Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - HEALTH NET INC | d8k.htm |
Exhibit 99.1
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Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 818.676.6000 800.291.6911 www.healthnet.com |
| Investor Contact | Media Contact | |
| Angie McCabe | Margita Thompson | |
| 818.676.8692 | 818.676.7912 | |
| angie.mccabe@healthnet.com | margita.thompson@healthnet.com | |
HEALTH NET REPORTS SECOND QUARTER 2011
GAAP NET INCOME OF $58.3 MILLION, OR $0.63 PER DILUTED SHARE
WESTERN REGION OPERATIONS AND GOVERNMENT CONTRACTS SEGMENTS
PRODUCE COMBINED EARNINGS OF $0.76 PER DILUTED SHARE
COMMERCIAL MARGINS EXPANDED
MEMBERSHIP IN TAILORED NETWORK PRODUCTS CONTINUED TO GROW
STRONG YEAR-TO-DATE PERFORMANCE LEADS COMPANY
TO RAISE FULL YEAR 2011 EARNINGS GUIDANCE
LOS ANGELES, August 4, 2011 – Health Net, Inc. (NYSE: HNT) today announced 2011 second quarter GAAP net income of $58.3 million, or $0.63 per diluted share, compared with $45.1 million, or $0.45 per diluted share, for the second quarter of 2010.
The GAAP results include $21.0 million in a pretax loss related to the run-out of the company’s remaining Northeast operations and $3.3 million in pretax expenses primarily related to the company’s administrative cost reduction efforts.
The company’s Western Region Operations (Western Region) and Government Contracts segments produced combined net earnings of $0.76 per diluted share in the second quarter of 2011, an increase of approximately 25.0 percent compared with the second quarter of 2010.
“Our performance in the second quarter of 2011 again affirms our operating and financial progress on a number of fronts,” said Jay Gellert, Health Net’s chief executive officer. “Membership in our tailored network products grew, commercial margins expanded and the transition to the new TRICARE contract went smoothly. We continued to buy back stock, repurchasing 2.3 million shares in the second quarter for approximately $72.3 million.
“Given our strong performance to date, we are raising our 2011 earnings per diluted share guidance for the combined Western Region and Government Contracts segments to a range of $3.00 to $3.05,” Gellert added.
CONSOLIDATED RESULTS
Health Net’s total revenues decreased 19.2 percent in the second quarter of 2011 to $2.8 billion from $3.4 billion in the second quarter of 2010 as a result of a decline in Government Contracts revenues to $171.0 million in the second quarter of 2011 compared with $851.9 million in the second quarter of 2010.
The revenue decline in Government Contracts is due to the new T-3 TRICARE North contract that commenced on April 1, 2011. Unlike the prior TRICARE contract, the T-3 contract is an administrative services only (ASO) 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.
Health plan services premium revenues increased by approximately 2.4 percent to $2.6 billion in the second quarter of 2011 compared with $2.5 billion in the second quarter of 2010.
Health plan services expenses increased 3.1 percent to $2.2 billion in the second quarter of 2011 compared with the second quarter of 2010.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total enrollment in the Western Region Operations segment at June 30, 2011 was approximately 2.9 million members, an increase of 0.8 percent compared with enrollment at June 30, 2010. Total enrollment in the company’s California health plans increased 2.0 percent from June 30, 2010 to June 30, 2011.
Medicaid enrollment in California at June 30, 2011 was 963,000 members, an increase of 86,000 members, or 9.8 percent, from June 30, 2010.
Western Region commercial enrollment on June 30, 2011 was essentially flat at approximately 1.4 million members compared with enrollment on June 30, 2010.
“The increase in Medicaid membership and stable commercial enrollment were expected given current economic conditions,” said Jim Woys, Health Net’s chief operating officer. “In this economic environment, we are very pleased that our tailored network products grew by 48.2 percent, or approximately 137,000 new members, since June 30, 2010. We believe these tailored network products are responsive to customers’ needs for comprehensive benefits at affordable prices.”
As of June 30, 2011, tailored network products accounted for 31.0 percent of the company’s Western Region commercial enrollment compared with 21.0 percent at June 30, 2010.
Enrollment in the company’s Medicare Advantage (MA) plans in the Western Region at June 30, 2011 was 205,000 members, a decrease of approximately 6.4 percent compared with June 30, 2010, primarily as a result of the previously announced sanctions imposed on the company’s MA and Medicare stand-alone Prescription Drug Plan (PDP) businesses by the Center for Medicare & Medicaid Services (CMS).
As of August 1, 2011, CMS lifted these sanctions on Health Net’s ability to market to and enroll new MA and PDP members.
Membership in the company’s PDP products was 389,000 at the end of the second quarter of 2011, a 10.4 percent decrease compared with the end of the second quarter of 2010.
“We are pleased that CMS lifted these sanctions. We have resumed marketing and will be actively marketing MA and PDP products now and during the open enrollment period this fall,” said Gellert.
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Revenues
Total revenues in the Western Region in the second quarter of 2011 were approximately $2.6 billion compared with $2.5 billion in the second quarter of 2010.
Net investment income in the Western Region was $25.1 million in the second quarter of 2011 compared with $16.3 million in the second quarter of 2010 and $23.8 million in the first quarter of 2011. The year-over-year increase was due to a higher gain on sale of investment in the second quarter of 2011 compared with the second quarter of 2010.
Health Plan Services Expenses
Health plan services expenses in the Western Region were $2.2 billion in the second quarter of 2011 compared with approximately $2.2 billion in the second quarter of 2010.
Commercial Premium Yield and Health Care Cost Trends
In the Western Region, commercial premiums per member per month (PMPM) increased by 4.7 percent to $357 in the second quarter of 2011 compared with $340 in the second quarter of 2010.
Commercial health care costs PMPM in the Western Region increased by 4.0 percent to approximately $306 in the second quarter of 2011 compared with $294 in the second quarter of 2010.
“We continued to produce a positive spread between premium yields PMPM and health care costs PMPM during the second quarter of 2011,” said Woys. “The gross margin PMPM increased by more than 9.0 percent in the second quarter of 2011 compared with the second quarter of 2010.”
“Given this performance, we are increasing our 2011 annual guidance for the spread between premium yield and health care costs PMPM to approximately 140 to 150 basis points for the full year 2011 compared with previous guidance of approximately 100 to 120 basis points,” said Woys.
Medical Care Ratios (MCR)
The health plan services MCR in the Western Region was 87.0 percent in the second quarter of 2011 compared with 87.1 percent in the second quarter of 2010.
The Western Region commercial MCR was 85.7 percent in the second quarter of 2011 compared with 86.3 percent in the second quarter of 2010.
The MA MCR in the Western Region was 90.9 percent in the second quarter of 2011 compared with 88.5 percent in the second quarter of 2010. The PDP MCR was 87.4 percent in the second quarter of 2011 compared with 85.9 percent in the second quarter of 2010. The increases in both the MA and PDP MCRs were due to the adverse effect of limited new member growth.
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General & Administrative (G&A) and Selling Expenses
G&A expense in the Western Region was $214.8 million in the second quarter of 2011 compared with $212.7 million in the second quarter of 2010. The G&A expense ratio was 8.4 percent in the second quarter of 2011, a 10 basis point decrease compared with the second quarter of 2010 and a 90 basis point sequential decrease from the first quarter of 2011.
Selling expense in the Western Region was $57.5 million in the second quarter of 2011 compared with $55.8 million in the second quarter of 2010.
GOVERNMENT CONTRACTS SEGMENT
As previously described, health care delivery under the company’s new T-3 TRICARE North Region contract began April 1, 2011.
The company’s Government Contracts revenues in the second quarter of 2011 were $171.0 million. The Government Contracts revenues in the second quarter of 2010 were $851.9 million.
BALANCE SHEET
Cash and investments as of June 30, 2011 were $1.7 billion compared with $1.9 billion as of June 30, 2010.
Reserves for claims and other settlements as of June 30, 2011 were $900.7 million compared with $934.9 million as of June 30, 2010 and $889.9 million as of March 31, 2011.
Days claims payable (DCP) for the second quarter of 2011 was 36.7 days compared with 39.3 days in the second quarter of 2010 and 35.1 days in the first quarter of 2011.
On an adjusted1 basis, DCP in the second quarter of 2011 was 52.0 days compared with 53.6 days in the second quarter of 2010 and 51.8 days in the first quarter of 2011.
The company’s debt-to-total capital ratio was 28.2 percent as of June 30, 2011 compared with 19.0 percent as of December 31, 2010. The increase in the debt-to-total capital ratio in the second quarter of 2011 was the result of $185.0 million in borrowings under the company’s revolving credit facility. The borrowings were used primarily to pay the $181.3 million AmCareco litigation judgment and related expenses.
Interest expense was approximately $8.2 million in the second quarter of 2011 compared with $8.8 million in the second quarter of 2010.
| 1 | See “Disclosures Regarding Non-GAAP Financial Information” attached to this press release for a reconciliation of this information to the comparable GAAP financial measure. |
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CASH FLOW
Operating cash flow was negative $145.8 million in the second quarter of 2011. The primary factors that negatively impacted second quarter operating cash flow were the $181.3 million AmCareco payment; an approximately $102.0 million increase in TRICARE and Medicare receivables; and approximately $25.0 million in Northeast-related payments.
“We received approximately $102 million in Medicare risk adjuster payments to date in the third quarter of 2011. We expect to receive approximately $150 million in TRICARE receivables in the second half of 2011,” said Joseph Capezza, Health Net’s chief financial officer.
NORTHEAST OPERATIONS SEGMENT
During the second quarter of 2011, Health Net served the members of the sold Northeast companies under administrative services agreements (ASAs) that the company entered into with UnitedHealthcare (United) and its affiliates on the closing date of the transaction. The ASAs terminated on July 1, 2011, and the company entered into claims servicing agreements with United and its affiliates pursuant to which Health Net will continue to administer run-out claims.
The revenues and expenses associated with the company’s Northeast Operations in the second quarter of 2011 were $11.4 million and $32.3 million, respectively, and they are shown separately in the accompanying segment information table.
As previously noted, the company expects to receive payments of approximately $121.0 million for membership transition and tangible net equity in the second half of 2011. These payments will be recorded in “Cash Flows from Investing Activities” in the company’s financial statements.
SHARE REPURCHASE UPDATE
From January 1, 2011 through July 29, 2011, Health Net repurchased approximately 6.4 million shares of its common stock for approximately $195.3 million at an average price of $30.59 per share. As of July 29, 2011, approximately $254.5 million of authorization remained under the company’s $300 million share repurchase program.
2011 GUIDANCE
Health Net is increasing its 2011 annual guidance for GAAP earnings per diluted share to a range of $0.63 to $0.68, or $3.00 to $3.05 per diluted share for the combined Western Region Operations and Government Contracts segments.
Following is a table with specific 2011 guidance metrics.
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| Metric |
2011 Guidance | |
| Year-end Membership(a) |
Commercial: +1% to +2% Medicaid: +9% to +11% Medicare Advantage: -8% to -10%
Total Western Region Operations medical membership: +3% to +4%
PDP: -11% to -13% | |
| Consolidated Revenues |
$12.0 to $12.5 billion | |
| Commercial Yields(a) |
~5.5% to 6.0% (previously ~6.0% to 6.5%) | |
| Commercial Health Care Cost Trends(a) |
~140 to 150 basis points < premium yields (previously ~100 to 120 basis points < premium yields) | |
| Selling Cost Ratio(a) G&A Expense Ratio(a) |
~2.3% to 2.4% ~8.7% to 8.9% | |
| Tax Rate(b) |
~38.7% (previously ~39.0%) | |
| Weighted-average Fully Diluted Shares Outstanding |
~92.3 million (previously 92.5 million to 93.5 million) | |
| GAAP EPS
Combined Western Region Operations and Government Contracts EPS |
$0.63 to $0.68 (previously $0.58 to $0.63)
$3.00 to $3.05 (previously $2.90 to $3.00) | |
| (a) | For the company’s Western Region Operations |
| (b) | For the combined Western Region Operations and Government Contracts segments |
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CONFERENCE CALL
As previously announced, Health Net will discuss the company’s second quarter 2011 results during a conference call on Thursday, August 4, 2011, beginning at approximately 11:00 a.m. Eastern time. The conference call should be accessed at least 15 minutes prior to its start with the following numbers:
| 866.393.1637 (Domestic) |
800.642.1687 (Replay – Domestic) | |
| 706.643.5711 (International) |
706.645.9291 (Replay – International) |
The access code for the live conference call and replay is 76335427. A replay of the conference call will be available through August 9, 2011. 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, 2010, Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and subsequent reports filed by the company from time to time with the Securities and Exchange Commission.
ABOUT HEALTH NET
Health Net, Inc. is among the nation’s largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company’s health plans and government contracts subsidiaries provide and administer health benefits to approximately 6.0 million individuals across the country through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net’s behavioral health subsidiary, MHN, provides mental health benefits to approximately 5.0 million individuals in all 50 states. The company’s subsidiaries also offer managed health care products related to prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs.
For more information on Health Net, Inc., please visit the company’s website at www.healthnet.com.
CAUTIONARY STATEMENTS
All statements in this press release, other than statements of historical information provided herein, may be deemed to be forward-looking statements and as such are subject to a number of risks and uncertainties. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, statements including the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, health care reform, including the ultimate impact of the 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 affecting Health Net’s Medicare or Medicaid businesses; 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; litigation costs; regulatory issues with agencies such as the California Department of Managed Health Care, the Centers for Medicare & Medicaid Services and state departments of insurance; operational issues; 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; investment portfolio impairment charges; volatility in the financial
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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 and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) and the risks discussed in Health Net’s subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. Health Net undertakes no obligation to publicly revise any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
The financial information presented in this press release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the company’s Form 10-Q for the period ended June 30, 2011.
Eight pages of tables follow.
# # #
8
Health Net, Inc.
Enrollment Data—By State
(In thousands)
| June
30, 2011 |
March
31, 2011 |
June
30, 2010 |
Change from | |||||||||||||||||||||||||
| March 31, 2011 | June 30, 2010 | |||||||||||||||||||||||||||
| Increase/ (Decrease) |
% Change |
Increase/ (Decrease) |
% Change |
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| California |
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| Large Group |
834 | 836 | 836 | (2 | ) | (0.2 | )% | (2 | ) | (0.2 | )% | |||||||||||||||||
| Small Group and Individual |
328 | 338 | 355 | (10 | ) | (3.0 | )% | (27 | ) | (7.6 | )% | |||||||||||||||||
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| Commercial Risk |
1,162 | 1,174 | 1,191 | (12 | ) | (1.0 | )% | (29 | ) | (2.4 | )% | |||||||||||||||||
| ASO |
0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | ||||||||||||||||||
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| Total Commercial |
1,162 | 1,174 | 1,196 | (12 | ) | (1.0 | )% | (34 | ) | (2.8 | )% | |||||||||||||||||
| Medicare Advantage |
125 | 127 | 132 | (2 | ) | (1.6 | )% | (7 | ) | (5.3 | )% | |||||||||||||||||
| Medi-Cal |
963 | 941 | 877 | 22 | 2.3 | % | 86 | 9.8 | % | |||||||||||||||||||
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| Total California |
2,250 | 2,242 | 2,205 | 8 | 0.4 | % | 45 | 2.0 | % | |||||||||||||||||||
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| Arizona |
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| Large Group |
75 | 74 | 53 | 1 | 1.4 | % | 22 | 41.5 | % | |||||||||||||||||||
| Small Group and Individual |
56 | 50 | 39 | 6 | 12.0 | % | 17 | 43.6 | % | |||||||||||||||||||
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| Commercial Risk |
131 | 124 | 92 | 7 | 5.6 | % | 39 | 42.4 | % | |||||||||||||||||||
| Medicare Advantage |
41 | 42 | 49 | (1 | ) | (2.4 | )% | (8 | ) | (16.3 | )% | |||||||||||||||||
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| Total Arizona |
172 | 166 | 141 | 6 | 3.6 | % | 31 | 22.0 | % | |||||||||||||||||||
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| Oregon |
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| Large Group |
49 | 49 | 52 | 0 | 0.0 | % | (3 | ) | (5.8 | )% | ||||||||||||||||||
| Small Group and Individual |
42 | 41 | 47 | 1 | 2.4 | % | (5 | ) | (10.6 | )% | ||||||||||||||||||
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| Commercial Risk |
91 | 90 | 99 | 1 | 1.1 | % | (8 | ) | (8.1 | )% | ||||||||||||||||||
| Medicare Advantage |
39 | 40 | 38 | (1 | ) | (2.5 | )% | 1 | 2.6 | % | ||||||||||||||||||
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| Total Oregon |
130 | 130 | 137 | 0 | 0.0 | % | (7 | ) | (5.1 | )% | ||||||||||||||||||
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| Total Health Plan Enrollment |
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| Large Group |
958 | 959 | 941 | (1 | ) | (0.1 | )% | 17 | 1.8 | % | ||||||||||||||||||
| Small Group and Individual |
426 | 429 | 441 | (3 | ) | (0.7 | )% | (15 | ) | (3.4 | )% | |||||||||||||||||
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| Commercial Risk |
1,384 | 1,388 | 1,382 | (4 | ) | (0.3 | )% | 2 | 0.1 | % | ||||||||||||||||||
| ASO |
0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | ||||||||||||||||||
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| Total Commercial |
1,384 | 1,388 | 1,387 | (4 | ) | (0.3 | )% | (3 | ) | (0.2 | )% | |||||||||||||||||
| Medicare Advantage |
205 | 209 | 219 | (4 | ) | (1.9 | )% | (14 | ) | (6.4 | )% | |||||||||||||||||
| Medi-Cal/Medicaid |
963 | 941 | 877 | 22 | 2.3 | % | 86 | 9.8 | % | |||||||||||||||||||
| Medicare PDP (stand-alone) |
389 | 401 | 434 | (12 | ) | (3.0 | )% | (45 | ) | (10.4 | )% | |||||||||||||||||
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| Western Region Operations |
2,941 | 2,939 | 2,917 | 2 | 0.1 | % | 24 | 0.8 | % | |||||||||||||||||||
| Northeast Operations |
0 | 1 | 19 | (1 | ) | (100.0 | )% | (19 | ) | (100.0 | )% | |||||||||||||||||
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| 2,941 | 2,940 | 2,936 | 1 | 0.0 | % | 5 | 0.2 | % | ||||||||||||||||||||
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| TRICARE—North Contract Eligibles |
3,010 | 3,090 | 3,077 | (80 | ) | (2.6 | )% | (67 | ) | (2.2 | )% | |||||||||||||||||
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Page 9
Health Net, Inc.
Enrollment Data—Line of Business
(In thousands)
| June
30, 2011 |
March
31, 2011 |
June
30, 2010 |
Change from | |||||||||||||||||||||||||
| March 31, 2011 | June 30, 2010 | |||||||||||||||||||||||||||
| Increase/ (Decrease) |
% Change |
Increase/ (Decrease) |
% Change |
|||||||||||||||||||||||||
| Large Group |
||||||||||||||||||||||||||||
| California |
834 | 836 | 836 | (2 | ) | (0.2 | )% | (2 | ) | (0.2 | )% | |||||||||||||||||
| Arizona |
75 | 74 | 53 | 1 | 1.4 | % | 22 | 41.5 | % | |||||||||||||||||||
| Oregon |
49 | 49 | 52 | 0 | 0.0 | % | (3 | ) | (5.8 | )% | ||||||||||||||||||
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| 958 | 959 | 941 | (1 | ) | (0.1 | )% | 17 | 1.8 | % | |||||||||||||||||||
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| Small Group and Individual |
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| California |
328 | 338 | 355 | (10 | ) | (3.0 | )% | (27 | ) | (7.6 | )% | |||||||||||||||||
| Arizona |
56 | 50 | 39 | 6 | 12.0 | % | 17 | 43.6 | % | |||||||||||||||||||
| Oregon |
42 | 41 | 47 | 1 | 2.4 | % | (5 | ) | (10.6 | )% | ||||||||||||||||||
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| 426 | 429 | 441 | (3 | ) | (0.7 | )% | (15 | ) | (3.4 | )% | ||||||||||||||||||
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| Commercial Risk |
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| California |
1,162 | 1,174 | 1,191 | (12 | ) | (1.0 | )% | (29 | ) | (2.4 | )% | |||||||||||||||||
| Arizona |
131 | 124 | 92 | 7 | 5.6 | % | 39 | 42.4 | % | |||||||||||||||||||
| Oregon |
91 | 90 | 99 | 1 | 1.1 | % | (8 | ) | (8.1 | )% | ||||||||||||||||||
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| 1,384 | 1,388 | 1,382 | (4 | ) | (0.3 | )% | 2 | 0.1 | % | |||||||||||||||||||
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| ASO |
0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | ||||||||||||||||||
| Total Commercial |
||||||||||||||||||||||||||||
| California |
1,162 | 1,174 | 1,196 | (12 | ) | (1.0 | )% | (34 | ) | (2.8 | )% | |||||||||||||||||
| Arizona |
131 | 124 | 92 | 7 | 5.6 | % | 39 | 42.4 | % | |||||||||||||||||||
| Oregon |
91 | 90 | 99 | 1 | 1.1 | % | (8 | ) | (8.1 | )% | ||||||||||||||||||
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|
|||||||||||||||
| 1,384 | 1,388 | 1,387 | (4 | ) | (0.3 | )% | (3 | ) | (0.2 | )% | ||||||||||||||||||
| Medicare Advantage |
||||||||||||||||||||||||||||
| California |
125 | 127 | 132 | (2 | ) | (1.6 | )% | (7 | ) | (5.3 | )% | |||||||||||||||||
| Arizona |
41 | 42 | 49 | (1 | ) | (2.4 | )% | (8 | ) | (16.3 | )% | |||||||||||||||||
| Oregon |
39 | 40 | 38 | (1 | ) | (2.5 | )% | 1 | 2.6 | % | ||||||||||||||||||
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|||||||||||||||
| 205 | 209 | 219 | (4 | ) | (1.9 | )% | (14 | ) | (6.4 | )% | ||||||||||||||||||
| Medi-Cal/Medicaid |
||||||||||||||||||||||||||||
| California |
963 | 941 | 877 | 22 | 2.3 | % | 86 | 9.8 | % | |||||||||||||||||||
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|||||||||||||||
| Total Health Plan Enrollment |
||||||||||||||||||||||||||||
| Large Group |
958 | 959 | 941 | (1 | ) | (0.1 | )% | 17 | 1.8 | % | ||||||||||||||||||
| Small Group and Individual |
426 | 429 | 441 | (3 | ) | (0.7 | )% | (15 | ) | (3.4 | )% | |||||||||||||||||
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|||||||||||||||
| Commercial Risk |
1,384 | 1,388 | 1,382 | (4 | ) | (0.3 | )% | 2 | 0.1 | % | ||||||||||||||||||
| ASO |
0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | ||||||||||||||||||
|
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|
|||||||||||||||
| Total Commercial |
1,384 | 1,388 | 1,387 | (4 | ) | (0.3 | )% | (3 | ) | (0.2 | )% | |||||||||||||||||
| Medicare Advantage |
205 | 209 | 219 | (4 | ) | (1.9 | )% | (14 | ) | (6.4 | )% | |||||||||||||||||
| Medi-Cal/Medicaid |
963 | 941 | 877 | 22 | 2.3 | % | 86 | 9.8 | % | |||||||||||||||||||
| Medicare PDP (stand-alone) |
389 | 401 | 434 | (12 | ) | (3.0 | )% | (45 | ) | (10.4 | )% | |||||||||||||||||
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|||||||||||||||
| Western Region Operations |
2,941 | 2,939 | 2,917 | 2 | 0.1 | % | 24 | 0.8 | % | |||||||||||||||||||
| Northeast Operations |
0 | 1 | 19 | (1 | ) | (100.0 | )% | (19 | ) | (100.0 | )% | |||||||||||||||||
|
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|
|||||||||||||||
| 2,941 | 2,940 | 2,936 | 1 | 0.0 | % | 5 | 0.2 | % | ||||||||||||||||||||
|
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|
|||||||||||||||
| TRICARE—North Contract Eligibles |
3,010 | 3,090 | 3,077 | (80 | ) | (2.6 | )% | (67 | ) | (2.2 | )% | |||||||||||||||||
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Page 10
Health Net, Inc.
Consolidated Statements of Operations
($ in thousands, except per share data)
| Quarter Ended June 30, 2011 |
Quarter Ended March 31, 2011 |
Quarter Ended June 30, 2010 |
||||||||||
| REVENUES: |
||||||||||||
| Health plan services premiums |
$ | 2,566,719 | $ | 2,612,384 | $ | 2,507,318 | ||||||
| Government contracts |
171,015 | 875,127 | 851,939 | |||||||||
| Net investment income |
25,091 | 23,835 | 16,567 | |||||||||
| Administrative services fees and other income |
2,084 | 2,721 | 1,837 | |||||||||
| Northeast administrative services fees and other |
11,021 | 12,449 | 59,301 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenues |
2,775,930 | 3,526,516 | 3,436,962 | |||||||||
|
|
|
|
|
|
|
|||||||
| EXPENSES: |
||||||||||||
| Health plan services |
2,231,278 | 2,282,334 | 2,163,191 | |||||||||
| Government contracts |
130,828 | 822,152 | 811,386 | |||||||||
| General and administrative |
219,029 | 426,361 | 237,378 | |||||||||
| Selling |
57,571 | 60,691 | 56,574 | |||||||||
| Depreciation and amortization |
8,953 | 8,828 | 8,466 | |||||||||
| Interest |
8,238 | 7,620 | 8,761 | |||||||||
| Northeast administrative services expenses |
37,825 | 52,255 | 71,951 | |||||||||
| Adjustment to loss on sale of Northeast subsidiaries |
(6,283 | ) | (34,854 | ) | (8,171 | ) | ||||||
| Asset impairments |
— | — | 6,000 | |||||||||
| Early debt extinguishment |
— | — | 3,532 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total expenses |
2,687,439 | 3,625,387 | 3,359,068 | |||||||||
| Income (loss) from operations before income taxes |
88,491 | (98,871 | ) | 77,894 | ||||||||
| Income tax provision |
30,191 | 9,324 | 32,828 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) |
$ | 58,300 | $ | (108,195 | ) | $ | 45,066 | |||||
|
|
|
|
|
|
|
|||||||
| Basic earnings (loss) per share |
$ | 0.64 | $ | (1.16 | ) | $ | 0.46 | |||||
| Diluted earnings (loss) per share |
$ | 0.63 | $ | (1.16 | ) | $ | 0.45 | |||||
| Weighted average shares outstanding: |
||||||||||||
| Basic |
90,539 | 93,290 | 98,896 | |||||||||
| Diluted |
92,046 | 93,290 | 99,687 | |||||||||
Page 11
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
| June 30, 2011 |
March 31, 2011 |
June 30, 2010 |
||||||||||
| ASSETS |
||||||||||||
| Current Assets |
||||||||||||
| Cash and cash equivalents |
$ | 166,503 | $ | 142,297 | $ | 425,663 | ||||||
| Investments—available for sale |
1,576,132 | 1,658,788 | 1,487,497 | |||||||||
| Premiums receivable, net |
348,567 | 397,949 | 351,953 | |||||||||
| Amounts receivable under government contracts |
334,868 | 293,646 | 277,465 | |||||||||
| Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract |
52,373 | 292,649 | 280,151 | |||||||||
| Other receivables |
93,868 | 76,893 | 101,602 | |||||||||
| Deferred taxes |
16,990 | 25,471 | 39,217 | |||||||||
| Other assets |
232,636 | 229,568 | 188,578 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
2,821,937 | 3,117,261 | 3,152,126 | |||||||||
| Property and equipment, net |
122,713 | 122,966 | 119,356 | |||||||||
| Goodwill, net |
605,886 | 605,886 | 605,886 | |||||||||
| Other intangible assets, net |
22,413 | 23,270 | 26,111 | |||||||||
| Deferred taxes |
41,886 | 55,957 | 83,403 | |||||||||
| Investments—available for sale— noncurrent |
— | 8,870 | 2,985 | |||||||||
| Other noncurrent assets |
120,535 | 90,983 | 161,098 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Assets |
$ | 3,735,370 | $ | 4,025,193 | $ | 4,150,965 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current Liabilities |
||||||||||||
| Reserves for claims and other settlements |
$ | 900,724 | $ | 889,876 | $ | 934,879 | ||||||
| Health care and other costs payable under government contracts |
94,219 | 106,254 | 91,930 | |||||||||
| IBNR health care costs payable under TRICARE North contract |
52,373 | 292,649 | 280,151 | |||||||||
| Unearned premiums |
160,613 | 151,963 | 145,590 | |||||||||
| Borrowings under revolving credit facility |
185,000 | — | — | |||||||||
| Accounts payable and other liabilities |
229,735 | 514,957 | 410,961 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
1,622,664 | 1,955,699 | 1,863,511 | |||||||||
| Senior notes payable |
398,788 | 398,736 | 398,583 | |||||||||
| Borrowings under revolving credit facility |
— | — | 100,000 | |||||||||
| Other noncurrent liabilities |
223,962 | 184,159 | 155,131 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities |
2,245,414 | 2,538,594 | 2,517,225 | |||||||||
|
|
|
|
|
|
|
|||||||
| Stockholders’ Equity |
||||||||||||
| Common stock |
147 | 147 | 145 | |||||||||
| Additional paid-in capital |
1,265,061 | 1,255,246 | 1,209,130 | |||||||||
| Treasury common stock, at cost |
(1,826,076 | ) | (1,753,760 | ) | (1,548,166 | ) | ||||||
| Retained earnings |
2,049,444 | 1,991,144 | 1,956,252 | |||||||||
| Accumulated other comprehensive income (loss) |
1,380 | (6,178 | ) | 16,379 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total Stockholders’ Equity |
1,489,956 | 1,486,599 | 1,633,740 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Liabilities and Stockholders’ Equity |
$ | 3,735,370 | $ | 4,025,193 | $ | 4,150,965 | ||||||
|
|
|
|
|
|
|
|||||||
| Debt-to-Total Capital Ratio |
28.2 | % | 21.1 | % | 23.4 | % | ||||||
Page 12
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
| Quarter Ended June 30, 2011 |
Quarter Ended March 31, 2011 |
Quarter Ended June 30, 2010 |
||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
| Net income (loss) |
$ | 58,300 | $ | (108,195 | ) | $ | 45,066 | |||||
| Adjustments to reconcile net income (loss) to net cash (used in) operating activities: |
||||||||||||
| Amortization and depreciation |
8,953 | 8,828 | 8,466 | |||||||||
| Share-based compensation expense |
5,867 | 9,428 | 8,566 | |||||||||
| Deferred income taxes |
17,671 | 19,135 | 4,016 | |||||||||
| Excess tax benefits from share-based compensation |
(113 | ) | (1,164 | ) | — | |||||||
| Adjustment to loss on sale of business |
(6,283 | ) | (34,854 | ) | (8,171 | ) | ||||||
| Net realized (gain) on sale on investments |
(14,653 | ) | (12,298 | ) | (4,028 | ) | ||||||
| Asset impairments |
— | — | 6,000 | |||||||||
| Other changes |
4,210 | 2,571 | (15,826 | ) | ||||||||
| Changes in assets and liabilities: |
||||||||||||
| Premiums receivable and unearned premiums |
58,032 | (105,587 | ) | (63,068 | ) | |||||||
| Other current assets, receivables and noncurrent assets |
(34,799 | ) | 11,907 | 1,004 | ||||||||
| Amounts receivable/payable under government contracts |
(53,257 | ) | (34,801 | ) | 18,098 | |||||||
| Reserves for claims and other settlements |
10,848 | (52,148 | ) | (60,715 | ) | |||||||
| Accounts payable and other liabilities |
(200,608 | ) | 147,210 | 44,289 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash (used in) operating activities |
(145,832 | ) | (149,968 | ) | (16,303 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
| Sales of investments |
799,331 | 398,470 | 215,870 | |||||||||
| Maturities of investments |
43,490 | 74,407 | 72,327 | |||||||||
| Purchases of investments |
(742,362 | ) | (468,255 | ) | (278,523 | ) | ||||||
| Proceeds from sale of property and equipment |
— | — | 19 | |||||||||
| Purchases of property and equipment |
(10,707 | ) | (10,305 | ) | (5,460 | ) | ||||||
| Purchase price adjustment on sale of Northeast Health Plans |
— | 41,036 | (8,415 | ) | ||||||||
| Sales and purchases of restricted investments and other |
1,497 | (13,764 | ) | 4,594 | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by investing activities |
91,249 | 21,589 | 412 | |||||||||
|
|
|
|
|
|
|
|||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
| Proceeds from exercise of stock options and employee stock purchases |
3,806 | 7,990 | 196 | |||||||||
| Repurchases of common stock |
(76,379 | ) | (113,510 | ) | (79,285 | ) | ||||||
| Excess tax benefits from share-based compensation |
113 | 1,164 | — | |||||||||
| Borrowings under financing arrangements |
467,500 | — | 100,000 | |||||||||
| Repayment of borrowings under financing arrangements |
(282,500 | ) | — | (116,771 | ) | |||||||
| Net (decrease) increase in checks outstanding, net of deposits |
(33,751) | 24,894 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by (used in) financing activities |
78,789 | (79,462 | ) | (95,860 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in cash and cash equivalents |
24,206 | (207,841) | (111,751) | |||||||||
| Cash and cash equivalents, beginning of period |
142,297 | 350,138 | 537,414 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash and cash equivalents, end of period |
$ | 166,503 | $ | 142,297 | $ | 425,663 | ||||||
|
|
|
|
|
|
|
|||||||
Page 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 June 30, 2011 | Quarter Ended March 31, 2011 | Quarter Ended June 30, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Western Region Opera- tions1 |
Govern- ment Contracts7 |
Northeast Opera- tions3 |
Cor- porate/ Other4, 5, 6 |
Consoli- dated |
Western Region Opera- tions1 |
Govern- ment Contracts2 |
Northeast Opera- tions3 |
Cor- porate/ Other5, 6 |
Consoli- dated |
Western Region Opera- tions1 |
Govern- ment Contracts2 |
Northeast Opera- tions3 |
Cor- porate/ Other4, 6 |
Consoli- dated |
||||||||||||||||||||||||||||||||||||||||||||||
| Health plan services premiums |
$ | 2,566,393 | $ | 326 | $ | 2,566,719 | $ | 2,610,380 | $ | 2,004 | $ | 2,612,384 | $ | 2,484,282 | $ | 23,036 | $ | 2,507,318 | ||||||||||||||||||||||||||||||||||||||||||
| Government contracts |
171,015 | 171,015 | 875,127 | 875,127 | 851,939 | 851,939 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment income |
10,428 | 10 | 10,438 | 11,476 | 61 | 11,537 | 12,296 | 243 | 12,539 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on sale of investments |
14,653 | 14,653 | 12,298 | 12,298 | 4,028 | 4,028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Administrative services fees and other income |
2,084 | 2,084 | 2,721 | 2,721 | 7,275 | 22 | (5,460 | ) | 1,837 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Northeast administrative services fees and other |
11,021 | 11,021 | 12,449 | 12,449 | — | 59,301 | 59,301 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total revenues |
2,593,558 | 171,015 | 11,357 | — | 2,775,930 | 2,636,875 | 875,127 | 14,514 | — | 3,526,516 | 2,507,881 | 851,939 | 82,602 | (5,460 | ) | 3,436,962 | ||||||||||||||||||||||||||||||||||||||||||||
| Health plan services |
2,231,738 | (160 | ) | (300 | ) | 2,231,278 | 2,281,436 | 898 | 2,282,334 | 2,164,164 | 20,660 | (21,633 | ) | 2,163,191 | ||||||||||||||||||||||||||||||||||||||||||||||
| Government contracts |
130,802 | 26 | 130,828 | 817,299 | 4,853 | 822,152 | 810,466 | 920 | 811,386 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| G&A excluding insurance, taxes and fees |
195,774 | 563 | 3,561 | 199,898 | 217,622 | 873 | 183,377 | 401,872 | 194,704 | 687 | 23,992 | 219,383 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Insurance, taxes and fees |
19,005 | 126 | — | 19,131 | 24,334 | 155 | — | 24,489 | 17,995 | — | — | 17,995 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
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|
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|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| G&A including insurance, taxes and fees |
214,779 | 689 | 3,561 | 219,029 | 241,956 | 1,028 | 183,377 | 426,361 | 212,699 | 687 | 23,992 | 237,378 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Selling |
57,503 | 68 | 57,571 | 60,587 | 104 | 60,691 | 55,750 | 824 | 56,574 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
8,947 | 6 | 8,953 | 8,822 | 6 | 8,828 | 8,448 | 18 | 8,466 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest |
8,053 | 185 | 8,238 | 7,620 | — | 7,620 | 8,761 | — | 8,761 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Northeast administrative services expenses |
37,825 | 37,825 | 52,255 | 52,255 | 71,951 | 71,951 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to loss on sale of Northeast health plans |
(6,283 | ) | (6,283 | ) | (34,854 | ) | (34,854 | ) | (8,171 | ) | (8,171 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment |
— | — | 6,000 | 6,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Early debt extinguishment charge |
— | — | 3,532 | 3,532 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total expenses |
2,521,020 | 130,802 | 32,330 | 3,287 | 2,687,439 | 2,600,421 | 817,299 | 19,437 | 188,230 | 3,625,387 | 2,449,822 | 810,466 | 91,969 | 6,811 | 3,359,068 | |||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Income (loss) from operations before income taxes |
72,538 | 40,213 | (20,973 | ) | (3,287 | ) | 88,491 | 36,454 | 57,828 | (4,923 | ) | (188,230 | ) | (98,871 | ) | 58,059 | 41,473 | (9,367 | ) | (12,271 | ) | 77,894 | ||||||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) |
26,870 | 16,341 | (11,239 | ) | (1,781 | ) | 30,191 | 13,476 | 23,389 | (3,998 | ) | (23,543 | ) | 9,324 | 21,967 | 17,042 | (1,343 | ) | (4,838 | ) | 32,828 | |||||||||||||||||||||||||||||||||||||||
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Net income (loss) |
$ | 45,668 | $ | 23,872 | $ | (9,734 | ) | $ | (1,506 | ) | $ | 58,300 | $ | 22,978 | $ | 34,439 | $ | (925 | ) | $ | (164,687 | ) | $ | (108,195 | ) | $ | 36,092 | $ | 24,431 | $ | (8,024 | ) | $ | (7,433 | ) | $ | 45,066 | |||||||||||||||||||||||
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| Basic earnings (loss) per share |
$ | 0.50 | $ | 0.26 | $ | (0.11 | ) | $ | (0.02 | ) | $ | 0.64 | $ | 0.25 | $ | 0.37 | $ | (0.01 | ) | $ | (1.77 | ) | $ | (1.16 | ) | $ | 0.36 | $ | 0.25 |
$ | (0.08 | ) | $ | (0.08 | ) | $ | 0.46 | |||||||||||||||||||||||
| Diluted earnings (loss) per share |
$ | 0.50 | $ | 0.26 | $ | (0.11 | ) | $ | (0.02 | ) | $ | 0.63 | $ | 0.24 | $ | 0.37 | $ | (0.01 | ) | $ | (1.77 | ) | $ | (1.16 | ) | $ | 0.36 | $ | 0.25 | $ | (0.08 | ) | $ | (0.08 | ) | $ | 0.45 | |||||||||||||||||||||||
| Basic weighted average shares outstanding |
90,539 | 90,539 | 90,539 | 90,539 | 90,539 | 93,290 | 93,290 | 93,290 | 93,290 | 93,290 | 98,896 | 98,896 | 98,896 | 98,896 | 98,896 | |||||||||||||||||||||||||||||||||||||||||||||
| Diluted weighted average shares outstanding |
92,046 | 92,046 | 90,539 | 90,539 | 92,046 | 94,843 | 94,843 | 93,290 | 93,290 | 93,290 | 99,687 | 99,687 | 98,896 | 98,896 | 99,687 | |||||||||||||||||||||||||||||||||||||||||||||
| Pretax margin |
2.8 | % | 23.5 | % | 1.4 | % | 6.6 | % | 2.3 | % | 4.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial premium yield |
4.7 | % | 5.7 | % | 9.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial premium PMPM |
$ | 356.51 | $ | 355.61 | $ | 340.38 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial health care cost trend |
4.0 | % | 5.0 | % | 9.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial health care cost PMPM |
$ | 305.63 | $ | 304.86 | $ | 293.81 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial MCR |
85.7 | % | 85.7 | % | 86.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Medicare Advantage MCR |
90.9 | % | 89.0 | % | 88.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Medicare PDP (stand-alone) MCR |
87.4 | % | 101.1 | % | 85.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Medicaid MCR |
85.2 | % | 85.0 | % | 88.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Health plan services MCR |
87.0 | % | 87.4 | % | 87.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| G&A expense ratio |
8.4 | % | 9.3 | % | 8.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling costs ratio |
2.2 | % | 2.3 | % | 2.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective tax rate |
37.0 | % | 40.6 | % | 37.0 | % | 40.4 | % | 37.8 | % | 41.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| 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 the operations of the company’s businesses that provided administrative services through June 30, 2011 pursuant to administrative services agreements (“ASA”) entered into with UnitedHealthcare and its affiliates, as well as the operations of the company’s health and life insurance companies in Connecticut, New Jersey and New York. The ASA terminated on July 1, 2011. |
| 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 overhead 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 the operating results of the prior TRICARE contract, which is in run-out. |
Page 14
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) and stand-alone Prescription Drug Plan (PDP) payables/costs from the claims reserve and health plan costs.
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. Therefore, management believes that adjusted DCP may present a more accurate reflection of DCP calculated from claims-based reserves than does GAAP DCP, which includes such costs. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.
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: | Q2 2011 | Q1 2011 | Q2 2010 | |||||||||||
| (1) |
Reserve for Claims and Other Settlements | $ | 900.7 | $ | 889.9 | $ | 934.9 | |||||||
| Less: Capitation, Provider and Other Claim Settlements and MAPD and PDP Payables | (121.0 | ) | (113.0 | ) | (155.6 | ) | ||||||||
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| (2) |
Reserve for Claims and Other Settlements - Adjusted | $ | 779.7 | $ | 776.9 | $ | 779.3 | |||||||
| (3) |
Health Plan Services Cost | $ | 2,231.3 | $ | 2,282.3 | $ | 2,163.2 | |||||||
| Less: Capitation, Provider and Other Claim Settlements and MAPD and PDP Costs | (867.8 | ) | (933.4 | ) | (839.0 | ) | ||||||||
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| (4) |
Health Plan Services Cost - Adjusted | $ | 1,363.5 | $ | 1,348.9 | $ | 1,324.2 | |||||||
| (5) |
Number of Days in Period | 91 | 90 | 91 | ||||||||||
| = (1) / (3) * (5) Days Claims Payable - (using end of period reserve amount) |
36.7 | 35.1 | 39.3 | |||||||||||
| = (2) / (4) * (5) Days Claims payable - Adjusted (using end of period reserve amount) |
52.0 | 51.8 | 53.6 | |||||||||||
Page 15
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
($ in millions)
| Health Plan Services | ||||||||||||
| YTD 6/2011 | FY 2010 | FY 2009 | ||||||||||
| Reserve for claims (a), beginning of period |
$ | 727.5 | $ | 692.2 | $ | 957.1 | ||||||
| Incurred claims related to: |
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| Current Year |
2,403.1 | 4,644.2 | 6,422.8 | |||||||||
| Prior Years (c) |
(90.6 | ) | (70.0 | ) | (80.0 | ) | ||||||
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| Total Incurred (b) |
2,312.5 | 4,574.2 | 6,342.8 | |||||||||
| Paid claims related to: |
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| Current Year |
1,757.7 | 3,929.3 | 5,572.2 | |||||||||
| Prior Years |
589.8 | 609.6 | 857.8 | |||||||||
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| Total Paid (b) |
2,347.5 | 4,538.9 | 6,430.0 | |||||||||
| Less: Divested businesses |
— | — | (177.7 | ) | ||||||||
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| Reserve for claims (a), end of period |
692.5 | 727.5 | 692.2 | |||||||||
| Add: |
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| Claims Payable (d) |
104.6 | 123.6 | 165.6 | |||||||||
| Other (e) |
103.6 | 90.9 | 93.9 | |||||||||
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| Reserves for claims and other settlements, end of period |
$ | 900.7 | $ | 942.0 | $ | 951.7 | ||||||
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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. |
Page 16