EXHIBIT 99.1
Health Net, Inc.
21650 Oxnard Street
Woodland Hills, CA 91367
818.676.6000
800.291.6911
www.health.net
[HEALTH NET GRAPHIC OMITTED]
NEWS RELEASE
Health Net Media Contact: Lisa Haines
818.676.7912
Lisa.J.Haines@Health.net
Health Net Investor Contact: David Olson
818.676.6978
David.W.Olson@Health.net
HEALTH NET AND DEPARTMENT OF DEFENSE SETTLE $389 MILLION
IN OUTSTANDING TRICARE RECEIVABLES
LOS ANGELES, January 3, 2001 -- Health Net, Inc. (NYSE:HNT) today
announced that its Federal Services subsidiary and the Department of Defense
(DoD) have agreed to a settlement of approximately $389 million for outstanding
receivables related to Health Net's Federal Services subsidiary's three current
contracts for DoD's TRICARE program and for the completed contract for the
CHAMPUS Reform Initiative. Health Net expects to receive full payment on or
about January 5, 2001. The company noted that approximately $120 to $130 million
of the settlement is owed to vendors, to the government and will be applied to
the continuing operating needs of the three TRICARE contracts. The balance will
reduce the
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Amounts receivable under government contracts on the company's balance sheets.
The agreement also provides for an additional $21 million in payments during
2001 and 2002 for costs that have not yet been incurred.
"This is a major step forward for our company, for our relationship
with the Department of Defense and for the future of TRICARE," said Jay Gellert,
president and chief executive officer of Health Net. "These payments
dramatically improve our balance sheet. We will use these funds to reduce our
outstanding bank revolving debt. We thank DoD for their hard work on this matter
and we look forward to serving TRICARE for many years to come."
Because of this settlement, Health Net believes its total debt on the
balance sheet as of March 31, 2001 should be less than $650 million. The March
31, 2001 total debt amount compares to approximately $950 million in total debt
at September 30, 2000 and more than $1.4 billion in total debt at September 30,
1998.
Additionally, the company will see substantially higher than expected
operating cash flow in 2001 as the bulk of the cash payments will be received in
2001.
Health Net added that it expects earnings per share for 2001 to be in
the $1.55 to $1.58 range. The current FIRST CALL consensus estimate is $1.54 per
share. The company's prior earnings guidance for the fourth quarter of 2000,
consistent with the FIRST CALL consensus of $.37 per share, is unchanged.
The three TRICARE contracts that Health Net's Federal Services
subsidiary operates for DoD's TRICARE Management Activity (TMA) cover more than
1.5 million military retirees and
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dependents of active duty military personnel. The contracts cover 11 states and
account for approximately $1.1 billion in annual revenues for Health Net (see
attached TRICARE fact sheet).
The receivable items settled by this payment include change orders, bid
price adjustments, equitable adjustments and claims (explanations of these can
be found in the attached TRICARE fact sheet). These receivables developed as a
result of TRICARE health care costs rising faster than the forecasted health
care cost trends used in the original contract bids, data discrepancies on
formal contract adjustments, and routine contract changes for benefit
adjustments.
"The agreement with DoD is doubly significant since it settles a large
number of items that could have taken months to resolve and substantiates the
historical integrity of the CHAMPUS/TRICARE receivable and these operations,"
Gellert added.
Health Net will conduct a conference call on the topics of this release
for all interested parties on Wednesday, January 3, 2001, at 4:30 p.m. EST. The
call-in number is (719) 457-2617 with a confirmation code of 452219. The call
can also be accessed via the Internet at www.vcall.com. A replay will be
available through January 5, 2001 by dialing (719) 457-0820 and using the same
confirmation code.
The matters discussed in this release contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
that involve risks and uncertainties. All statements other than statements of
historical information provided herein may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans,"
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"expects" and similar expressions are intended to identify forward-looking
statements. 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" and "Cautionary Statements"
sections included within the Company's most recent Annual Report on Form 10-K
filed with the SEC and the risks discussed in the Company's other filings with
the SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements that reflect management's analysis, judgment, belief
or expectation only as of the date hereof. The Company undertakes no obligation
to publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
Health Net is one of the nation's largest publicly traded managed
health care companies. Its mission is to enhance quality of life for its
customers by offering products distinguished by their quality, service and
affordability. The company's HMO, insured PPO and government contracts
subsidiaries provide health benefits to approximately 5.2 million individuals in
16 states through group, individual, Medicare risk, Medicaid and TRICARE
programs. FHS subsidiaries also offer managed health care products related to
behavioral health, dental, vision and prescription drugs, and offer managed
health care product coordination for multi-region employers and administrative
services for medical groups and self-funded benefits programs.
# # #
TRICARE FACT SHEET FOLLOWS (TWO PAGES)
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TRICARE FACT SHEET
BACKGROUND
- - In the 1950s, the Federal Government created the Civilian Health and
Medical Program of the Uniformed Services (CHAMPUS), which served as the
health insurance program for military active duty and retired personnel and
their dependents.
- - Administered by the Department of Defense (DoD), the CHAMPUS program was
renamed TRICARE in 1995 and, today, serves as the DoD's managed health care
program.
- - Awarded its first contract in 1988, Foundation Health Federal Services
(FHFS) is the nation's oldest and largest administrator of the TRICARE
program, currently serving more than 1.5 million military eligibles and
their dependents.
- - FHFS administers three TRICARE contracts in 11 states, which include:
Arkansas, Alaska, Arizona, California, Hawaii, Idaho, Louisiana, Oklahoma,
Oregon, Texas and Washington.
REGIONS BENEFICIARIES ANNUAL REVENUE
REGION 11
Washington, Oregon
and Northern Idaho 243,000 $130 million
REGION 6
Texas, Louisiana, Oklahoma
and Arkansas 612,000 $490 million
REGIONS 9, 10, 12
California, Hawaii, Alaska
and portions of Arizona 608,000 $460 million
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TRICARE FACT SHEET (CONTINUED)
CONTRACT EXTENSIONS
- - In February of 2000, FHFS received a one-year contract extension in Region
11. This extension continues through February 2001, with an option to
extend the contract through February 2002.
- - In November of 2000, FHFS received a one-year contract extension in Region
6. This extension continues through October 31, 2001, with an option to
extend the contract through October 31, 2002.
- - FHFS' contract in Regions 9, 10 and 12 will expire on March 31, 2001; FHFS
is currently in negotiations with the DoD to extend this contract for two
additional one-year options.
SETTLEMENT AGREEMENT TERMS
CHANGE ORDER
A modification to a government contract pursuant to the Changes Clause of the
contract that permits the government to unilaterally make certain changes within
the general scope of the contract and which, in turn, entitles the contractor to
adjustment of contract prices/terms as compensation for the change.
BID PRICE ADJUSTMENT
A pricing methodology developed by the government for these contracts that
attempts to eliminate or reduce the risks to the contractor for events beyond or
outside of their control. This methodology measures contract costs and
determines reimbursement in relationship to the contractor's originally
submitted price. To the extent that certain factors (such as the number of
eligibles, visits to the Military Treatment Facilities, specified inflationary
measures, and other factors) deviate from original estimates provided by the
government, the price is adjusted. Additionally, to the extent that actual
health care costs is greater or less than the adjusted bid estimates, the
government shares in the underrun or overrun.
REQUEST FOR EQUITABLE ADJUSTMENT
A proposal by the contractor submitted to the government for an adjustment to
the contract price or schedule resulting from a contract change made by a Change
Order or made by another government action (i.e., constructive change).
CLAIM
A certified written demand by a contractor for payment by the government of a
specific amount of money that is in dispute.
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