Exhibit 99.1
 | Health Net, Inc. 21650 Oxnard St. Woodland Hills, CA 91367 (818) 676-6000 www.healthnet.com |
| Investor Contact: | Media Contact: | |
| Angie McCabe | Brad Kieffer | |
| 818.676.8692 | 818.676.6833 | |
| angie.mccabe@healthnet.com | brad.kieffer@healthnet.com | |
HEALTH NET REPORTS FIRST QUARTER 2012 GAAP NET LOSS
OF $26.6 MILLION, OR A LOSS OF $0.32 PER SHARE
GAAP RESULTS INCLUDE IMPACTOF $18.5 MILLION
NET LOSS FROM DISCONTINUED OPERATIONS
WESTERN REGION OPERATIONSAND GOVERNMENT CONTRACTS SEGMENTS
PRODUCE COMBINED NET EARNINGSOF $0.10PER DILUTED SHARE
FIRST QUARTER 2012 RESULTS IMPACTEDBY $67 MILLION
IN ADVERSE PRIOR PERIOD CLAIMS DEVELOPMENT
COMPANY REVISES FULL-YEAR 2012 EARNINGSPER DILUTED SHARE GUIDANCE
FORTHE COMBINED WESTERN REGION OPERATIONSAND
GOVERNMENT CONTRACTS SEGMENTSTOA RANGEOF $2.35TO $2.50
PREPARATIONS BEGINFOR IMPLEMENTATIONOF DUAL-ELIGIBLES DEMONSTRATION PILOTS
LOS ANGELES, May 3, 2012 – Health Net, Inc. (NYSE:HNT) today announced a 2012 first quarter GAAP net loss of $26.6 million, or a loss of $0.32 per share, compared with a GAAP net loss of $108.2 million, or a loss of $1.16 per share, for the first quarter of 2011. The 2011 and 2012 financial results included in this release and the attached financial tables reflect the treatment of the company’s Medicare stand-alone Part D (Medicare PDP) business as discontinued operations.
The 2012 first quarter GAAP results include:
| 1. | an $18.5 million net loss from discontinued operations, representing the company’s Medicare PDP business that was sold to an affiliate of CVS Caremark Corporation on April 1, 2012; |
| 2. | $23.1 million in expenses related to the company’s Northeast operations and the transition of the Medicare PDP business; and |
| 3. | $3.6 million in expenses related to the company’s general and administrative (G&A) cost reduction efforts. |
For the first quarter of 2012, the company’s Western Region Operations (Western Region) and Government Contracts segments produced combined net earnings of $8.2 million, or $0.10 per diluted share, compared with $72.9 million, or $0.77 per diluted share, for the first quarter of 2011.
Key developments in the first quarter of 2012 include:
| 1. | The company underestimated incurred but not reported (IBNR) commercial reserves at December 31, 2011 due to significant delays in claims submissions for the fourth quarter of 2011 coupled with an unanticipated flattening of commercial medical claims trends. As a result, the company recorded approximately $67.0 million of adverse prior period development for the fourth quarter of 2011. The company believes the implementation of Health Insurance Portability and Accountability Act’s (HIPAA) new 5010 billing format caused the delayed claims submissions. |
| 2. | Medicare Advantage enrollment at March 31, 2012 grew 8.1 percent from March 31, 2011 as a result of the company’s return to marketing during the 2011 annual enrollment period. |
| 3. | Enrollment in the company’s commercial tailored network products grew by 8.0 percent from March 31, 2011 to March 31, 2012 and represents 35.0 percent of the company’s Western Region commercial membership as of March 31, 2012. |
| 4. | Medicaid enrollment increased 9.9 percent from March 31, 2011 to March 31, 2012 to more than 1.0 million members. |
“Given the impact of the adverse prior period development, we are revising our full-year 2012 earnings per diluted share guidance for the combined Western Region and Government Contracts segments to a range of $2.35 to $2.50,” said Jay Gellert, Health Net’s chief executive officer.
The company noted that incremental administrative costs to implement the dual-eligibles demonstration pilots are not included in its full-year 2012 guidance.
“Importantly, we continue to believe that each of our businesses is sound. Underlying commercial health care cost trends remain moderate, and we believe our new pharmacy agreement with CVS Caremark that was effective April 1, 2012 and new provider contracts will help keep health care cost trends predictable through the balance of this year,” said Gellert. “In addition, our Medicare business is improving, and our Medicaid and Government Contracts businesses remain stable.”
DUAL-ELIGIBLES DEMONSTRATION PILOTS
On April 4, 2012, Health Net was selected by the California Department of Heath Care Services to participate in the state’s proposed dual-eligibles demonstration pilots in Los Angeles and San Diego counties.
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“We are working very hard on preparing for the implementation of the dual-eligibles demonstration pilots,” said Gellert. “We continue to believe this will be a major business opportunity in 2013.”
CONSOLIDATED RESULTS
Health Net’s total revenues decreased 15.8 percent in the first quarter of 2012 to $2.8 billion compared with $3.4 billion in the first quarter of 2011, primarily due to the decline in Government Contracts revenues.
The revenue decline in Government Contracts is due to the T-3 TRICARE North contract that began on April 1, 2011. Unlike the prior TRICARE contract, the T-3 contract is a cost reimbursement plus fixed fee contract. Health Net now only records revenues and expenses associated with administrative services and related performance incentives and guarantees. These lower revenue and cost levels will continue over the term of the T-3 contract. The first quarter of 2012 is the final quarter for which Government Contracts results under the current contract will be compared to those under the prior contract.
Health plan services premium revenues increased by 7.1 percent to $2.6 billion in the first quarter of 2012 compared with $2.4 billion in the first quarter of 2011.
Investment income decreased to $22.3 million in the first quarter of 2012 compared with $23.8 million in the first quarter of 2011.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
The company’s total health plan enrollment was approximately 3.0 million at March 31, 2012, an increase of 1.2 percent compared with enrollment of approximately 2.9 million at March 31, 2011. Total enrollment in the company’s California health plan at March 31, 2012 was essentially flat compared with March 31, 2011.
Western Region commercial enrollment was approximately 1.3 million members at March 31, 2012, a decrease of 7.1 percent compared with enrollment of approximately 1.4 million members at March 31, 2011, and down 5.6 percent from December 31, 2011.
“We are pleased that membership in our tailored network products grew in the first quarter of 2012 as employer groups continued to choose lower cost alternatives,” said Jim Woys, Health Net’s chief operating officer. “Overall, commercial enrollment declined primarily due to the loss of three large group accounts on January 1, 2012. We are revising our 2012 commercial enrollment expectations to a range of a 7.0 percent to 9.0 percent decline as we remain disciplined in our pricing.”
Medicaid enrollment increased 9.9 percent to more than 1.0 million members at March 31, 2012 compared with 941,000 members as of March 31, 2011 as the company continued to add members from the Seniors and Persons with Disabilities program.
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Enrollment in Health Net’s Medicare Advantage (MA) plans was 226,000 members at March 31, 2012, which represents an 8.1 percent increase compared with enrollment of 209,000 members at March 31, 2011.
“We are very pleased with our strong MA enrollment growth as it exceeded our expectations,” said Woys. “As a result of this growth in the first quarter of 2012, we are raising our full-year 2012 MA enrollment growth guidance to a range of 11 percent to 13 percent.”
Membership in the company’s Medicare PDP plans was 424,000 at March 31, 2012, a 5.7 percent increase compared with enrollment of 401,000 at March 31, 2011. This membership was sold effective April 1, 2012.
Revenues
Total revenues for the Western Region increased 7.1 percent in the first quarter of 2012 to $2.6 billion from approximately $2.5 billion in the first quarter of 2011.
Net investment income for the Western Region was $22.3 million in the first quarter of 2012 compared with $23.8 million in the first quarter of 2011 and $10.0 million in the fourth quarter of 2011.
Health Plan Services Expenses
Health plan services expenses in the Western Region increased 11.0 percent to $2.3 billion in the first quarter of 2012 compared with $2.1 billion in the first quarter of 2011.
Commercial Premium Yield and Health Care Cost Trends
In the Western Region, commercial premiums per member per month (PMPM) increased by 5.3 percent to approximately $375 in the first quarter of 2012 compared with approximately $356 in the first quarter of 2011.
Commercial health care costs PMPM in the Western Region increased 12.3 percent to approximately $342 in the first quarter of 2012 compared with approximately $305 in the first quarter of 2011.
“Our revised commercial premium yield guidance of 4.8 percent to 5.3 percent reflects our continued pricing discipline and an improving mix of business. In addition, we believe overall health care cost trends remain moderate, but as a result of the adverse prior period development, we now expect reported health care costs PMPM for 2012 to be 200 basis points to 220 basis points greater than commercial premium yields PMPM,” said Woys.
Medical Care Ratios (MCR)
The health plan services MCR in the Western Region was 89.6 percent in the first quarter of 2012 compared with 86.5 percent in the first quarter of 2011. The Western Region commercial MCR was 91.4 percent in the first quarter of 2012 compared with 85.7 percent in the first quarter of 2011. The 570 basis point deterioration in the Western Region commercial MCR was primarily due to the adverse prior period development.
The MA MCR in the Western Region was 87.9 percent in the first quarter of 2012 compared with 89.0 percent in the first quarter of 2011.
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G&A Expense
G&A expense in the Western Region was approximately $230.8 million in the first quarter of 2012 compared with approximately $220.1 million in the first quarter of 2011. The G&A expense ratio was 8.8 percent in the first quarter of 2012 compared with 9.0 percent in the first quarter of 2011.
GOVERNMENT CONTRACTS SEGMENT
As previously described, health care administrative services under the company’s T-3 TRICARE North contract began on April 1, 2011.
Government Contracts revenues were $181.4 million in the first quarter of 2012 and $875.1 million in the first quarter of 2011.
Government Contracts expenses were $159.3 million in the first quarter of 2012 and $817.3 million in the first quarter of 2011.
Pretax income from the Government Contracts segment declined by $35.8 million in the first quarter of 2012 compared with the first quarter of 2011.
BALANCE SHEET
Cash and investments as of March 31, 2012 were approximately $1.8 billion and flat compared with cash and investments as of December 31, 2011 and March 31, 2011.
Reserves for claims and other settlements as of March 31, 2012 were $958.1 million compared with $889.9 million at March 31, 2011 and $912.1 million at December 31, 2011.
Days claims payable (DCP) for the first quarter of 2012 was 37.2 days compared with 37.8 days for the first quarter of 2011 and 39.0 days for the fourth quarter of 2011.
On an adjusted1 basis, DCP for the first quarter of 2012 was 53.0 days compared with 51.8 days for the first quarter of 2011 and 54.1 days for the fourth quarter of 2011.
The company’s debt-to-total capital ratio was 26.4 percent as of March 31, 2012 compared with 21.1 percent as of March 31, 2011 and 26.2 percent as of December 31, 2011.
Interest expense was $8.6 million in the first quarter of 2012 compared with $7.6 million in the first quarter of 2011.
| 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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CASH FLOWFROM OPERATIONS
Operating cash flow was approximately $4.0 million in the first quarter of 2012 and includes the negative impact of $94 million related to the discontinued Medicare PDP business. The company also noted that in the first quarter of 2012 it received a fourth monthly Medicare payment of $196 million from the Centers for Medicare & Medicaid Services but did not receive the third monthly Medicaid payment of $102 million.
“We continue to expect operating cash flow to be at least equal to net income plus depreciation and amortization for the full-year 2012,” said Joseph Capezza, Health Net’s chief financial officer. “Also, excluding any future share repurchases and potential expenditures related to the dual-eligibles demonstration pilots this year, and including proceeds from the sale of our Medicare PDP business, we expect cash at the parent company at December 31, 2012 to be approximately $250 million.”
SHARE REPURCHASE
Health Net did not repurchase any of its common stock in the first quarter of 2012. The company currently has $400 million in remaining repurchase authority under its share repurchase program.
“We did not repurchase shares in the first quarter of 2011 because we were waiting for the cash proceeds from the Medicare PDP sale,” noted Gellert.
DIVESTED OPERATIONSAND SERVICES SEGMENT
The company’s Divested Operations and Services segment includes items related to the run-out of the Northeast business and transition-related expenses related to the Medicare PDP business that was sold on April 1, 2012. Health Net continues to administer run-out claims and provide certain administrative services for the Northeast business pursuant to claims servicing agreements in place with UnitedHealthcare and its affiliates.
2012 GUIDANCE
Health Net revised its 2012 full-year guidance for GAAP earnings per diluted share to a range of $2.85 to $3.00, or $2.35 to $2.50 for the combined Western Region and Government Contracts segments. The company also noted that incremental administrative costs to implement the dual-eligibles demonstration pilots are not included in its full-year 2012 guidance.
Following is a table with specific 2012 guidance metrics.
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Metric | 2012 Guidance as of May 3, 2012 | 2012 Guidance as of March 7, 2012 | ||
Year-end membership(a) Commercial Medicaid Medicare Advantage Total Western Region |
-7% to -9% +3% to +5% +11% to +13% -1% to -2% | -3% to -5% +3% to +5% +8% to +10% Flat to +1% | ||
Consolidated revenues(b)(c) | ~$11.0 billion to $11.5 billion | ~$11.5 billion to $12.0 billion | ||
Commercial premium yields PMPM(a) | ~ +4.8% to +5.3% | ~ +4.3% to +4.8% | ||
Commercial health care costs PMPM(a) | ~200 to 220 basis points > premium yields PMPM | ~40 to 60 basis points < premium yields PMPM | ||
Selling cost ratio(a) G&A expense ratio(a)(c) | ~2.3% to 2.4% ~8.5% to 8.7% | ~2.3% to 2.4% ~8.6% to 8.8% | ||
Tax rate(b) | 37.0% to 38.0% | 38.0% to 39.0% | ||
Weighted-average fully diluted shares outstanding(d) | ~83.0 million to 84.0 million | ~82.0 million to 83.0 million | ||
GAAP EPS(c)(d)
Combined Western Region and Government Contracts EPS(c)(d) | $2.85 to $3.00
$2.35 to $2.50 | $2.80 to $2.90
$3.30 to $3.40 | ||
| (a) | For the company’s Western Region Operations segment |
| (b) | For the combined Western Region Operations and Government Contracts segments |
| (c) | Solely with respect to the May 3, 2012 guidance, these metrics include the impact of the sale of the company’s Medicare PDP business that closed on April 1, 2012. |
| (d) | The company’s guidance does not include the impact of share repurchases other than those to counter dilution. |
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CONFERENCE CALL
As previously announced, Health Net will discuss the company’s first quarter 2012 results during a conference call on Thursday, May 3, 2012, beginning at approximately 11:30 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) | 855.859.2056 (Replay – Domestic) | |
706.643.5711 (International) | 404.537.3406 (Replay – International) |
The access code for the live conference call and replay is 67363204. A replay of the conference call will be available through May 8, 2012. A live webcast and replay of the conference call also will be available at www.healthnet.com under “Investor Relations.” The conference call webcast is open to all interested parties. Anyone listening to the company’s conference call will be presumed to have read Health Net’s Annual Report on Form 10-K for the year ended December 31, 2011 and other reports filed by the company from time to time with the Securities and Exchange Commission.
ABOUT HEALTH NET
Health Net, Inc. is a publicly traded managed care organization that delivers managed health care services through health plans and government-sponsored managed care plans. Its mission is to help people be healthy, secure and comfortable. Health Net, through its subsidiaries, provides and administers health benefits to approximately 6.0 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, U.S. Department of Defense, including TRICARE, and Veterans Affairs programs. Health Net’s behavioral health services subsidiary, Managed Health Network, Inc., provides behavioral health, substance abuse and employee assistance programs to approximately 4.9 million individuals, including Health Net’s own health plan members. Health Net’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 Health Net’s website at www.healthnet.com.
CAUTIONARY STATEMENTS
Health Net, Inc. and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act (“PSLRA”) of 1995, including statements in this and other press releases, in presentations, filings with the Securities and Exchange Commission (“SEC”), reports to stockholders and in meetings with investors and analysts. All statements in this press release, other than statements of historical information provided herein, including the guidance for future periods and the assumptions underlying such projections, may be deemed to be forward-looking statements and as such are intended to be covered by the safe harbor for “forward-looking statements” provided by PSLRA. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to changes in circumstances and a number of risks and uncertainties. Without limiting the foregoing, the guidance as to expected future period results
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and statements including the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend,” “feels,” “will,” “projects” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those expressed in, or implied or projected by the forward-looking information and statements due to, among other things, health care reform and other increased government participation in and regulation of health benefits and managed care operations, including the ultimate impact of the Affordable Care Act, which could materially adversely affect Health Net’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 Health Net 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 and other risks and uncertainties affecting Health Net’s Medicare or Medicaid businesses; Health Net’s ability to successfully participate in the dual-eligibles demonstration pilots; litigation costs; regulatory issues with federal and state agencies including, but not limited to, the California Department of Managed Health Care, the Centers for Medicare & Medicaid Services, the Office of Civil Rights of the U.S. Department of Health and Human Services and state departments of insurance; operational issues; failure to effectively oversee our third-party vendors; noncompliance by Health Net or Health Net’s business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information; 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; 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 Health Net’s most recent Annual Report on Form 10-K filed with the SEC and the risks discussed in Health Net’s other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by law, Health Net undertakes no obligation to address or publicly update its guidance, the assessment of the underlying assumptions or any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
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 quarter ended March 31, 2012.
Eight pages of tables follow.
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Health Net, Inc.
Enrollment Data—By State
(In thousands)
| Change from | ||||||||||||||||||||||||||||
| December 31, 2011 | March 31, 2011 | |||||||||||||||||||||||||||
| March 31, 2012 | Dec 31, 2011 | March 31, 2011 | Increase/ (Decrease) | % Change | Increase/ (Decrease) | % Change | ||||||||||||||||||||||
California | ||||||||||||||||||||||||||||
Large Group | 754 | 826 | 836 | (72 | ) | (8.7 | )% | (82 | ) | (9.8 | )% | |||||||||||||||||
Small Group and Individual | 302 | 308 | 338 | (6 | ) | (1.9 | )% | (36 | ) | (10.7 | )% | |||||||||||||||||
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Commercial Risk | 1,056 | 1,134 | 1,174 | (78 | ) | (6.9 | )% | (118 | ) | (10.1 | )% | |||||||||||||||||
Medicare Advantage | 139 | 125 | 127 | 14 | 11.2 | % | 12 | 9.4 | % | |||||||||||||||||||
Medi-Cal | 1,034 | 1,009 | 941 | 25 | 2.5 | % | 93 | 9.9 | % | |||||||||||||||||||
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Total California | 2,229 | 2,268 | 2,242 | (39 | ) | (1.7 | )% | (13 | ) | (0.6 | )% | |||||||||||||||||
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Arizona | ||||||||||||||||||||||||||||
Large Group | 82 | 77 | 74 | 5 | 6.5 | % | 8 | 10.8 | % | |||||||||||||||||||
Small Group and Individual | 62 | 63 | 50 | (1 | ) | (1.6 | )% | 12 | 24.0 | % | ||||||||||||||||||
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Commercial Risk | 144 | 140 | 124 | 4 | 2.9 | % | 20 | 16.1 | % | |||||||||||||||||||
Medicare Advantage | 43 | 41 | 42 | 2 | 4.9 | % | 1 | 2.4 | % | |||||||||||||||||||
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Total Arizona | 187 | 181 | 166 | 6 | 3.3 | % | 21 | 12.7 | % | |||||||||||||||||||
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Oregon | ||||||||||||||||||||||||||||
Large Group | 35 | 50 | 49 | (15 | ) | (30.0 | )% | (14 | ) | (28.6 | )% | |||||||||||||||||
Small Group and Individual | 55 | 42 | 41 | 13 | 31.0 | % | 14 | 34.1 | % | |||||||||||||||||||
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Commercial Risk | 90 | 92 | 90 | (2 | ) | (2.2 | )% | 0 | 0.0 | % | ||||||||||||||||||
Medicare Advantage | 44 | 39 | 40 | 5 | 12.8 | % | 4 | 10.0 | % | |||||||||||||||||||
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Total Oregon | 134 | 131 | 130 | 3 | 2.3 | % | 4 | 3.1 | % | |||||||||||||||||||
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Total Health Plan Enrollment | ||||||||||||||||||||||||||||
Large Group | 871 | 953 | 959 | (82 | ) | (8.6 | )% | (88 | ) | (9.2 | )% | |||||||||||||||||
Small Group and Individual | 419 | 413 | 429 | 6 | 1.5 | % | (10 | ) | (2.3 | )% | ||||||||||||||||||
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Commercial Risk | 1,290 | 1,366 | 1,388 | (76 | ) | (5.6 | )% | (98 | ) | (7.1 | )% | |||||||||||||||||
Medicare Advantage | 226 | 205 | 209 | 21 | 10.2 | % | 17 | 8.1 | % | |||||||||||||||||||
Medi-Cal/Medicaid | 1,034 | 1,009 | 941 | 25 | 2.5 | % | 93 | 9.9 | % | |||||||||||||||||||
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Western Region Operations | 2,550 | 2,580 | 2,538 | (30 | ) | (1.2 | )% | 12 | 0.5 | % | ||||||||||||||||||
Medicare PDP (stand-alone) | 424 | 382 | 401 | 42 | 11.0 | % | 23 | 5.7 | % | |||||||||||||||||||
Northeast Business | 0 | 0 | 1 | 0 | 0.0 | % | (1 | ) | (100.0 | )% | ||||||||||||||||||
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| 424 | 382 | 402 | 42 | 11.0 | % | 22 | 5.5 | % | ||||||||||||||||||||
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Total | 2,974 | 2,962 | 2,940 | 12 | 0.4 | % | 34 | 1.2 | % | |||||||||||||||||||
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TRICARE—North Contract Eligibles | 3,004 | 3,004 | 3,090 | 0 | 0.0 | % | (86 | ) | (2.8 | )% | ||||||||||||||||||
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Page 10
Health Net, Inc.
Enrollment Data—Line of Business
(In thousands)
| Change from | ||||||||||||||||||||||||||||
| December 31, 2011 | March 31, 2011 | |||||||||||||||||||||||||||
| March 31, 2012 | Dec 31, 2011 | March 31, 2011 | Increase/ (Decrease) | % Change | Increase/ (Decrease) | % Change | ||||||||||||||||||||||
Large Group | ||||||||||||||||||||||||||||
California | 754 | 826 | 836 | (72 | ) | (8.7 | )% | (82 | ) | (9.8 | )% | |||||||||||||||||
Arizona | 82 | 77 | 74 | 5 | 6.5 | % | 8 | 10.8 | % | |||||||||||||||||||
Oregon | 35 | 50 | 49 | (15 | ) | (30.0 | )% | (14 | ) | (28.6 | )% | |||||||||||||||||
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| 871 | 953 | 959 | (82 | ) | (8.6 | )% | (88 | ) | (9.2 | )% | ||||||||||||||||||
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Small Group and Individual | ||||||||||||||||||||||||||||
California | 302 | 308 | 338 | (6 | ) | (1.9 | )% | (36 | ) | (10.7 | )% | |||||||||||||||||
Arizona | 62 | 63 | 50 | (1 | ) | (1.6 | )% | 12 | 24.0 | % | ||||||||||||||||||
Oregon | 55 | 42 | 41 | 13 | 31.0 | % | 14 | 34.1 | % | |||||||||||||||||||
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| 419 | 413 | 429 | 6 | 1.5 | % | (10 | ) | (2.3 | )% | |||||||||||||||||||
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Commercial Risk | ||||||||||||||||||||||||||||
California | 1,056 | 1,134 | 1,174 | (78 | ) | (6.9 | )% | (118 | ) | (10.1 | )% | |||||||||||||||||
Arizona | 144 | 140 | 124 | 4 | 2.9 | % | 20 | 16.1 | % | |||||||||||||||||||
Oregon | 90 | 92 | 90 | (2 | ) | (2.2 | )% | 0 | 0.0 | % | ||||||||||||||||||
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| |||||||||||||||
| 1,290 | 1,366 | 1,388 | (76 | ) | (5.6 | )% | (98 | ) | (7.1 | )% | ||||||||||||||||||
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Medicare Advantage | ||||||||||||||||||||||||||||
California | 139 | 125 | 127 | 14 | 11.2 | % | 12 | 9.4 | % | |||||||||||||||||||
Arizona | 43 | 41 | 42 | 2 | 4.9 | % | 1 | 2.4 | % | |||||||||||||||||||
Oregon | 44 | 39 | 40 | 5 | 12.8 | % | 4 | 10.0 | % | |||||||||||||||||||
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| 226 | 205 | 209 | 21 | 10.2 | % | 17 | 8.1 | % | ||||||||||||||||||||
Medi-Cal/Medicaid | ||||||||||||||||||||||||||||
California | 1,034 | 1,009 | 941 | 25 | 2.5 | % | 93 | 9.9 | % | |||||||||||||||||||
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Total Health Plan Enrollment | ||||||||||||||||||||||||||||
Large Group | 871 | 953 | 959 | (82 | ) | (8.6 | )% | (88 | ) | (9.2 | )% | |||||||||||||||||
Small Group and Individual | 419 | 413 | 429 | 6 | 1.5 | % | (10 | ) | (2.3 | )% | ||||||||||||||||||
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Commercial Risk | 1,290 | 1,366 | 1,388 | (76 | ) | (5.6 | )% | (98 | ) | (7.1 | )% | |||||||||||||||||
Medicare Advantage | 226 | 205 | 209 | 21 | 10.2 | % | 17 | 8.1 | % | |||||||||||||||||||
Medi-Cal/Medicaid | 1,034 | 1,009 | 941 | 25 | 2.5 | % | 93 | 9.9 | % | |||||||||||||||||||
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Western Region Operations | 2,550 | 2,580 | 2,538 | (30 | ) | (1.2 | )% | 12 | 0.5 | % | ||||||||||||||||||
Medicare PDP (stand-alone) | 424 | 382 | 401 | 42 | 11.0 | % | 23 | 5.7 | % | |||||||||||||||||||
Northeast Business | 0 | 0 | 1 | 0 | 0.0 | % | (1 | ) | (100.0 | )% | ||||||||||||||||||
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| 424 | 382 | 402 | 42 | 11.0 | % | 22 | 5.5 | % | ||||||||||||||||||||
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Total | 2,974 | 2,962 | 2,940 | 12 | 0.4 | % | 34 | 1.2 | % | |||||||||||||||||||
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TRICARE—North Contract Eligibles | 3,004 | 3,004 | 3,090 | 0 | 0.0 | % | (86 | ) | (2.8 | )% | ||||||||||||||||||
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Page 11
Health Net, Inc.
Consolidated Statements of Operations
($ in thousands, except per share data)
| Quarter Ended March 31, 2012 | Quarter Ended December 31, 2011 | Quarter Ended March 31, 2011 | ||||||||||
REVENUES: | ||||||||||||
Health plan services premiums | $ | 2,620,949 | $ | 2,498,736 | $ | 2,449,087 | ||||||
Government contracts | 181,362 | 194,632 | 875,127 | |||||||||
Net investment income | 22,304 | 10,047 | 23,835 | |||||||||
Administrative services fees and other income | 5,784 | 4,549 | 2,721 | |||||||||
Divested operations and services revenue | — | — | 12,449 | |||||||||
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| |||||||
Total revenues | 2,830,399 | 2,707,964 | 3,363,219 | |||||||||
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| |||||||
EXPENSES: | ||||||||||||
Health plan services | 2,343,659 | 2,149,873 | 2,117,286 | |||||||||
Government contracts | 162,310 | 157,020 | 822,152 | |||||||||
General and administrative | 237,276 | 230,375 | 404,500 | |||||||||
Selling | 61,561 | 61,615 | 60,565 | |||||||||
Depreciation and amortization | 7,430 | 7,086 | 8,468 | |||||||||
Interest | 8,628 | 8,499 | 7,620 | |||||||||
Divested operations and services expense | 23,096 | 29,988 | 58,329 | |||||||||
Adjustment to loss on sale of Northeast subsidiaries | — | 7 | (34,854 | ) | ||||||||
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| |||||||
Total expenses | 2,843,960 | 2,644,463 | 3,444,066 | |||||||||
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| |||||||
(Loss) income from continuing operations before income taxes | (13,561 | ) | 63,501 | (80,847 | ) | |||||||
Income tax (benefit) provision | (5,427 | ) | 20,440 | 15,777 | ||||||||
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| |||||||
(Loss) income from continuing operations | (8,134 | ) | 43,061 | (96,624 | ) | |||||||
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| |||||||
Discontinued operation: | ||||||||||||
(Loss) income from discontinued operation, net of tax | (18,452 | ) | 17,142 | (11,571 | ) | |||||||
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| |||||||
Net (loss) income | $ | (26,586 | ) | $ | 60,203 | $ | (108,195 | ) | ||||
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| |||||||
(Loss) income per share from continuing operations: | ||||||||||||
Basic | $ | (0.10 | ) | $ | 0.52 | $ | (1.04 | ) | ||||
Diluted | $ | (0.10 | ) | $ | 0.51 | $ | (1.04 | ) | ||||
(Loss) income per share from discontinued operation: | ||||||||||||
Basic | $ | (0.22 | ) | $ | 0.21 | $ | (0.12 | ) | ||||
Diluted | $ | (0.22 | ) | $ | 0.20 | $ | (0.12 | ) | ||||
Net (loss) income per share: | ||||||||||||
Basic | $ | (0.32 | ) | $ | 0.73 | $ | (1.16 | ) | ||||
Diluted | $ | (0.32 | ) | $ | 0.71 | $ | (1.16 | ) | ||||
Weighted average shares outstanding: | ||||||||||||
Basic | 82,513 | 82,721 | 93,290 | |||||||||
Diluted | 82,513 | 84,247 | 93,290 | |||||||||
Page 12
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
| March 31, 2012 | December 31, 2011 | March 31, 2011 | ||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | $ | 391,032 | $ | 230,253 | $ | 142,297 | ||||||
Investments—available for sale | 1,447,630 | 1,557,997 | 1,658,788 | |||||||||
Premiums receivable, net | 462,965 | 251,911 | 397,949 | |||||||||
Amounts receivable under government contracts | 234,120 | 234,740 | 293,646 | |||||||||
Incurred but not reported (IBNR) health care costs receivable | ||||||||||||
under TRICARE North contract | — | — | 292,649 | |||||||||
Other receivables | 165,533 | 225,004 | 76,893 | |||||||||
Deferred taxes | 100,639 | 46,659 | 25,471 | |||||||||
Assets held for sale | 145,240 | — | — | |||||||||
Other assets | 177,337 | 117,876 | 229,568 | |||||||||
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| |||||||
Total current assets | 3,124,496 | 2,664,440 | 3,117,261 | |||||||||
Property and equipment, net | 152,524 | 145,302 | 122,966 | |||||||||
Goodwill, net | 565,886 | 605,886 | 605,886 | |||||||||
Other intangible assets, net | 19,842 | 20,699 | 23,270 | |||||||||
Deferred taxes | — | 49,685 | 55,957 | |||||||||
Investments—available for sale— noncurrent | — | 2,147 | 8,870 | |||||||||
Other noncurrent assets | 114,330 | 119,510 | 90,983 | |||||||||
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| |||||||
Total Assets | $ | 3,977,078 | $ | 3,607,669 | $ | 4,025,193 | ||||||
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| |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Reserves for claims and other settlements | $ | 958,124 | $ | 912,126 | $ | 889,876 | ||||||
Health care and other costs payable under government contracts | 77,892 | 88,440 | 106,254 | |||||||||
IBNR health care costs payable under TRICARE North contract | — | — | 292,649 | |||||||||
Unearned premiums | 365,772 | 176,733 | 151,963 | |||||||||
Liabilities held for sale | 41,823 | — | — | |||||||||
Accounts payable and other liabilities | 355,743 | 240,281 | 514,957 | |||||||||
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| |||||||
Total current liabilities | 1,799,354 | 1,417,580 | 1,955,699 | |||||||||
Senior notes payable | 398,941 | 398,890 | 398,736 | |||||||||
Borrowings under revolving credit facility | 112,500 | 112,500 | — | |||||||||
Deferred taxes | 7,272 | — | — | |||||||||
Other noncurrent liabilities | 234,698 | 235,553 | 184,159 | |||||||||
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| |||||||
Total Liabilities | 2,552,765 | 2,164,523 | 2,538,594 | |||||||||
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| |||||||
Stockholders’ Equity | ||||||||||||
Common stock | 149 | 147 | 147 | |||||||||
Additional paid-in capital | 1,310,438 | 1,278,037 | 1,255,246 | |||||||||
Treasury common stock, at cost | (2,042,367 | ) | (2,023,129 | ) | (1,753,760 | ) | ||||||
Retained earnings | 2,144,873 | 2,171,459 | 1,991,144 | |||||||||
Accumulated other comprehensive income (loss) | 11,220 | 16,632 | (6,178 | ) | ||||||||
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| |||||||
Total Stockholders’ Equity | 1,424,313 | 1,443,146 | 1,486,599 | |||||||||
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| |||||||
Total Liabilities and Stockholders’ Equity | $ | 3,977,078 | $ | 3,607,669 | $ | 4,025,193 | ||||||
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| |||||||
Debt-to-Total Capital Ratio | 26.4 | % | 26.2 | % | 21.1 | % | ||||||
Page 13
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
| Quarter Ended March 31, 2012 | Quarter Ended December 31, 2011 | Quarter Ended March 31, 2011 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net (loss) income | $ | (26,586 | ) | $ | 60,203 | $ | (108,195 | ) | ||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||||||
Amortization and depreciation | 7,430 | 7,086 | 8,468 | |||||||||
Share-based compensation expense | 12,384 | 6,257 | 9,428 | |||||||||
Deferred income taxes | 2,977 | 22,171 | 19,135 | |||||||||
Excess tax benefits from share-based compensation | (5,896 | ) | (70 | ) | (1,164 | ) | ||||||
Adjustment to loss on sale of business | — | 7 | (34,854 | ) | ||||||||
Net realized (gain) on sale on investments | (12,958 | ) | (709 | ) | (12,298 | ) | ||||||
Other changes | 6,163 | 10,863 | 2,931 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Premiums receivable and unearned premiums | (87,970 | ) | (240,347 | ) | (105,587 | ) | ||||||
Other current assets, receivables and noncurrent assets | (25,684 | ) | 16,437 | (26,664 | ) | |||||||
Amounts receivable/payable under government contracts | (14,725 | ) | 6,301 | (34,801 | ) | |||||||
Reserves for claims and other settlements | 84,457 | 39,089 | (52,148 | ) | ||||||||
Accounts payable and other liabilities | 64,575 | (47,105 | ) | 138,477 | ||||||||
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| |||||||
Net cash provided by (used in) operating activities | 4,167 | (119,817 | ) | (197,272 | ) | |||||||
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| |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Sales of investments | 650,832 | 128,299 | 398,470 | |||||||||
Maturities of investments | 38,958 | 40,941 | 74,407 | |||||||||
Purchases of investments | (551,285 | ) | (71,782 | ) | (468,255 | ) | ||||||
Purchases of property and equipment | (15,373 | ) | (32,124 | ) | (10,305 | ) | ||||||
Purchase price adjustment on sale of Northeast Health Plans | — | 80,000 | 41,036 | |||||||||
Sales and purchases of restricted investments and other | 2,710 | (1,009 | ) | (13,764 | ) | |||||||
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| |||||||
Net cash provided by investing activities | 125,842 | 144,325 | 21,589 | |||||||||
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| |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from exercise of stock options and employee stock purchases | 14,415 | 1,047 | 7,990 | |||||||||
Repurchases of common stock | (19,238 | ) | (76,410 | ) | (113,510 | ) | ||||||
Excess tax benefits from share-based compensation | 5,896 | 70 | 1,164 | |||||||||
Borrowings under financing arrangements | 100,000 | 281,000 | — | |||||||||
Repayment of borrowings under financing arrangements | (100,000 | ) | (319,712 | ) | — | |||||||
Net (decrease) increase in checks outstanding, net of deposits | — | (5,901 | ) | 24,894 | ||||||||
Customer funds administered | 29,697 | (50,685 | ) | 47,304 | ||||||||
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| |||||||
Net cash provided by (used in) financing activities | 30,770 | (170,591 | ) | (32,158 | ) | |||||||
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| |||||||
Net increase (decrease) in cash and cash equivalents | 160,779 | (146,083 | ) | (207,841 | ) | |||||||
Cash and cash equivalents, beginning of period | 230,253 | 376,336 | 350,138 | |||||||||
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Cash and cash equivalents, end of period | $ | 391,032 | $ | 230,253 | $ | 142,297 | ||||||
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Page 14
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 March 31, 2012 | Quarter Ended December 31, 2011 | Quarter Ended March 31, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Western Region Operat- ions1 | Govern- ment Contracts7 | Divested Opera- tions and Services3 | Cor- porate/ Other4, 5, 6 | Consoli- dated | Western Region Opera- tions1 | Govern- ment Contracts7 | Divested Opera- tions and Services3 | Cor- porate/ Other4, 5, 6 | Consoli- dated | Western Region Opera- tions1 | Govern- ment Contracts2 | Divested Opera- tions and Services3 | Cor- porate/ Other4, 5, 6 | Consoli- dated | ||||||||||||||||||||||||||||||||||||||||||||||
Health plan services premiums | $ | 2,620,949 | $ | 2,620,949 | $ | 2,498,736 | $ | 2,498,736 | $ | 2,447,083 | $ | 2,004 | $ | 2,449,087 | ||||||||||||||||||||||||||||||||||||||||||||||
Government contracts | 181,362 | 181,362 | 194,632 | 194,632 | 875,127 | 875,127 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 22,304 | 22,304 | 10,047 | 10,047 | 23,774 | 61 | 23,835 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Administrative services fees and other income | 5,784 | 5,784 | 4,549 | 4,549 | 2,721 | 2,721 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Divested operations and services revenue | — | 0 | — | 12,449 | 12,449 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total revenues | 2,649,037 | 181,362 | — | — | 2,830,399 | 2,513,332 | 194,632 | — | — | 2,707,964 | 2,473,578 | 875,127 | 14,514 | — | 3,363,219 | |||||||||||||||||||||||||||||||||||||||||||||
Health plan services | 2,349,377 | 126 | (5,844 | ) | 2,343,659 | 2,156,223 | (25 | ) | (6,325 | ) | 2,149,873 | 2,116,388 | 898 | 2,117,286 | ||||||||||||||||||||||||||||||||||||||||||||||
Government contracts | 159,323 | 2,987 | 162,310 | 155,580 | 1,440 | 157,020 | 817,299 | 4,853 | 822,152 | |||||||||||||||||||||||||||||||||||||||||||||||||||
G&A excluding insurance, taxes and fees | 209,780 | (456 | ) | 6,467 | 215,791 | 201,918 | (450 | ) | 8,231 | 209,699 | 195,964 | 873 | 183,377 | 380,214 | ||||||||||||||||||||||||||||||||||||||||||||||
Insurance, taxes and fees | 21,024 | 461 | 21,485 | 20,219 | 457 | — | 20,676 | 24,131 | 155 | — | 24,286 | |||||||||||||||||||||||||||||||||||||||||||||||||
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G&A including insurance, taxes and fees | 230,804 | 5 | 6,467 | 237,276 | 222,137 | 7 | 8,231 | 230,375 | 220,095 | 1,028 | 183,377 | 404,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
Selling | 61,561 | 61,561 | 61,609 | 6 | 61,615 | 60,461 | 104 | 60,565 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 7,429 | 1 | 7,430 | 7,086 | 7,086 | 8,462 | 6 | 8,468 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest | 8,628 | 8,628 | 8,499 | 8,499 | 7,620 | — | 7,620 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Divested operations and services expense | 23,096 | 23,096 | 29,988 | 29,988 | 58,329 | 58,329 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to loss on sale of Northeast health plans | — | 7 | 7 | (34,854 | ) | (34,854 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 2,657,799 | 159,323 | 23,228 | 3,610 | 2,843,960 | 2,455,554 | 155,580 | 29,983 | 3,346 | 2,644,463 | 2,413,026 | 817,299 | 25,511 | 188,230 | 3,444,066 | |||||||||||||||||||||||||||||||||||||||||||||
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(Loss) income from operations before income taxes | (8,762 | ) | 22,039 | (23,228 | ) | (3,610 | ) | (13,561 | ) | 57,778 | 39,052 | (29,983 | ) | (3,346 | ) | 63,501 | 60,552 | 57,828 | (10,997 | ) | (188,230 | ) | (80,847 | ) | ||||||||||||||||||||||||||||||||||||
Income tax (benefit) provision | (3,685 | ) | 8,776 | (8,846 | ) | (1,672 | ) | (5,427 | ) | 20,417 | 15,853 | (13,125 | ) | (2,705 | ) | 20,440 | 22,103 | 23,389 | (6,172 | ) | (23,543 | ) | 15,777 | |||||||||||||||||||||||||||||||||||||
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(Loss) income from continuing operations | $ | (5,077 | ) | $ | 13,263 | $ | (14,382 | ) | $ | (1,938 | ) | $ | (8,134 | ) | $ | 37,361 | $ | 23,199 | $ | (16,858 | ) | $ | (641 | ) | $ | 43,061 | $ | 38,449 | $ | 34,439 | $ | (4,825 | ) | $ | (164,687 | ) | $ | (96,624 | ) | |||||||||||||||||||||
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Basic (loss) earnings per share from continuing operations | $ | (0.06 | ) | $ | 0.16 | $ | (0.17 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | 0.45 | $ | 0.28 | $ | (0.20 | ) | $ | (0.01 | ) | $ | 0.52 | $ | 0.41 | $ | 0.37 | $ | (0.05 | ) | $ | (1.77 | ) | $ | (1.04 | ) | |||||||||||||||||||||
Diluted (loss) earnings per share from continuing operations | $ | (0.06 | ) | $ | 0.16 | $ | (0.17 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | 0.44 | $ | 0.28 | $ | (0.20 | ) | $ | (0.01 | ) | $ | 0.51 | $ | 0.41 | $ | 0.36 | $ | (0.05 | ) | $ | (1.77 | ) | $ | (1.04 | ) | |||||||||||||||||||||
Basic weighted average shares outstanding | 82,513 | 82,513 | 82,513 | 82,513 | 82,513 | 82,721 | 82,721 | 82,721 | 82,721 | 82,721 | 93,290 | 93,290 | 93,290 | 93,290 | 93,290 | |||||||||||||||||||||||||||||||||||||||||||||
Diluted weighted average shares outstanding | 82,513 | 84,287 | 82,513 | 82,513 | 82,513 | 84,247 | 84,247 | 82,721 | 82,721 | 84,247 | 94,843 | 94,843 | 93,290 | 93,290 | 93,290 | |||||||||||||||||||||||||||||||||||||||||||||
Pretax margin | -0.3 | % | 2.3 | % | 2.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial premium yield | 5.3 | % | 4.7 | % | 5.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial premium PMPM | $ | 374.58 | $ | 360.12 | $ | 355.61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial health care cost trend | 12.3 | % | 3.9 | % | 5.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial health care cost PMPM | $ | 342.29 | $ | 305.52 | $ | 304.86 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial MCR | 91.4 | % | 84.8 | % | 85.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Medicare Advantage MCR | 87.9 | % | 90.5 | % | 89.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Medicaid MCR | 86.7 | % | 85.5 | % | 85.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Health plan services MCR | 89.6 | % | 86.3 | % | 86.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
G&A expense ratio | 8.8 | % | 8.9 | % | 9.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling costs ratio | 2.3 | % | 2.5 | % | 2.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 | Includes the operations of the company's commercial, Medicare and Medicaid health plans in California, Arizona, Oregon and Washington, as well as the operations of the company's health and life insurance companies, primarily in Arizona, California, Oregon and Washington, and the operations of the company's behavioral health and pharmaceutical services subsidiaries in several states including 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 items related to the run-out of the Northeast business and transition-related expenses related to the Medicare PDP business that was sold on April 1, 2012. |
| 4 | Includes a litigation reserve true-up related to a previous accrual for a class action lawsuit. |
| 5 | Includes expenses primarily related to litigation. |
| 6 | Includes costs related to the company’s G&A cost reduction efforts and/or operations strategy. |
| 7 | Includes administrative services provided under the new T-3 Managed Care Support Contract for the TRICARE North Region and other health care-related Department of Defense and Veterans Affairs government contracts. Also includes amounts related to the operations of government-sponsored managed care plans through our prior TRICARE contract and amounts related to the completion of the prior TRICARE contract. |
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Health Net, Inc.
Disclosures Regarding Non-GAAP Financial Information
($ in millions)
Set forth below is a reconciliation of adjusted days claims payable (DCP), a non-GAAP financial measure, to the comparable GAAP financial measure, DCP. DCP is calculated by dividing the amount of reserve for claims and other settlements (claims reserve) by health plan services cost (health plan costs) during the quarter and multiplying that amount by the number of days in the quarter. In this press release, management presents an adjusted DCP metric which subtracts capitation, provider and other claims settlements and Medicare Advantage-Prescription Drug (MAPD) payables/costs from the claims reserve and health plan costs. For the first and fourth quarters of 2011, adjusted DCP also subtracts reserve for claims and other settlements held for sale on discontinued operations from the claims reserve.
Management believes that adjusted DCP provides useful information to investors because the adjusted DCP calculation excludes from both claims reserve and health plan costs amounts related to health care costs for which no or minimal reserves are maintained. In addition, solely with respect to the first and fourth quarters of 2011, adjusted DCP excludes from claims reserve the reserves relating to discontinued operations. Therefore, management believes that adjusted DCP may present a more accurate reflection of DCP than does GAAP DCP, which includes such amounts. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.
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 nonrecurring items.
| Reconciliation of Days Claims Payable: | Q1 2012 | Q4 2011 | Q1 2011 | |||||||||||
(1) | Reserve for Claims and Other Settlements | $ | 958.1 | a | $ | 912.1 | $ | 889.9 | ||||||
Less: Reserve for Claims and Other Settlements held for sale on discontinued operations | — | (31.7 | ) | (34.5 | ) | |||||||||
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Reserve for Claims and Other Settlements excluding held for sale on discontinued operations | $ | 958.1 | $ | 880.4 | $ | 855.4 | ||||||||
Less: Capitation, Provider and Other Claim Settlements, and MAPD Payables | (85.6 | ) | (59.0 | ) | (78.6 | ) | ||||||||
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(2) | Reserve for Claims and Other Settlements - Adjusted | $ | 872.5 | $ | 821.4 | $ | 776.8 | |||||||
(3) | Health Plan Services Cost | $ | 2,343.7 | $ | 2,149.9 | $ | 2,117.3 | |||||||
Less: Capitation, Provider and Other Claim Settlements, and MAPD Costs | (846.5 | ) | (753.9 | ) | (768.4 | ) | ||||||||
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(4) | Health Plan Services Cost - Adjusted | $ | 1,497.2 | $ | 1,396.0 | $ | 1,348.9 | |||||||
(5) | Number of Days in Period | 91 | 92 | 90 | ||||||||||
= (1) / (3) * (5) Days Claims Payable on GAAP Basis - (using end of period reserve amount) | 37.2 | 39.0 | 37.8 | |||||||||||
= (2) / (4) * (5) Days Claims Payable - Adjusted Basis (using end of period reserve amount) | 53.0 | 54.1 | 51.8 | |||||||||||
| a | Excludes $38.5 million of Medicare PDP related reserves for claims and other settlements. |
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Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
($ in millions)
| Health Plan Services | ||||||||||||
| YTD 3/2012 | FY 2011 | FY 2010 | ||||||||||
Reserve for claims (a), beginning of period | $ | 720.8 | $ | 727.5 | $ | 692.2 | ||||||
Incurred claims related to: | ||||||||||||
Current Year | 1,234.5 | 4,733.0 | 4,644.2 | |||||||||
Prior Years (c) | 25.0 | (96.5 | ) | (70.0 | ) | |||||||
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Total Incurred (b) | 1,259.5 | 4,636.5 | 4,574.2 | |||||||||
Paid claims related to: | ||||||||||||
Current Year | 591.1 | 4,024.4 | 3,929.3 | |||||||||
Prior Years | 634.8 | 618.8 | 609.6 | |||||||||
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Total Paid (b) | 1,225.9 | 4,643.2 | 4,538.9 | |||||||||
Less: Medicare PDP business | (0.2 | ) | — | — | ||||||||
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Reserve for claims (a), end of period | 754.2 | 720.8 | 727.5 | |||||||||
Add: | ||||||||||||
Claims Payable (d) | 94.0 | 111.0 | 123.6 | |||||||||
Other (e) | 109.9 | 80.3 | 90.9 | |||||||||
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Reserves for claims and other settlements, end of period | $ | 958.1 | $ | 912.1 | $ | 942.0 | ||||||
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| (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 period-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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