Exhibit 99.1
| | |
| Investor Contact: | | Media Contact: |
| David Olson | | Brad Kieffer |
| The Abernathy MacGregor Group | | (818) 676-6833 |
| (818) 917-1469 | | brad.kieffer@healthnet.com |
dwo@abmac.com | | |
HEALTH NET REPORTS FIRST QUARTER 2014 GAAP NET INCOME
OF $28.8 MILLION, OR $0.36 PER DILUTED SHARE
WESTERN REGION OPERATIONSAND GOVERNMENT CONTRACTS SEGMENTS PRODUCE
COMBINED NET INCOMEOF $0.39PER DILUTED SHAREIN FIRST QUARTER 2014
HEALTH PLAN ENROLLMENT CLIMBS 6.7 PERCENT YEAR-OVER-YEAR,
DRIVENBY COMMERCIAL EXCHANGESAND MEDICAID EXPANSION
COMMERCIAL MCR IMPROVES MORE THAN 500 BASIS POINTS YEAR-OVER-YEAR
HEALTH NET MAINTAINS FULL YEAR 2014 GAAP
EARNINGSPER DILUTED SHARE GUIDANCEOFAT LEAST $3.00
DUAL ELIGIBLES ENROLLMENT UNDERWAY
LOS ANGELES, May 7, 2014 – Health Net, Inc. (NYSE:HNT) today announced 2014 first quarter GAAP net income of $28.8 million, or $0.36 per diluted share, compared with GAAP net income of $50.1 million, or $0.62 per diluted share, for the first quarter of 2013.
The company’s Western Region Operations (Western Region) and Government Contracts segments produced combined net income of $31.3 million, or $0.39 per diluted share, in the first quarter of 2014 compared with $50.1 million, or $0.62 per diluted share, in the first quarter of 2013.
The first quarter 2014 results include approximately $4.1 million, or $0.03 per diluted share, in pretax expenses, primarily related to litigation costs.
Highlights from the first quarter of 2014 include:
| | 1. | The company achieved 6.7 percent enrollment growth in its Western Region health plans in the first quarter of 2014 compared with the first quarter of 2013; |
| | 2. | Small group and individual commercial enrollment climbed by 20.1 percent in the first quarter of 2014 compared with the first quarter of 2013, primarily driven by approximately 155,000 new individual members from the Affordable Care Act (ACA) exchanges in California and Arizona; |
| | 3. | Medicaid enrollment increased by 17.9 percent in the first quarter of 2014 compared with the first quarter of 2013. This was primarily the result of approximately 166,000 new members added in Arizona and California in the first quarter of 2014 from the expansion of Medicaid eligibility under the ACA; and |
| | 4. | The company’s Western Region health plan Medical Care Ratios (MCRs) all improved in the first quarter of 2014 compared with the first quarter of 2013. The Western Region commercial MCR improved by more than 500 basis points year-over-year. |
“Our first quarter performance demonstrated substantial commercial and Medicaid enrollment momentum thanks primarily to new ACA-related programs,” said Jay Gellert, Health Net’s chief executive officer. “We expect the second quarter to show further commercial growth as we enrolled approximately 54,000 new individual members in April. We expect to enroll an additional 60,000 to 70,000 individual exchange members in May.
“We believe our Medicaid enrollment gains from ACA-driven expansion will continue throughout 2014, with approximately 120,000 incremental members in the last three quarters of this year,” Gellert noted.
“We are encouraged by the ongoing moderate health care cost trends that particularly benefited our commercial and Medicaid businesses in the first quarter of 2014,” he added.
“In recent weeks, we have begun to enroll the first of our new dual eligible members, a new beginning for Health Net and for these important beneficiaries,” commented Gellert.
CONSOLIDATED RESULTS
Health Net’s total revenues of approximately $3.0 billion in the first quarter of 2014 increased approximately 8.6 percent compared with the first quarter of 2013.
Health plan services premium revenues of approximately $2.9 billion in the first quarter of 2014 increased by approximately 9.5 percent compared with the first quarter of 2013.
Health plan services expenses of approximately $2.4 billion in the first quarter of 2014 increased by approximately 5.9 percent compared with the first quarter of 2013.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total enrollment in the Western Region at March 31, 2014 was approximately 2.6 million members, an increase of 6.7 percent from enrollment at March 31, 2013.
Total enrollment in the company’s California health plans at March 31, 2014 increased approximately 6.1 percent compared with March 31, 2013.
Western Region commercial enrollment was approximately 1.1 million members at March 31, 2014, a decrease of approximately 4.7 percent compared with enrollment at March 31, 2013, and an increase of 0.6 percent from December 31, 2013.
Membership in tailored network products represented 48.6 percent of the company’s Western Region commercial membership at March 31, 2014 compared with 37.1 percent at March 31, 2013.
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“Total California small group and individual enrollment increased 22.2 percent from March 31, 2013 to March 31, 2014,” said Jim Woys, Health Net’s chief operating officer. “We are pleased that our strategy to use our tailored network product structure to build plans for the individual exchanges has worked so well.”
Enrollment in Health Net’s Medicare Advantage (MA) plans was 255,000 members at March 31, 2014, a 9.4 percent increase compared with enrollment of 233,000 members at March 31, 2013.
Medicaid enrollment increased 17.9 percent to approximately 1.3 million members at March 31, 2014 compared with approximately 1.1 million members as of March 31, 2013 due to Medicaid expansion and the company’s entry into an Arizona Medicaid program on October 1, 2013.
Revenues
Total revenues for the Western Region for the first quarter of 2014 were approximately $2.9 billion compared with approximately $2.7 billion in the first quarter of 2013.
Net investment income for the Western Region was $11.1 million in the first quarter of 2014 compared with $29.6 million in the first quarter of 2013 and $11.6 million in the fourth quarter of 2013. The year-over-year decrease was due to the absence of investment gains in 2014’s first quarter. In the first quarter of 2013, Health Net recorded approximately $17.3 million in investment gains.
Health Plan Services Expenses
Health plan services expenses in the Western Region were approximately $2.4 billion in the first quarter of 2014 compared with approximately $2.3 billion in the first quarter of 2013.
Commercial Premium Yields and Health Care Costs
In the Western Region, commercial premiums per member per month (PMPM) increased by 3.9 percent to approximately $400 in the first quarter of 2014 compared with approximately $385 in the first quarter of 2013.
Commercial health care costs PMPM in the Western Region decreased 2.2 percent to approximately $324 in the first quarter of 2014 compared with approximately $331 in the first quarter of 2013.
“We believe we will be able to maintain a positive commercial spread between premiums and health care costs throughout 2014 as we expect overall health care cost trends to remain moderate,” Woys noted.
Medical Care Ratios (MCR)
The health plan services MCR in the Western Region was 83.4 percent in the first quarter of 2014 compared with 86.2 percent in the first quarter of 2013.
The Western Region commercial MCR improved by more than 500 basis points and was 80.9 percent in the first quarter of 2014 compared with 85.9 percent in the first quarter of 2013.
“With rapid expansion of our individual enrollment, our mix of business has improved and this has helped the MCR performance,” noted Woys. “We also saw revenue benefits related to the ACA in the first quarter of 2014.”
The MA MCR in the Western Region was 91.8 percent in the first quarter of 2014 compared with 91.9 percent in the first quarter of 2013.
The Medicaid MCR in the Western Region was 79.8 percent in the first quarter of 2014 compared with 80.0 percent in the first quarter of 2013.
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General and Administrative (G&A) Expenses
G&A expense in the Western Region was approximately $357.9 million in the first quarter of 2014 compared with approximately $245.2 million in the first quarter of 2013. The G&A expense ratio was 12.4 percent in the first quarter of 2014 compared with 9.3 percent in the first quarter of 2013.
“The increase in the G&A expense ratio year-over-year reflects significantly higher spending to support our growth and address ACA-related fees and expenses,” commented Woys. “We expect the ratio will decline over the last three quarters of 2014 as we anticipate absolute spending to remain approximately equal to the first quarter level while revenues build over the balance of the year due to our new businesses.”
GOVERNMENT CONTRACTS SEGMENT
Government Contracts revenues were $144.1 million in the first quarter of 2014 and $134.5 million in the first quarter of 2013.
Government Contracts expenses were approximately $131.1 million in the first quarter of 2014 and $125.5 million in the first quarter of 2013.
BALANCE SHEET
Cash and investments as of March 31, 2014 were approximately $2.4 billion compared with approximately $2.1 billion as of December 31, 2013 and $2.0 billion as of March 31, 2013.
Reserves for claims and other settlements as of March 31, 2014 were approximately $1.2 billion compared with $1.1 billion at March 31, 2013 and $984.1 million at December 31, 2013.
Days claims payable (DCP) for the first quarter of 2014 was 43.2 days compared with 43.5 days for the first quarter of 2013 and 40.6 days for the fourth quarter of 2013.
On an adjusted1 basis, DCP for the first quarter of 2014 was 63.1 days compared with 62.1 days for the first quarter of 2013 and 57.9 days for the fourth quarter of 2013.
“We are very pleased with the growth of adjusted DCP. It reflects a cautious view as we manage the rapid changes in our enrollee population,” Woys explained.
The company’s debt-to-total capital ratio was 22.9 percent as of March 31, 2014 compared with 24.6 percent as of March 31, 2013 and 23.5 percent as of December 31, 2013.
Interest expense was approximately $7.8 million in the first quarter of 2014 compared with $8.3 million in the first quarter of 2013.
CASH FLOWSFROM OPERATIONS
Operating cash flow was $311.5 million in the first quarter of 2014.
“This strong cash flow was primarily the result of timing related to claims and capitation payments, and ACA-related expenses,” said Joseph Capezza, Health Net’s chief financial officer. “For the full year, we expect operating cash flow to be approximately equal to net income plus depreciation and amortization.”
| 1 | For a reconciliation of adjusted days claims payable to the comparable GAAP financial measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Days Claims Payable” in the company’s Form10-Q for the quarter ended March 31, 2014, and Item 2.02 in the company’s Form8-K filed with the Securities and Exchange Commission on May 7, 2014. |
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The company noted that cash and investments at the parent was approximately $212.0 million at March 31, 2014.
SHARE REPURCHASE UPDATE
Health Net did not repurchase any shares of its common stock in the first quarter of 2014. At March 31, 2014, approximately $280 million of authorization under the company’s existing $400 million share repurchase program remains.
2014 GUIDANCE
The company continues to expect GAAP earnings per diluted share of at least $3.00 for the full year 2014. The table included in this release provides specific 2014 guidance metrics, including updates to expectations for commercial and Medicaid membership, premium revenues, tax rate, and MA, Medicaid and dual eligible MCRs.
CONFERENCE CALL
As previously announced, Health Net will discuss the company’s first quarter 2014 financial results during a conference call on Wednesday, May 7, 2014, 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:
| | |
(877) 407-4019 (Domestic toll-free) | | (877) 660-6853 (Replay – Domestic toll-free) |
(201) 689-8337 (International) | | (201) 612-7415 (Replay – International) |
An access code is not required for the live conference call on May 7, 2014. The access code for the replay is 13580432. The replay of the conference call will be available through May 12, 2014. 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, 2013, 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 provides and administers health benefits to approximately 5.5 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 also offers behavioral health, substance abuse and employee assistance programs, managed health care products related to prescription drugs, 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 at www.healthnet.com.
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CAUTIONARY STATEMENTS
The company 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 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 taxation or regulation of health benefits and managed care operations, including but not limited to the implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) and related fees, assessments and taxes; the company’s ability to successfully participate in California’s Coordinated Care Initiative, which is subject to a number of risks inherent in untested health care initiatives and requires the company to adequately predict the costs of providing benefits to individuals that are generally among the most chronically ill within each of Medicare and Medi-Cal and implement delivery systems for benefits with which the company has limited operating experience; the company’s ability to successfully participate in the federal and state health insurance exchanges under the ACA, which have experienced technical challenges in implementation and which involve uncertainties related to the mix and volume of business that could negatively impact the adequacy of our premium rates and may not be sufficiently offset by the risk apportionment provisions of the ACA; increasing health care costs, including but not limited to costs associated with the introduction of new treatments or therapies; our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance; negative prior period claims reserve developments; rate cuts and other risks and uncertainties affecting the company’s Medicare or Medicaid businesses; the company’s ability to successfully participate in Arizona’s Medicaid program; trends in medical care ratios; membership declines or negative changes in our health care product mix; unexpected utilization patterns or unexpectedly severe or widespread illnesses; the timing of collections on amounts receivable from state and federal governments and agencies, including collections of amounts owed under the T-3 contract; 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; changes in economic or market conditions including a further decline in the economy; failure to effectively oversee our third-party vendors; noncompliance by the company or the company’s business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information; impairment of the company’s goodwill or other intangible assets; investment portfolio impairment charges; volatility in the financial markets; liabilities incurred in connection with the company’s divested operations; 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 filed with the SEC and the other risks discussed in the company’s filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by law, the company undertakes no obligation to address or publicly update any of its guidance, the assessment of the underlying assumptions or forward-looking statements to reflect events or circumstances that arise after the date of this release.
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Eight pages of tables follow.
# # #
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Health Net, Inc.
2014 GAAP Guidance(1)
| | | | | | | | |
| | | |
| MEMBERSHIP at 12/31/2014 | | Current
(updated 5/7/14) | | | Previous
(as of 2/11/14) | |
| | | |
| | | Enrollment
at 12/31/2014 | | | Enrollment
at 12/31/2014 | |
Commercial | | | | | | | | |
Large Group | | | 560,000 | | | | 580,000 | |
Small Group | | | 280,000 | | | | 300,000 | |
Individual | | | 380,000 | | | | 270,000 | |
| | | |
Total Commercial | | | 1,220,000 | | | | 1,150,000 | |
| | | |
Medicare Advantage | | | 260,000 | | | | 260,000 | |
| | | |
Medicaid | | | 1,535,000 | | | | 1,590,000 | |
| | | |
Dual Eligibles | | | 38,000 | | | | 38,000 | |
| | | |
Total Health Plan Membership | | | 3,053,000 | | | | 3,040,000 | |
| | | |
| | | | | | | | | |
| | | | | | | | |
| | | |
Premium Revenues | | FY2014 | | | FY2014 | |
Commercial | | $ | 5.6 billion | | | $ | 5.4 billion | |
Medicare Advantage | | $ | 3.0 billion | | | $ | 3.0 billion | |
State Health Plans | | $ | 4.4 billion | | | $ | 5.1 billion | |
Dual Eligibles | | $ | 342 million | | | $ | 342 million | |
Total Health Plans | | $ | 13.3 billion | | | $ | 13.8 billion | |
| | | |
Total Consolidated Revenues | | $ | 14.0 billion | | | $ | 14.4 billion | |
| | | |
Medical Care Ratios (MCR) | | FY2014 | | | FY2014 | |
Commercial | | | 83.0% | | | | 83.0% | |
Medicare Advantage | | | 90.9% | | | | 89.6% | |
Medicaid | | | 83.9% | | | | 85.2% | |
Dual Eligibles | | | 86.5% | | | | 86.9% | |
| | | |
G&A Expense Ratio | | | 10.8% | | | | 10.8% | |
| | | |
Tax Rate(2) | | | 34.6% | | | | 34.2% | |
| | | |
Western Region and Government Contracts Tax Rate(3) | | | 52.2% | | | | 52.0% | |
| | | |
Weighted-average fully diluted shares outstanding | | | 77 million | | | | 77 million | |
| | | |
GAAP Earnings per Diluted Share (EPS)(2) | | | At least $3.00 | | | | At least $3.00 | |
| | | |
Western Region and Government Contracts EPS(3) | | | At least $2.22 | | | | At least $2.22 | |
| | | |
| | | | | | | | | |
| (1) | All guidance metrics are approximations |
| (2) | Includes a $60 million tax benefit |
| (3) | Excludes the $60 million tax benefit |
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Health Net, Inc.
Enrollment Data - By State
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Change from | |
| | | | | | | | | | | | December 31, 2013 | | | March 31, 2013 | |
| | | March 31, | | | December 31, | | | March 31, | | | Increase/ | | | % | | | Increase/ | | | % | |
| | | 2014 | | | 2013 | | | 2013 | | | (Decrease) | | | Change | | | (Decrease) | | | Change | |
California | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 499 | | | | 565 | | | | 628 | | | | (66 | ) | | | (11.7 | )% | | | (129 | ) | | | (20.5 | )% |
Small Group and Individual | | | 397 | | | | 344 | | | | 325 | | | | 53 | | | | 15.4 | % | | | 72 | | | | 22.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 896 | | | | 909 | | | | 953 | | | | (13 | ) | | | (1.4 | )% | | | (57 | ) | | | (6.0 | )% |
Medicare Advantage | | | 156 | | | | 153 | | | | 143 | | | | 3 | | | | 2.0 | % | | | 13 | | | | 9.1 | % |
Medi-Cal | | | 1,279 | | | | 1,113 | | | | 1,100 | | | | 166 | | | | 14.9 | % | | | 179 | | | | 16.3 | % |
Total California | | | 2,331 | | | | 2,175 | | | | 2,196 | | | | 156 | | | | 7.2 | % | | | 135 | | | | 6.1 | % |
Arizona | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 50 | | | | 57 | | | | 69 | | | | (7 | ) | | | (12.3 | )% | | | (19 | ) | | | (27.5 | )% |
Small Group and Individual | | | 87 | | | | 51 | | | | 57 | | | | 36 | | | | 70.6 | % | | | 30 | | | | 52.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 137 | | | | 108 | | | | 126 | | | | 29 | | | | 26.9 | % | | | 11 | | | | 8.7 | % |
Medicare Advantage | | | 46 | | | | 43 | | | | 43 | | | | 3 | | | | 7.0 | % | | | 3 | | | | 7.0 | % |
Medicaid | | | 18 | | | | 4 | | | | | | | | 14 | | | | 350.0 | % | | | 18 | | | | | |
Total Arizona | | | 201 | | | | 155 | | | | 169 | | | | 46 | | | | 29.7 | % | | | 32 | | | | 18.9 | % |
Northwest | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 29 | | | | 29 | | | | 21 | | | | 0 | | | | 0.0 | % | | | 8 | | | | 38.1 | % |
Small Group and Individual | | | 29 | | | | 39 | | | | 45 | | | | (10 | ) | | | (25.6 | )% | | | (16 | ) | | | (35.6 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 58 | | | | 68 | | | | 66 | | | | (10 | ) | | | (14.7 | )% | | | (8 | ) | | | (12.1 | )% |
Medicare Advantage | | | 53 | | | | 48 | | | | 47 | | | | 5 | | | | 10.4 | % | | | 6 | | | | 12.8 | % |
Total Northwest | | | 111 | | | | 116 | | | | 113 | | | | (5 | ) | | | (4.3 | )% | | | (2 | ) | | | (1.8 | )% |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 578 | | | | 651 | | | | 718 | | | | (73 | ) | | | (11.2 | )% | | | (140 | ) | | | (19.5 | )% |
Small Group and Individual | | | 513 | | | | 434 | | | | 427 | | | | 79 | | | | 18.2 | % | | | 86 | | | | 20.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 1,091 | | | | 1,085 | | | | 1,145 | | | | 6 | | | | 0.6 | % | | | (54 | ) | | | (4.7 | )% |
Medicare Advantage | | | 255 | | | | 244 | | | | 233 | | | | 11 | | | | 4.5 | % | | | 22 | | | | 9.4 | % |
Medi-Cal/Medicaid | | | 1,297 | | | | 1,117 | | | | 1,100 | | | | 180 | | | | 16.1 | % | | | 197 | | | | 17.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Western Region Operations | | | 2,643 | | | | 2,446 | | | | 2,478 | | | | 197 | | | | 8.1 | % | | | 165 | | | | 6.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
TRICARE - North Contract Eligibles | | | 2,851 | | | | 2,851 | | | | 2,883 | | | | 0 | | | | 0.0 | % | | | (32 | ) | | | (1.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Change from | |
| | | | | | | | | | | | December 31, 2013 | | | March 31, 2013 | |
| | | March 31, | | | December 31, | | | March 31, | | | Increase/ | | | % | | | Increase/ | | | % | |
| | | 2014 | | | 2013 | | | 2013 | | | (Decrease) | | | Change | | | (Decrease) | | | Change | |
Large Group | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 499 | | | | 565 | | | | 628 | | | | (66 | ) | | | (11.7 | )% | | | (129 | ) | | | (20.5 | )% |
Arizona | | | 50 | | | | 57 | | | | 69 | | | | (7 | ) | | | (12.3 | )% | | | (19 | ) | | | (27.5 | )% |
Northwest | | | 29 | | | | 29 | | | | 21 | | | | 0 | | | | 0.0 | % | | | 8 | | | | 38.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 578 | | | | 651 | | | | 718 | | | | (73 | ) | | | (11.2 | )% | | | (140 | ) | | | (19.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Small Group and Individual | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 397 | | | | 344 | | | | 325 | | | | 53 | | | | 15.4 | % | | | 72 | | | | 22.2 | % |
Arizona | | | 87 | | | | 51 | | | | 57 | | | | 36 | | | | 70.6 | % | | | 30 | | | | 52.6 | % |
Northwest | | | 29 | | | | 39 | | | | 45 | | | | (10 | ) | | | (25.6 | )% | | | (16 | ) | | | (35.6 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 513 | | | | 434 | | | | 427 | | | | 79 | | | | 18.2 | % | | | 86 | | | | 20.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 896 | | | | 909 | | | | 953 | | | | (13 | ) | | | (1.4 | )% | | | (57 | ) | | | (6.0 | )% |
Arizona | | | 137 | | | | 108 | | | | 126 | | | | 29 | | | | 26.9 | % | | | 11 | | | | 8.7 | % |
Northwest | | | 58 | | | | 68 | | | | 66 | | | | (10 | ) | | | (14.7 | )% | | | (8 | ) | | | (12.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,091 | | | | 1,085 | | | | 1,145 | | | | 6 | | | | 0.6 | % | | | (54 | ) | | | (4.7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Medicare Advantage | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 156 | | | | 153 | | | | 143 | | | | 3 | | | | 2.0 | % | | | 13 | | | | 9.1 | % |
Arizona | | | 46 | | | | 43 | | | | 43 | | | | 3 | | | | 7.0 | % | | | 3 | | | | 7.0 | % |
Northwest | | | 53 | | | | 48 | | | | 47 | | | | 5 | | | | 10.4 | % | | | 6 | | | | 12.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 255 | | | | 244 | | | | 233 | | | | 11 | | | | 4.5 | % | | | 22 | | | | 9.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Medi-Cal/Medicaid | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | | | 1,279 | | | | 1,113 | | | | 1,100 | | | | 166 | | | | 14.9 | % | | | 179 | | | | 16.3 | % |
Arizona | | | 18 | | | | 4 | | | | | | | | 14 | | | | 350.0 | % | | | 18 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,297 | | | | 1,117 | | | | 1,100 | | | | 180 | | | | 16.1 | % | | | 197 | | | | 17.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large Group | | | 578 | | | | 651 | | | | 718 | | | | (73 | ) | | | (11.2 | )% | | | (140 | ) | | | (19.5 | )% |
Small Group and Individual | | | 513 | | | | 434 | | | | 427 | | | | 79 | | | | 18.2 | % | | | 86 | | | | 20.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Risk | | | 1,091 | | | | 1,085 | | | | 1,145 | | | | 6 | | | | 0.6 | % | | | (54 | ) | | | (4.7 | )% |
Medicare Advantage | | | 255 | | | | 244 | | | | 233 | | | | 11 | | | | 4.5 | % | | | 22 | | | | 9.4 | % |
Medi-Cal/Medicaid | | | 1,297 | | | | 1,117 | | | | 1,100 | | | | 180 | | | | 16.1 | % | | | 197 | | | | 17.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Western Region Operations | | | 2,643 | | | | 2,446 | | | | 2,478 | | | | 197 | | | | 8.1 | % | | | 165 | | | | 6.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
TRICARE - North Contract Eligibles | | | 2,851 | | | | 2,851 | | | | 2,883 | | | | 0 | | | | 0.0 | % | | | (32 | ) | | | (1.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10
Health Net, Inc.
Consolidated Statements of Operations
($ in thousands, except per share data)
| | | | | | | | | | | | |
| | | Quarter Ended
March 31,
2014 | | | Quarter Ended
December 31,
2013 | | | Quarter Ended
March 31,
2013 | |
REVENUES: | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,881,345 | | | $ | 2,559,376 | | | $ | 2,632,069 | |
Government contracts | | | 144,090 | | | | 148,470 | | | | 134,512 | |
Net investment income | | | 11,102 | | | | 11,643 | | | | 29,551 | |
Administrative services fees and other income | | | 2,398 | | | | 23,755 | | | | 905 | |
| | | | | | | | | | | | |
Total revenues | | | 3,038,935 | | | | 2,743,244 | | | | 2,797,037 | |
| | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | |
Health plan services | | | 2,402,342 | | | | 2,229,332 | | | | 2,268,736 | |
Government contracts | | | 131,974 | | | | 124,709 | | | | 125,475 | |
General and administrative | | | 361,023 | | | | 279,339 | | | | 245,235 | |
Selling | | | 64,152 | | | | 63,600 | | | | 58,561 | |
Depreciation and amortization | | | 9,663 | | | | 10,234 | | | | 9,439 | |
Interest | | | 7,821 | | | | 7,988 | | | | 8,288 | |
| | | | | | | | | | | | |
Total expenses | | | 2,976,975 | | | | 2,715,202 | | | | 2,715,734 | |
| | | | | | | | | | | | |
Income from operations before income taxes | | | 61,960 | | | | 28,042 | | | | 81,303 | |
Income tax provision | | | 33,173 | | | | 8,289 | | | | 31,253 | |
| | | | | | | | | | | | |
Net income | | $ | 28,787 | | | $ | 19,753 | | | $ | 50,050 | |
| | | | | | | | | | | | |
| | | |
Net income per share: | | | | | | | | | | | | |
Basic | | $ | 0.36 | | | $ | 0.25 | | | $ | 0.63 | |
Diluted | | $ | 0.36 | | | $ | 0.25 | | | $ | 0.62 | |
| | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 79,802 | | | | 79,511 | | | | 79,508 | |
Diluted | | | 80,922 | | | | 80,600 | | | | 80,489 | |
11
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
| | | | | | | | | | | | |
| | | March 31, | | | December 31, | | | March 31, | |
| | | 2014 | | | 2013 | | | 2013 | |
ASSETS | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 737,024 | | | $ | 433,155 | | | $ | 230,335 | |
Investments - available for sale | | | 1,685,009 | | | | 1,567,020 | | | | 1,767,156 | |
Premiums receivable, net | | | 450,224 | | | | 430,012 | | | | 519,287 | |
Amounts receivable under government contracts | | | 188,843 | | | | 194,041 | | | | 207,891 | |
Other receivables | | | 54,251 | | | | 68,919 | | | | 66,520 | |
Deferred taxes | | | 75,321 | | | | 94,060 | | | | 62,027 | |
Other assets | | | 254,702 | | | | 132,683 | | | | 120,233 | |
| | | | | | | | | | | | |
Total current assets | | | 3,445,374 | | | | 2,919,890 | | | | 2,973,449 | |
| | | |
Property and equipment, net | | | 206,410 | | | | 201,395 | | | | 188,038 | |
Goodwill | | | 565,886 | | | | 565,886 | | | | 565,886 | |
Other intangible assets, net | | | 13,949 | | | | 13,842 | | | | 16,414 | |
Deferred taxes | | | 4,195 | | | | 5,793 | | | | 8,006 | |
Investments - available for sale - noncurrent | | | 4,255 | | | | 59,768 | | | | — | |
Other noncurrent assets | | | 190,550 | | | | 162,551 | | | | 123,514 | |
| | | | | | | | | | | | |
Total Assets | | $ | 4,430,619 | | | $ | 3,929,125 | | | $ | 3,875,307 | |
| | | | | | | | | | | | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 1,151,958 | | | $ | 984,075 | | | $ | 1,097,744 | |
Health care and other costs payable under government contracts | | | 80,232 | | | | 72,098 | | | | 77,380 | |
Unearned premiums | | | 127,593 | | | | 123,969 | | | | 139,584 | |
Accounts payable and other liabilities | | | 669,406 | | | | 397,036 | | | | 302,171 | |
| | | | | | | | | | | | |
Total current liabilities | | | 2,029,189 | | | | 1,577,178 | | | | 1,616,879 | |
Senior notes payable | | | 399,351 | | | | 399,300 | | | | 399,146 | |
Deferred taxes | | | 18,057 | | | | 10,409 | | | | — | |
Borrowings under revolving credit facility | | | 100,000 | | | | 100,000 | | | | 100,000 | |
Other noncurrent liabilities | | | 205,521 | | | | 213,427 | | | | 230,666 | |
| | | | | | | | | | | | |
Total Liabilities | | | 2,752,118 | | | | 2,300,314 | | | | 2,346,691 | |
| | | | | | | | | | | | |
| | | |
Stockholders’ Equity | | | | | | | | | | | | |
Common stock | | | 152 | | | | 150 | | | | 150 | |
Additional paid-in capital | | | 1,397,962 | | | | 1,377,624 | | | | 1,352,458 | |
Treasury common stock, at cost | | | (2,197,538 | ) | | | (2,179,744 | ) | | | (2,177,840 | ) |
Retained earnings | | | 2,492,435 | | | | 2,463,648 | | | | 2,343,572 | |
Accumulated other comprehensive (loss) income | | | (14,510 | ) | | | (32,867 | ) | | | 10,276 | |
| | | | | | | | | | | | |
Total Stockholders’ Equity | | | 1,678,501 | | | | 1,628,811 | | | | 1,528,616 | |
| | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 4,430,619 | | | $ | 3,929,125 | | | $ | 3,875,307 | |
| | | | | | | | | | | | |
| | | |
Debt-to-Total Capital Ratio | | | 22.9 | % | | | 23.5 | % | | | 24.6 | % |
12
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | |
| | | Quarter Ended | | | Quarter Ended | | | Quarter Ended | |
| | | March 31, | | | December 31, | | | March 31, | |
| | | 2014 | | | 2013 | | | 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income | | $ | 28,787 | | | $ | 19,753 | | | $ | 50,050 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Amortization and depreciation | | | 9,663 | | | | 10,234 | | | | 9,439 | |
Share-based compensation expense | | | 9,164 | | | | 6,542 | | | | 9,935 | |
Deferred income taxes | | | 18,129 | | | | (9,676 | ) | | | 3,579 | |
Excess tax benefits from share-based compensation | | | (997 | ) | | | (169 | ) | | | (394 | ) |
Net realized gain on sale on investments | | | (308 | ) | | | (755 | ) | | | (17,289 | ) |
Other changes | | | 9,562 | | | | 7,975 | | | | 8,679 | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | (16,588 | ) | | | (91,622 | ) | | | (157,482 | ) |
Other current assets, receivables and noncurrent assets | | | (147,387 | ) | | | (24,528 | ) | | | 7,427 | |
Amounts receivable/payable under government contracts | | | 34,089 | | | | (10,168 | ) | | | 25,891 | |
Reserves for claims and other settlements | | | 167,883 | | | | (6,120 | ) | | | 59,771 | |
Accounts payable and other liabilities | | | 199,461 | | | | 26,648 | | | | (27,791 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | 311,458 | | | | (71,886 | ) | | | (28,185 | ) |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Sales of investments | | | 66,499 | | | | 42,748 | | | | 354,813 | |
Maturities of investments | | | 24,469 | | | | 20,415 | | | | 30,068 | |
Purchases of investments | | | (125,564 | ) | | | (70,179 | ) | | | (365,081 | ) |
Purchases of property and equipment | | | (17,437 | ) | | | (16,929 | ) | | | (13,690 | ) |
Sales and purchases of restricted investments and other | | | 3,537 | | | | (2,735 | ) | | | (1,171 | ) |
| | | | | | | | | | | | |
Net cash (used in) provided by investing activities | | | (48,496 | ) | | | (26,680 | ) | | | 4,939 | |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | 3,746 | | | | 120 | | | | 6,957 | |
Repurchases of common stock | | | (11,292 | ) | | | (241 | ) | | | (77,394 | ) |
Excess tax benefits from share-based compensation | | | 997 | | | | 169 | | | | 394 | |
Borrowings under financing arrangements | | | — | | | | 22,000 | | | | 90,000 | |
Repayment of borrowings under financing arrangements | | | — | | | | (22,000 | ) | | | (90,000 | ) |
Net increase (decrease) in checks outstanding, net of deposits | | | 713 | | | | — | | | | (23,816 | ) |
Customer funds administered | | | 46,743 | | | | (154,466 | ) | | | 7,330 | |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 40,907 | | | | (154,418 | ) | | | (86,529 | ) |
| | | | | | | | | | | | |
| | | |
Net increase (decrease) in cash and cash equivalents | | | 303,869 | | | | (252,984 | ) | | | (109,775 | ) |
| | | |
Cash and cash equivalents, beginning of period | | | 433,155 | | | | 686,139 | | | | 340,110 | |
| | | | | | | | | | | | |
| | | |
Cash and cash equivalents, end of period | | $ | 737,024 | | | $ | 433,155 | | | $ | 230,335 | |
| | | | | | | | | | | | |
13
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, 2014 | | | Quarter Ended December 31, 2013 | | | Quarter Ended March 31, 2013 | |
| | | Western
Region
Operations1 | | | Government
Contracts2 | | | Corporate/
Other3 | | | Consolidated | | | Western
Region
Operations1 | | | Government
Contracts2 | | | Corporate/
Other3 | | | Consolidated | | | Western
Region
Operations1 | | | Government
Contracts2 | | | Corporate/
Other | | Consolidated | |
Commercial premiums | | $ | 1,264,177 | | | | | | | | | | | $ | 1,264,177 | | | $ | 1,271,553 | | | | | | | | | | | $ | 1,271,553 | | | $ | 1,325,414 | | | | | | | | | $ | 1,325,414 | |
Medicare premiums | | | 755,158 | | | | | | | | | | | | 755,158 | | | | 691,114 | | | | | | | | | | | | 691,114 | | | | 706,398 | | | | | | | | | | 706,398 | |
Medicaid premiums | | | 862,010 | | | | | | | | | | | | 862,010 | | | | 596,709 | | | | | | | | | | | | 596,709 | | | | 600,257 | | | | | | | | | | 600,257 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services premiums | | | 2,881,345 | | | | | | | | | | | | 2,881,345 | | | | 2,559,376 | | | | | | | | | | | | 2,559,376 | | | $ | 2,632,069 | | | | | | | | | | 2,632,069 | |
Government contracts | | | | | | | 144,090 | | | | | | | | 144,090 | | | | | | | | 148,470 | | | | | | | | 148,470 | | | | | | | | 134,512 | | | | | | 134,512 | |
Net investment income | | | 11,102 | | | | | | | | | | | | 11,102 | | | | 11,643 | | | | | | | | | | | | 11,643 | | | | 29,551 | | | | | | | | | | 29,551 | |
Administrative services fees and other income | | | 2,398 | | | | | | | | | | | | 2,398 | | | | 23,755 | | | | | | | | | | | | 23,755 | | | | 905 | | | | | | | | | | 905 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | | 2,894,845 | | | | 144,090 | | | | | | | | 3,038,935 | | | | 2,594,774 | | | | 148,470 | | | | | | | | 2,743,244 | | | | 2,662,525 | | | | 134,512 | | | | | | 2,797,037 | |
| | | | | | | | | | | | |
Health plan services | | | 2,402,342 | | | | | | | | | | | | 2,402,342 | | | | 2,229,332 | | | | | | | | | | | | 2,229,332 | | | | 2,268,736 | | | | | | | | | | 2,268,736 | |
Government contracts | | | | | | | 131,070 | | | | 904 | | | | 131,974 | | | | | | | | 124,638 | | | | 71 | | | | 124,709 | | | | | | | | 125,475 | | | | | | 125,475 | |
| Premium tax | | | 42,458 | | | | | | | | | | | | 42,458 | | | | 31,601 | | | | | | | | | | | | 31,601 | | | | 8,193 | | | | | | | | | | 8,193 | |
| Health insurer fee | | | 36,293 | | | | | | | | | | | | 36,293 | | | | — | | | | | | | | | | | | — | | | | — | | | | | | | | | | — | |
| Other ACA fees | | | 22,527 | | | | | | | | | | | | 22,527 | | | | 836 | | | | | | | | | | | | 836 | | | | 573 | | | | | | | | | | 573 | |
| Administrative expenses | | | 256,594 | | | | | | | | 3,151 | | | | 259,745 | | | | 247,946 | | | | | | | | (1,044 | ) | | | 246,902 | | | | 236,469 | | | | | | | | | | 236,469 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total general and administrative | | | 357,872 | | | | | | | | 3,151 | | | | 361,023 | | | | 280,383 | | | | | | | | (1,044 | ) | | | 279,339 | | | | 245,235 | | | | | | | | | | 245,235 | |
| | | | | | | | | | | | |
Selling | | | 64,152 | | | | | | | | | | | | 64,152 | | | | 63,600 | | | | | | | | | | | | 63,600 | | | | 58,561 | | | | | | | | | | 58,561 | |
Depreciation and amortization | | | 9,663 | | | | | | | | | | | | 9,663 | | | | 10,234 | | | | | | | | | | | | 10,234 | | | | 9,439 | | | | | | | | | | 9,439 | |
Interest | | | 7,821 | | | | | | | | | | | | 7,821 | | | | 7,988 | | | | | | | | | | | | 7,988 | | | | 8,288 | | | | | | | | | | 8,288 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total expenses | | | 2,841,850 | | | | 131,070 | | | | 4,055 | | | | 2,976,975 | | | | 2,591,537 | | | | 124,638 | | | | (973 | ) | | | 2,715,202 | | | | 2,590,259 | | | | 125,475 | | | | | | 2,715,734 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes | | | 52,995 | | | | 13,020 | | | | (4,055 | ) | | | 61,960 | | | | 3,237 | | | | 23,832 | | | | 973 | | | | 28,042 | | | | 72,266 | | | | 9,037 | | | | | | 81,303 | |
Income tax provision (benefit) | | | 29,371 | | | | 5,386 | | | | (1,584 | ) | | | 33,173 | | | | (2,215 | ) | | | 10,148 | | | | 356 | | | | 8,289 | | | | 27,629 | | | | 3,624 | | | | | | 31,253 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 23,624 | | | $ | 7,634 | | | $ | (2,471 | ) | | $ | 28,787 | | | $ | 5,452 | | | $ | 13,684 | | | $ | 617 | | | $ | 19,753 | | | $ | 44,637 | | | $ | 5,413 | | | | | $ | 50,050 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings (loss) per share from continuing operations | | $ | 0.30 | | | $ | 0.10 | | | $ | (0.03 | ) | | $ | 0.36 | | | $ | 0.07 | | | $ | 0.17 | | | $ | 0.01 | | | $ | 0.25 | | | $ | 0.56 | | | $ | 0.07 | | | | | $ | 0.63 | |
Diluted earnings (loss) per share from continuing operations | | $ | 0.29 | | | $ | 0.10 | | | $ | (0.03 | ) | | $ | 0.36 | | | $ | 0.07 | | | $ | 0.17 | | | $ | 0.01 | | | $ | 0.25 | | | $ | 0.55 | | | $ | 0.07 | | | | | $ | 0.62 | |
Basic weighted average shares outstanding | | | 79,802 | | | | 79,802 | | | | 79,802 | | | | 79,802 | | | | 79,511 | | | | 79,511 | | | | 79,511 | | | | 79,511 | | | | 79,508 | | | | 79,508 | | | | | | 79,508 | |
Diluted weighted average shares outstanding | | | 80,922 | | | | 80,922 | | | | 79,802 | | | | 80,922 | | | | 80,600 | | | | 80,600 | | | | 80,600 | | | | 80,600 | | | | 80,489 | | | | 80,489 | | | | | | 80,489 | |
| | | | | | | | | | | | |
Pretax margin | | | 1.8 | % | | | | | | | | | | | | | | | 0.1 | % | | | | | | | | | | | | | | | 2.7 | % | | | | | | | | | | |
Commercial premium yield | | | 3.9 | % | | | | | | | | | | | | | | | 3.4 | % | | | | | | | | | | | | | | | 2.9 | % | | | | | | | | | | |
Commercial premium PMPM | | $ | 400.34 | | | | | | | | | | | | | | | $ | 388.41 | | | | | | | | | | | | | | | $ | 385.29 | | | | | | | | | | | |
Commercial health care cost trend | | | -2.2 | % | | | | | | | | | | | | | | | 2.0 | % | | | | | | | | | | | | | | | -3.3 | % | | | | | | | | | | |
Commercial health care cost PMPM | | $ | 323.92 | | | | | | | | | | | | | | | $ | 339.53 | | | | | | | | | | | | | | | $ | 331.13 | | | | | | | | | | | |
Commercial MCR | | | 80.9 | % | | | | | | | | | | | | | | | 87.4 | % | | | | | | | | | | | | | | | 85.9 | % | | | | | | | | | | |
Medicare Advantage MCR | | | 91.8 | % | | | | | | | | | | | | | | | 90.5 | % | | | | | | | | | | | | | | | 91.9 | % | | | | | | | | | | |
Medicaid MCR | | | 79.8 | % | | | | | | | | | | | | | | | 82.7 | % | | | | | | | | | | | | | | | 80.0 | % | | | | | | | | | | |
Health plan services MCR | | | 83.4 | % | | | | | | | | | | | | | | | 87.1 | % | | | | | | | | | | | | | | | 86.2 | % | | | | | | | | | | |
Administrative expense ratio | | | 8.9 | % | | | | | | | | | | | | | | | 9.6 | % | | | | | | | | | | | | | | | 9.0 | % | | | | | | | | | | |
Total G&A expense ratio | | | 12.4 | % | | | | | | | | | | | | | | | 10.9 | % | | | | | | | | | | | | | | | 9.3 | % | | | | | | | | | | |
Selling costs ratio | | | 2.2 | % | | | | | | | | | | | | | | | 2.5 | % | | | | | | | | | | | | | | | 2.2 | % | | | | | | | | | | |
| 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 administrative services provided under the T-3 Managed Care Support Contract for the TRICARE North Region and other health care-related Department of Defense and Veterans Affairs government contracts. |
| 3 | Includes litigation reserve true-up related to previous accrual for lawsuit and related legal expenses. Also includes severance expense. |
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Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
($ in millions)
| | | | | | | | | | | | |
| | | Health Plan Services | |
| | | YTD 3/2014 | | | FY 2013 | | | FY 2012 | |
Reserve for claims (a), beginning of period | | $ | 807.4 | | | $ | 808.7 | | | $ | 720.8 | |
Incurred claims related to: | | | | | | | | | | | | |
Current Year (f) | | | 1,229.6 | | | | 4,666.0 | | | | 4,950.9 | |
Prior Years (c) | | | (22.9 | ) | | | (56.2 | ) | | | 34.5 | |
| | | | | | | | | | | | |
Total Incurred (b) | | | 1,206.7 | | | | 4,609.8 | | | | 4,985.4 | |
| | | |
Paid claims related to: | | | | | | | | | | | | |
Current Year | | | 488.4 | | | | 3,872.5 | | | | 4,156.6 | |
Prior Years | | | 657.3 | | | | 738.6 | | | | 740.9 | |
| | | | | | | | | | | | |
Total Paid (b) | | | 1,145.7 | | | | 4,611.1 | | | | 4,897.5 | |
| | | | | | | | | | | | |
| | | |
Reserve for claims (a), end of period | | | 868.4 | | | | 807.4 | | | | 808.7 | |
Add: | | | | | | | | | | | | |
Claims Payable (d) | | | 93.5 | | | | 67.0 | | | | 91.6 | |
Other (e) | | | 190.1 | | | | 109.7 | | | | 137.7 | |
| | | | | | | | | | | | |
Reserves for claims and other settlements, end of period | | $ | 1,152.0 | | | $ | 984.1 | | | $ | 1,038.0 | |
| | | | | | | | | | | | |
| (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. Negative amounts in this line represent favorable development in estimated prior years’ health care costs. Positive amounts in this line represent unfavorable development in estimated prior years’ health care costs. For a detailed description of reserve development for the three months ended March 31, 2014, see Note 2 to the Consolidated Financial Statements in the company’s Form 10-Q for the quarter ended March 31, 2014. For a detailed description of reserve development for fiscal years 2013 and 2012, see Note 2 to the Consolidated Financial Statements in the company’s Form 10-K for the year ended December 31, 2013. |
| (d) | Includes amount accrued for litigation and regulatory-related expenses. |
| (e) | Includes accrued capitation, shared risk settlements, provider incentives and other reserve items. |
| (f) | Our IBNR estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. Such amounts were $57 million, $53 million and $53 million as of March 31, 2014, December 31, 2013, and December 31, 2012, respectively. |
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