58,059 | | | | 41,473 | | | | (9,367 | ) | | | (12,271 | ) | | | 77,894 | | | | 78,860 | | | | 42,184 | | | | (10,446 | ) | | | (189,501 | ) | | | (78,903 | ) |
Income tax provision (benefit) | | | 26,974 | | | | 19,332 | | | | (3,090 | ) | | | (3,713 | ) | | | 39,503 | | | | 21,967 | | | | 17,042 | | | | (1,343 | ) | | | (4,838 | ) | | | 32,828 | | | | 25,073 | | | | 17,351 | | | | (1,414 | ) | | | (53,891 | ) | | | (12,881 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 44,437 | | | $ | 27,841 | | | $ | (4,676 | ) | | $ | (4,919 | ) | | $ | 62,683 | | | $ | 36,092 | | | $ | 24,431 | | | $ | (8,024 | ) | | $ | (7,433 | ) | | $ | 45,066 | | | $ | 53,787 | | | $ | 24,833 | | | $ | (9,032 | ) | | $ | (135,610 | ) | | $ | (66,022 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.46 | | | $ | 0.29 | | | $ | (0.05 | ) | | $ | (0.05 | ) | | $ | 0.64 | | | $ | 0.36 | | | $ | 0.25 | | | $ | (0.08 | ) | | $ | (0.08 | ) | | $ | 0.46 | | | $ | 0.52 | | | $ | 0.24 | | | $ | (0.09 | ) | | $ | (1.31 | ) | | $ | (0.64 | ) |
| | | | | | | | | | | | | | | |
Diluted earnings (loss) per share | | $ | 0.45 | | | $ | 0.29 | | | $ | (0.05 | ) | | $ | (0.05 | ) | | $ | 0.64 | | | $ | 0.36 | | | $ | 0.25 | | | $ | (0.08 | ) | | $ | (0.08 | ) | | $ | 0.45 | | | $ | 0.52 | | | $ | 0.24 | | | $ | (0.09 | ) | | $ | (1.31 | ) | | $ | (0.64 | ) |
Basic weighted average shares outstanding | | | 97,349 | | | | 97,349 | | | | 97,349 | | | | 97,349 | | | | 97,349 | | | | 98,896 | | | | 98,896 | | | | 98,896 | | | | 98,896 | | | | 98,896 | | | | 103,873 | | | | 103,873 | | | | 103,873 | | | | 103,873 | | | | 103,873 | |
Diluted weighted average shares outstanding | | | 98,304 | | | | 98,304 | | | | 97,349 | | | | 97,349 | | | | 98,304 | | | | 99,687 | | | | 99,687 | | | | 98,896 | | | | 98,896 | | | | 99,687 | | | | 104,432 | | | | 104,432 | | | | 103,873 | | | | 103,873 | | | | 103,873 | |
Pretax margin | | | 2.9 | % | | | 5.5 | % | | | | | | | | | | | | | | | 2.3 | % | | | 4.9 | % | | | | | | | | | | | | | | | 3.2 | % | | | 5.6 | % | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Commercial premium yield | | | 7.2 | % | | | | | | | | | | | | | | | | | | | 9.3 | % | | | | | | | | | | | | | | | | | | | 9.6 | % | | | | | | | | | | | | | | | | |
Commercial premium PMPM | | $ | 342.63 | | | | | | | | | | | | | | | | | | | $ | 340.38 | | | | | | | | | | | | | | | | | | | $ | 319.71 | | | | | | | | | | | | | | | | | |
Commercial health care cost trend | | | 5.2 | % | | | | | | | | | | | | | | | | | | | 9.1 | % | | | | | | | | | | | | | | | | | | | 8.3 | % | | | | | | | | | | | | | | | | |
Commercial health care cost PMPM | | $ | 295.73 | | | | | | | | | | | | | | | | | | | $ | 293.81 | | | | | | | | | | | | | | | | | | | $ | 280.99 | | | | | | | | | | | | | | | | | |
Commercial MCR | | | 86.3 | % | | | | | | | | | | | | | | | | | | | 86.3 | % | | | | | | | | | | | | | | | | | | | 87.9 | % | | | | | | | | | | | | | | | | |
Medicare Advantage MCR | | | 89.4 | % | | | | | | | | | | | | | | | | | | | 88.5 | % | | | | | | | | | | | | | | | | | | | 88.4 | % | | | | | | | | | | | | | | | | |
Medicare Part D MCR | | | 64.6 | % | | | | | | | | | | | | | | | | | | | 85.9 | % | | | | | | | | | | | | | | | | | | | 65.9 | % | | | | | | | | | | | | | | | | |
Medicaid MCR | | | 87.9 | % | | | | | | | | | | | | | | | | | | | 88.5 | % | | | | | | | | | | | | | | | | | | | 86.7 | % | | | | | | | | | | | | | | | | |
Health plan services MCR | | | 86.3 | % | | | | | | | | | | | | | | | | | | | 87.1 | % | | | | | | | | | | | | | | | | | | | 86.9 | % | | | | | | | | | | | | | | | | |
Government contracts cost ratio | | | | | | | 94.5 | % | | | | | | | | | | | | | | | | | | | 95.1 | % | | | | | | | | | | | | | | | | | | | 94.4 | % | | | | | | | | | | | | |
G&A expense ratio | | | 8.7 | % | | | | | | | | | | | | | | | | | | | 8.5 | % | | | | | | | | | | | | | | | | | | | 8.1 | % | | | | | | | | | | | | | | | | |
Selling costs ratio | | | 2.4 | % | | | | | | | | | | | | | | | | | | | 2.2 | % | | | | | | | | | | | | | | | | | | | 2.3 | % | | | | | | | | | | | | | | | | |
Effective tax rate | | | 37.8 | % | | | 41.0 | % | | | | | | | | | | | | | | | 37.8 | % | | | 41.1 | % | | | | | | | | | | | | | | | 31.8 | % | | | 41.1 | % | | | | | | | | | | | | |
| 1 | Includes the operations of the company’s commercial, Medicare (including Part D) and Medicaid health plans in California, Arizona and Oregon. |
| 2 | Includes the operations of 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 litigation reserve true-up related to a previously accrued for class action lawsuit. |
| 5 | Includes costs related to the company’s operations strategy and corporate overhead cost reduction efforts resulting from the sale of the Northeast health plans. |
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Health Net, Inc.
Disclosures Regarding Non-GAAP Financial Information
($ in millions)
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 may present a more accurate reflection of days claims payable calculated from claims-based reserves than does GAAP days claims payable, which includes 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.
| | | | | | | | | | | | |
| | | Q3 2010 | | | Q2 2010 | | | Q3 2009 | |
Reconciliation of Days Claims Payable: | | | | | | | | | | | | |
(1) Reserve for Claims and Other Settlements | | $ | 904.4 | | | $ | 934.9 | | | $ | 1,194.9 | |
Less: Reserve for Claims and Other Settlements for Divested Businesses | | | — | | | | — | | | | (233.6 | ) |
Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (130.0 | ) | | | (155.6 | ) | | | (159.2 | ) |
| | | | | | | | | | | | |
(2) Reserve for Claims and Other Settlements - Adjusted | | $ | 774.4 | | | $ | 779.3 | | | $ | 802.1 | |
| | | |
(3) Health Plan Services Cost | | $ | 2,134.7 | | | $ | 2,163.2 | | | $ | 2,735.0 | |
Less: Health Plan Services Cost for Divested Businesses | | | — | | | | — | | | | (570.1 | ) |
Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (804.4 | ) | | | (839.0 | ) | | | (791.3 | ) |
| | | | | | | | | | | | |
(4) Health Plan Services Cost - Adjusted | | $ | 1,330.3 | | | $ | 1,324.2 | | | $ | 1,373.6 | |
| | | |
(5) Number of Days in Period | | | 92 | | | | 91 | | | | 92 | |
| | | |
= (1) / (3) * (5) Days Claims Payable - (using end of period reserve amount) | | | 39.0 | | | | 39.3 | | | | 40.2 | |
= (2) / (4) * (5) Days Claims Payable - Adjusted (using end of period reserve amount) | | | 53.6 | | | | 53.6 | | | | 53.7 | |
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Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
($ in millions)
| | | | | | | | | | | | |
| | | Health Plan Services | |
| | | YTD 9/2010 | | | Year 2009 | | | Year 2008 | |
Reserve for claims (a), beginning of period | | $ | 692.2 | | | $ | 957.1 | | | $ | 838.7 | |
| | | |
Incurred claims related to: | | | | | | | | | | | | |
Current Year | | | 3,481.9 | | | | 6,422.8 | | | | 6,372.2 | |
Prior Years (c) | | | (63.8 | ) | | | (80.0 | ) | | | (8.3 | ) |
| | | | | | | | | | | | |
Total Incurred (b) | | | 3,418.1 | | | | 6,342.8 | | | | 6,363.9 | |
| | | |
Paid claims related to: | | | | | | | | | | | | |
Current Year | | | 2,837.7 | | | | 5,572.2 | | | | 5,443.2 | |
Prior Years | | | 600.2 | | | | 857.8 | | | | 802.3 | |
| | | | | | | | | | | | |
Total Paid (b) | | | 3,437.9 | | | | 6,430.0 | | | | 6,245.5 | |
| | | |
Less: Divested businesses | | | — | | | | (177.7 | ) | | | — | |
| | | | | | | | | | | | |
| | | |
Reserve for claims (a), end of period | | | 672.4 | | | | 692.2 | | | | 957.1 | |
Add: | | | | | | | | | | | | |
Claims Payable (d) | | | 141.9 | | | | 165.6 | | | | 284.8 | |
Other (e) | | | 90.1 | | | | 93.9 | | | | 96.2 | |
| | | | | | | | | | | | |
Reserves for claims and other settlements, end of period | | $ | 904.4 | | | $ | 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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