LOS ANGELES--(BUSINESS WIRE)--Health Net, Inc. (NYSE:HNT) today announced 2010 fourth quarter GAAP net income of $80.4 million, or $0.83 per diluted share, compared with a GAAP net loss of $45.2 million, or $0.43 per share, for the fourth quarter of 2009.
The company’s Western Region Operations and Government Contracts segments produced combined net earnings of $0.80 per diluted share in the fourth quarter of 2010 and $0.79 per diluted share in the fourth quarter of 2009.
For the full year 2010, Health Net reported GAAP net income of $204.2 million, or $2.06 per diluted share, compared with a net loss of $49.0 million, or $0.47 per share, for the full year 2009.
The company’s Western Region Operations and Government Contracts segments produced combined net earnings of $2.60 per diluted share for the full year 2010 and $2.58 per diluted share for the full year 2009.
“Our solid fourth quarter and full year 2010 results affirm that our ongoing efforts to sharpen the focus of the company continue to drive improved performance,” said Jay Gellert, Health Net’s chief executive officer. “Membership in our efficient-network commercial products is growing. Our balance sheet strengthened throughout 2010, and we ended the year with a debt-to-total capital ratio of less than 20 percent. Our strong results produced cash flow that supported more than $230 million of share repurchases in 2010.
“With a successful 2010 behind us, our goal is to achieve further improvement in 2011. We believe we have had the best open enrollment commercial selling season in many years, and this supports our view that we will achieve commercial enrollment growth in 2011. In addition, the preliminary government enrollment data shows that our 2011 Medicare Advantage enrollment is better than we expected when we issued our 2011 guidance in December 2010,” Gellert added.
The fourth quarter 2010 GAAP results include:
- a $24.9 million noncash benefit to health plan expenses related to a litigation reserve true-up; and
- $13.0 million of expenses primarily related to litigation expenses and the company’s overhead cost reduction efforts.
CONSOLIDATED RESULTS
Health Net’s total revenues decreased 11.2 percent in the fourth quarter of 2010 to $3.4 billion from $3.8 billion in the fourth quarter of 2009. Health plan services premium revenues decreased by 16.5 percent in the fourth quarter of 2010 to $2.5 billion from $3.0 billion in the fourth quarter of 2009. Health plan services expenses decreased by 17.9 percent in the fourth quarter of 2010 to $2.1 billion from $2.6 billion in the fourth quarter of 2009.
Investment income decreased to $15.2 million in the fourth quarter of 2010 compared with $33.5 million in the fourth quarter of 2009.
The decreases on these year-over-year comparisons are primarily the result of the company’s sale of its Northeast businesses in December 2009.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total health plan enrollment at December 31, 2010 was approximately 2.9 million members, a decrease of approximately 2.6 percent compared with enrollment at December 31, 2009. Total enrollment in the company’s California health plan was essentially flat with 2.2 million members at both December 31, 2009 and December 31, 2010.
“Enrollment growth in our small group and midsize markets continues, driven by our innovative efficient-network products. The rate of in-group losses is steadily slowing as the economy stabilizes, supporting our belief that we can achieve commercial enrollment growth in 2011,” said Jim Woys, Health Net’s chief operating officer.
As of December 31, 2010, efficient-network products accounted for 23.0 percent of the company’s Western Region commercial enrollment compared with 19.0 percent at December 31, 2009.
Commercial enrollment in the Western Region declined by 4.4 percent from December 31, 2009 to approximately 1.4 million members on December 31, 2010. The decline in commercial enrollment is consistent with overall weak employment levels in the company’s western markets.
Medicaid enrollment in California at December 31, 2010 was 901,000 members, an increase of 44,000 members, or 5.1 percent, from December 31, 2009.
Enrollment in the company’s Medicare Advantage plans in the Western Region at December 31, 2010 was 222,000 members, a decrease of 2.2 percent compared with December 31, 2009.
Membership in the company’s Medicare Part D plans was 427,000 at the end of the fourth quarter of 2010, a 7.2 percent decrease compared with the end of the fourth quarter of 2009, and in-line with the company’s expectations.
Revenues
Total revenues for the Western Region in the fourth quarter of 2010 were flat at $2.5 billion compared with the fourth quarter of 2009.
Investment income for the Western Region was $15.1 million in the fourth quarter of 2010 compared with $24.2 million in the fourth quarter of 2009 and $19.2 million in the third quarter of 2010.
Health Plan Services Expenses
Health plan services expenses in the Western Region were flat at $2.1 billion in the fourth quarter of 2010 compared with the fourth quarter of 2009.
Commercial Premium Yield and Health Care Cost Trends
In the Western Region, commercial premiums per member per month (PMPM) increased by 6.8 percent to approximately $344 in the fourth quarter of 2010 compared with $322 in the fourth quarter of 2009.
Commercial health care costs PMPM in the Western Region increased by 5.7 percent to approximately $294 in the fourth quarter of 2010 compared with approximately $278 in the fourth quarter of 2009.
“We continued to see growth in the commercial gross margin PMPM in the fourth quarter of 2010, as it increased approximately 13.5 percent from the fourth quarter of 2009,” Woys noted.
Medical Care Ratios (MCR)
The health plan services MCR in the Western Region was 85.2 percent in the fourth quarter of 2010 compared with 85.8 percent in the fourth quarter of 2009. The full year 2010 health plan services MCR was 86.6 percent compared with 86.7 percent in 2009.
The Western Region commercial MCR was 85.5 percent in the fourth quarter of 2010 compared with 86.4 percent in the fourth quarter of 2009 and 86.3 percent in the third quarter of 2010. The full year 2010 commercial MCR was 86.1 percent compared with 86.8 percent for the full year 2009.
“The improvement in our commercial MCR is the result of continued pricing and underwriting discipline and less than expected health care cost increases,” Woys added.
The Medicare Advantage (MA) MCR in the Western Region was 89.4 percent in the fourth quarter of 2010 compared with 88.6 percent in the fourth quarter of 2009.
The full year 2010 MA MCR in the Western Region was 88.8 percent compared with 88.1 percent for the full year 2009.
The company’s Medicare Part D MCR was 53.1 percent in the fourth quarter of 2010 compared with 59.7 percent in the fourth quarter of 2009. The full year 2010 Part D MCR was 77.2 percent compared with 78.4 percent for the full year 2009.
General & Administrative (G&A) and Selling Expense
G&A expense in the Western Region was $230.9 million in the fourth quarter of 2010 compared with $215.2 million in the fourth quarter of 2009. The G&A expense ratio was 9.3 percent in the fourth quarter of 2010, and increased 50 basis points from 8.8 percent in the fourth quarter of 2009 and 60 basis points sequentially from 8.7 percent in the third quarter of 2010.
“The G&A ratio for the full year 2010 was 8.9 percent, within our 2010 guidance range of 8.8 percent to 9.0 percent. Our cost reduction efforts will continue to focus on reducing overhead in 2011,” Woys added.
Selling expense in the Western Region was $63.9 million in the fourth quarter of 2010 compared with $58.9 million in the fourth quarter of 2009.
GOVERNMENT CONTRACTS SEGMENT
The company’s Government Contracts revenues increased 9.0 percent in the fourth quarter of 2010 to $822.4 million from $754.8 million in the fourth quarter of 2009.
The Government Contracts cost ratio increased from 93.2 percent in the fourth quarter of 2009 to 93.7 percent in the fourth quarter of 2010.
BALANCE SHEET
Cash and investments as of December 31, 2010 were approximately $2.0 billion compared with approximately $2.1 billion as of December 31, 2009.
Reserves for claims and other settlements as of December 31, 2010 were $942.0 million compared with $951.7 million as of December 31, 2009 and $904.4 million as of September 30, 2010.
Days claims payable (DCP) for the fourth quarter of 2010 was 41.3 days compared with 34.2 days in the fourth quarter of 2009 and 39.0 days in the third quarter of 2010.
On an adjusted1 basis, DCP in the fourth quarter of 2010 was 57.3 days compared with 56.8 days in the fourth quarter of 2009 and 53.6 days in the third quarter of 2010.
The company’s debt-to-total capital ratio was 19.0 percent as of December 31, 2010 compared with 26.2 percent as of December 31, 2009 and 22.7 percent as of September 30, 2010.
Interest expense was $8.1 million in the fourth quarter of 2010 compared with $9.5 million in the fourth quarter of 2009. This decline was due to the decrease in the company’s total outstanding debt.
CASH FLOW
Operating cash flow was $214.6 million in the fourth quarter of 2010. The company did not receive $64.3 million in expected Medicaid payments from the state of California in the fourth quarter of 2010. The company received these payments in January 2011.
“For 2010, operating cash flow exceeded net income plus depreciation and amortization underscoring both the quality of our earnings and the tangible results of our organizational focus on cash flow generation,” said Joseph Capezza, Health Net’s chief financial officer.
NORTHEAST OPERATIONS SEGMENT
Health Net continues to serve the members of the sold Northeast companies under administrative services agreements (ASAs) that the company entered into with UnitedHealthcare and its affiliates on the closing date of the transaction. Health Net will serve these members until they are either transitioned to other UnitedHealthcare products or not renewed. The company expects the ASAs to remain in effect through the second quarter of 2011. After that time, the company will continue to pay run-out claims pursuant to claims servicing agreements with UnitedHealthcare and its affiliates.
The revenues and expenses associated with the company’s Northeast Operations in the fourth quarter of 2010 were $49.7 million and $63.6 million, respectively, and they are shown separately in the accompanying Segment Information table.
SHARE REPURCHASE UPDATE
In the fourth quarter of 2010, Health Net repurchased 2.2 million shares for approximately $54.5 million at an average price of $26.76 per share. At December 31, 2010, approximately $149.8 million of authorization under the company’s existing $300 million share repurchase program remained.
“With our strong cash position supported by operating cash flow and additional proceeds from the sale of our Northeast health plans, in 2010 we repurchased 9.1 million shares, or approximately 9.0 percent of the shares outstanding as of the end of 2009,” said Capezza.
2011 GUIDANCE
Following is a table with specific 2011 guidance metrics. The company will provide more details of its 2011 expectations at its 2011 Investor Day, which is scheduled for February 17, 2011, in New York.
|
Metric |
2011 Guidance |
||||
|
Year-end Membership(a) |
Commercial: +1% to +2% |
||||
|
Medicaid: +6% to +7% |
|||||
|
Medicare Advantage(d): -15% to -17% |
|||||
|
Total Western Region Operations |
|||||
|
medical membership: +2% to +3% |
|||||
|
PDP(d): -14% to -16% |
|||||
|
Consolidated Revenues(b) (d) |
$12.0 billion to $12.5 billion |
||||
|
Commercial Yields(a) |
~7.8% to 8.3% |
||||
|
Commercial Health Care Cost Trends(a) |
~40 to 60 basis points < premium yields |
||||
|
Selling Cost Ratio(a) |
~ 2.3% to 2.4% |
||||
|
G&A Expense Ratio(a) |
~ 8.7% to 8.9% |
||||
|
Tax Rate(b) |
~39.2% |
||||
|
Weighted-average Fully Diluted |
|||||
|
Shares Outstanding(c) |
96 million to 97 million |
||||
|
GAAP EPS(c) (d) |
At least $2.05 |
||||
|
Combined Western Region |
|||||
|
Operations and Government |
|||||
|
Contracts EPS(c) (d) |
At least $2.75 |
||||
| (a) | For the company’s Western Region Operations | |
| (b) | For the combined Western Region Operations and Government Contracts segments | |
| (c) | The company’s guidance does not include the impact of share repurchases other than to counter dilution. | |
| (d) | Includes the expected impact of the CMS sanctions previously announced on November 19, 2010 | |
CONFERENCE CALL
As previously announced, Health Net will discuss the company’s fourth quarter and year-end 2010 results during a conference call on Tuesday, February 1, 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 33605867. A replay of the conference call will be available through February 6, 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, 2009 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, and other reports filed by the company from time to time with the Securities and Exchange Commission.
ABOUT HEALTH NET
Health Net, Inc. is 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. The company provides health benefits to approximately 6.0 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, Department of Defense, including TRICARE, and Veterans Affairs programs. Health Net’s behavioral health services subsidiary, Managed Health Network, Inc., provides behavioral health, substance abuse and employee assistance programs to approximately 5.4 million individuals, including Health Net’s own health plan members. 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 Patient Protection and Affordable Care Act, which could materially adversely affect the company’s financial condition, results of operations and cash flows through, among other things, reduced revenues, new taxes, expanded liability, and increased costs (including medical, administrative, technology or other costs), or require changes to the ways in which the company does business; rising health care costs; continued slow economic growth or a further decline in the economy; negative prior period claims reserve developments; trends in medical care ratios; membership declines; unexpected utilization patterns or unexpectedly severe or widespread illnesses; rate cuts affecting the company’s Medicare or Medicaid businesses; costs, fees and expenses related to the post-closing administrative services provided under the administrative services agreements entered into in connection with the sale of the company’s Northeast business; potential termination of the administrative services agreements by the service recipients should Health Net breach such agreements or fail to perform all or a material part of the services required thereunder; any liabilities of the Northeast business that were incurred prior to the closing of its sale as well as those liabilities incurred through the winding-up and running-out period of the Northeast business; litigation costs; regulatory issues with agencies such as the California Department of Managed Health Care, the Centers for Medicare and Medicaid Services and state departments of insurance, including the continued suspension of the marketing of and enrollment into Health Net’s Medicare products for a significant period of time, which could have a material adverse impact on the company’s Medicare business; operational issues; investment portfolio impairment charges; volatility in the financial markets; and general business and market conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (“SEC”), and the risks discussed in the company’s other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
The financial information presented in this press release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the company’s Form 10-K for the year ended December 31, 2010.
|
___________________________________ |
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| 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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| Enrollment Data - By State | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Change from | ||||||||||||||||||||
| September 30, 2010 | December 31, 2009 | |||||||||||||||||||
| Dec 31, | Sept 30, | Dec 31, | Increase/ | % | Increase/ | % | ||||||||||||||
| 2010 | 2010 | 2009 | (Decrease) | Change | (Decrease) | Change | ||||||||||||||
| California | ||||||||||||||||||||
| Large Group | 843 | 844 | 870 | (1 | ) | (0.1 | )% | (27 | ) | (3.1 | )% | |||||||||
|
Small Group and Individual |
348 | 351 | 357 | (3 | ) | (0.9 | )% | (9 | ) | (2.5 | )% | |||||||||
| Commercial Risk | 1,191 | 1,195 | 1,227 | (4 | ) | (0.3 | )% | (36 | ) | (2.9 | )% | |||||||||
| ASO | 0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | ||||||||||
| Total Commercial | 1,191 | 1,195 | 1,232 | (4 | ) | (0.3 | )% | (41 | ) | (3.3 | )% | |||||||||
| Medicare Advantage | 133 | 133 | 137 | 0 | 0.0 | % | (4 | ) | (2.9 | )% | ||||||||||
| Medi-Cal | 901 | 896 | 857 | 5 | 0.6 | % | 44 | 5.1 | % | |||||||||||
| Total California | 2,225 | 2,224 | 2,226 | 1 | 0.0 | % | (1 | ) |
0.0 |
% |
||||||||||
| Arizona | ||||||||||||||||||||
| Large Group | 56 | 53 | 59 | 3 | 5.7 | % | (3 | ) | (5.1 | )% | ||||||||||
| Small Group and Individual | 41 | 39 | 37 | 2 | 5.1 | % | 4 | 10.8 | % | |||||||||||
| Commercial Risk | 97 | 92 | 96 | 5 | 5.4 | % | 1 | 1.0 | % | |||||||||||
| Medicare Advantage | 49 | 49 | 65 | 0 | 0.0 | % | (16 | ) | (24.6 | )% | ||||||||||
| Total Arizona | 146 | 141 | 161 | 5 | 3.5 | % | (15 | ) | (9.3 | )% | ||||||||||
| Oregon | ||||||||||||||||||||
| Large Group | 51 | 52 | 72 | (1 | ) | (1.9 | )% | (21 | ) | (29.2 | )% | |||||||||
| Small Group and Individual | 44 | 46 | 46 | (2 | ) | (4.3 | )% | (2 | ) | (4.3 | )% | |||||||||
| Commercial Risk | 95 | 98 | 118 | (3 | ) | (3.1 | )% | (23 | ) | (19.5 | )% | |||||||||
| Medicare Advantage | 40 | 39 | 25 | 1 | 2.6 | % | 15 | 60.0 | % | |||||||||||
| Total Oregon | 135 | 137 | 143 | (2 | ) | (1.5 | )% | (8 | ) | (5.6 | )% | |||||||||
| Total Health Plan Enrollment | ||||||||||||||||||||
| Large Group | 950 | 949 | 1,001 | 1 | 0.1 | % | (51 | ) | (5.1 | )% | ||||||||||
| Small Group and Individual | 433 | 436 | 440 | (3 | ) | (0.7 | )% | (7 | ) | (1.6 | )% | |||||||||
| Commercial Risk | 1,383 | 1,385 | 1,441 | (2 | ) | (0.1 | )% | (58 | ) | (4.0 | )% | |||||||||
| ASO | 0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | ||||||||||
| Total Commercial | 1,383 | 1,385 | 1,446 | (2 | ) | (0.1 | )% | (63 | ) | (4.4 | )% | |||||||||
| Medicare Advantage | 222 | 221 | 227 | 1 | 0.5 | % | (5 | ) | (2.2 | )% | ||||||||||
| Medi-Cal/Medicaid | 901 | 896 | 857 | 5 | 0.6 | % | 44 | 5.1 | % | |||||||||||
| Medicare PDP (stand-alone) | 427 | 432 | 460 | (5 | ) | (1.2 | )% | (33 | ) | (7.2 | )% | |||||||||
| Western Region Operations | 2,933 | 2,934 | 2,990 | (1 | ) |
0.0 |
% |
(57 | ) | (1.9 | )% | |||||||||
| Northeast Operations | 7 | 10 | 28 | (3 | ) | (30.0 | )% | (21 | ) | (75.0 | )% | |||||||||
| 2,940 | 2,944 | 3,018 | (4 | ) | (0.1 | )% | (78 | ) | (2.6 | )% | ||||||||||
| TRICARE - North Contract Eligibles | 3,090 | 3,077 | 3,067 | 13 | 0.4 | % | 23 | 0.7 | % | |||||||||||
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| Enrollment Data - Line of Business | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||
| Change from | |||||||||||||||||||
| September 30, 2010 | December 31, 2009 | ||||||||||||||||||
| Dec 31, | Sept 30, | Dec 31, | Increase/ | % | Increase/ | % | |||||||||||||
| 2010 | 2010 | 2009 | (Decrease) | Change | (Decrease) | Change | |||||||||||||
| Large Group | |||||||||||||||||||
| California | 843 | 844 | 870 | (1 | ) | (0.1 | )% | (27 | ) | (3.1 | )% | ||||||||
| Arizona | 56 | 53 | 59 | 3 | 5.7 | % | (3 | ) | (5.1 | )% | |||||||||
| Oregon | 51 | 52 | 72 | (1 | ) | (1.9 | )% | (21 | ) | (29.2 | )% | ||||||||
| 950 | 949 | 1,001 | 1 | 0.1 | % | (51 | ) | (5.1 | )% | ||||||||||
| Small Group and Individual | |||||||||||||||||||
| California | 348 | 351 | 357 | (3 | ) | (0.9 | )% | (9 | ) | (2.5 | )% | ||||||||
| Arizona | 41 | 39 | 37 | 2 | 5.1 | % | 4 | 10.8 | % | ||||||||||
| Oregon | 44 | 46 | 46 | (2 | ) | (4.3 | )% | (2 | ) | (4.3 | )% | ||||||||
| 433 | 436 | 440 | (3 | ) | (0.7 | )% | (7 | ) | (1.6 | )% | |||||||||
| Commercial Risk | |||||||||||||||||||
| California | 1,191 | 1,195 | 1,227 | (4 | ) | (0.3 | )% | (36 | ) | (2.9 | )% | ||||||||
| Arizona | 97 | 92 | 96 | 5 | 5.4 | % | 1 | 1.0 | % | ||||||||||
| Oregon | 95 | 98 | 118 | (3 | ) | (3.1 | )% | (23 | ) | (19.5 | )% | ||||||||
| 1,383 | 1,385 | 1,441 | (2 | ) | (0.1 | )% | (58 | ) | (4.0 | )% | |||||||||
| ASO | 0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | |||||||||
| Total Commercial | |||||||||||||||||||
| California | 1,191 | 1,195 | 1,232 | (4 | ) | (0.3 | )% | (41 | ) | (3.3 | )% | ||||||||
| Arizona | 97 | 92 | 96 | 5 | 5.4 | % | 1 | 1.0 | % | ||||||||||
| Oregon | 95 | 98 | 118 | (3 | ) | (3.1 | )% | (23 | ) | (19.5 | )% | ||||||||
| 1,383 | 1,385 | 1,446 | (2 | ) | (0.1 | )% | (63 | ) | (4.4 | )% | |||||||||
| Medicare Advantage | |||||||||||||||||||
| California | 133 | 133 | 137 | 0 | 0.0 | % | (4 | ) | (2.9 | )% | |||||||||
| Arizona | 49 | 49 | 65 | 0 | 0.0 | % | (16 | ) | (24.6 | )% | |||||||||
| Oregon | 40 | 39 | 25 | 1 | 2.6 | % | 15 | 60.0 | % | ||||||||||
| 222 | 221 | 227 | 1 | 0.5 | % | (5 | ) | (2.2 | )% | ||||||||||
| Medi-Cal/Medicaid | |||||||||||||||||||
| California | 901 | 896 | 857 | 5 | 0.6 | % | 44 | 5.1 | % | ||||||||||
| Total Health Plan Enrollment | |||||||||||||||||||
| Large Group | 950 | 949 | 1,001 | 1 | 0.1 | % | (51 | ) | (5.1 | )% | |||||||||
| Small Group and Individual | 433 | 436 | 440 | (3 | ) | (0.7 | )% | (7 | ) | (1.6 | )% | ||||||||
| Commercial Risk | 1,383 | 1,385 | 1,441 | (2 | ) | (0.1 | )% | (58 | ) | (4.0 | )% | ||||||||
| ASO | 0 | 0 | 5 | 0 | 0.0 | % | (5 | ) | (100.0 | )% | |||||||||
| Total Commercial | 1,383 | 1,385 | 1,446 | (2 | ) | (0.1 | )% | (63 | ) | (4.4 | )% | ||||||||
| Medicare Advantage | 222 | 221 | 227 | 1 | 0.5 | % | (5 | ) | (2.2 | )% | |||||||||
| Medi-Cal/Medicaid | 901 | 896 | 857 | 5 | 0.6 | % | 44 | 5.1 | % | ||||||||||
| Medicare PDP (stand-alone) | 427 | 432 | 460 | (5 | ) | (1.2 | )% | (33 | ) | (7.2 | )% | ||||||||
| Western Region Operations | 2,933 | 2,934 | 2,990 | (1 | ) |
0.0 |
% |
(57 | ) | (1.9 | )% | ||||||||
| Northeast Operations | 7 | 10 | 28 | (3 | ) | (30.0 | )% | (21 | ) | (75.0 | )% | ||||||||
| 2,940 | 2,944 | 3,018 | (4 | ) | (0.1 | )% | (78 | ) | (2.6 | )% | |||||||||
| TRICARE - North Contract Eligibles | 3,090 | 3,077 | 3,067 | 13 | 0.4 | % | 23 | 0.7 | % | ||||||||||
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| Consolidated Statements of Operations | |||||||||||||||||||||
| ($ in thousands, except per share data) | |||||||||||||||||||||
| Quarter Ended | Quarter Ended | Quarter Ended | Year Ended | Year Ended | |||||||||||||||||
| December 31, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||||
| REVENUES: | 2010 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
| Health plan services premiums | $ | 2,491,124 | $ | 2,470,939 | $ | 2,981,678 | $ | 9,996,888 | $ | 12,440,589 | |||||||||||
| Government contracts | 822,388 | 860,697 | 754,766 | 3,344,483 | 3,104,700 | ||||||||||||||||
| Net investment income | 15,226 | 19,466 | 33,486 | 71,181 | 105,930 | ||||||||||||||||
| Administrative services fees and other income | 4,953 | 5,487 | 28,165 | 21,133 | 62,022 | ||||||||||||||||
| Northeast administrative services fees and other | 39,643 | 36,863 | - | 186,167 | - | ||||||||||||||||
| 3,373,334 | 3,393,452 | 3,798,095 | 13,619,852 | 15,713,241 | |||||||||||||||||
| EXPENSES: | |||||||||||||||||||||
| Health plan services | 2,099,969 | 2,134,701 | 2,557,149 | 8,609,117 | 10,731,951 | ||||||||||||||||
| Government contracts | 770,487 | 814,385 | 707,353 | 3,168,160 | 2,939,722 | ||||||||||||||||
| General and administrative | 245,861 | 225,929 | 355,407 | 956,264 | 1,361,956 | ||||||||||||||||
| Selling | 64,333 | 59,021 | 84,068 | 238,759 | 330,112 | ||||||||||||||||
| Depreciation and amortization | 9,012 | 8,659 | 8,605 | 34,800 | 53,042 | ||||||||||||||||
| Interest | 8,085 | 8,150 | 9,538 | 34,880 | 40,887 | ||||||||||||||||
| Northeast administrative services expenses | 63,727 | 61,878 | - | 279,434 | - | ||||||||||||||||
| Adjustment to loss on sale of Northeast subsidiaries | (12,331 | ) | (21,457 | ) | 105,931 | (41,959 | ) | 105,931 | |||||||||||||
| Asset impairments | - | - | 4,309 | 6,000 | 174,879 | ||||||||||||||||
| Early debt extinguishment | - | - | - | 3,532 | - | ||||||||||||||||
| 3,249,143 | 3,291,266 | 3,832,360 | 13,288,987 | 15,738,480 | |||||||||||||||||
| Income (loss) from operations before income taxes | 124,191 | 102,186 | (34,265 | ) | 330,865 | (25,239 | ) | ||||||||||||||
| Income tax provision (benefit) | 43,787 | 39,503 | 10,892 | 126,622 | 23,765 | ||||||||||||||||
| Net income (loss) | $ | 80,404 | $ | 62,683 | $ | (45,157 | ) | $ | 204,243 | $ | (49,004 | ) | |||||||||
| Basic earnings (loss) per share | $ | 0.84 | $ | 0.64 | $ | (0.43 | ) | $ | 2.08 | $ | (0.47 | ) | |||||||||
| Diluted earnings (loss) per share | $ | 0.83 | $ | 0.64 | $ | (0.43 | ) | $ | 2.06 | $ | (0.47 | ) | |||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||
| Basic | 95,697 | 97,349 | 103,902 | 98,232 | 103,849 | ||||||||||||||||
| Diluted | 96,885 | 98,304 | 103,902 | 99,232 | 103,849 | ||||||||||||||||
|
Health Net, Inc. |
|||||||||||||
|
Condensed Consolidated Balance Sheets |
|||||||||||||
|
(Amounts in thousands, except ratio data) |
|||||||||||||
| December 31, | September 30, | December 31, | |||||||||||
| 2010 | 2010 | 2009 | |||||||||||
| ASSETS | |||||||||||||
| Current Assets | |||||||||||||
| Cash and cash equivalents | $ | 304,229 | $ | 446,301 | $ | 682,803 | |||||||
| Investments - available for sale | 1,663,218 | 1,420,124 | 1,376,142 | ||||||||||
| Premiums receivable, net | 298,892 | 407,467 | 288,719 | ||||||||||
| Amounts receivable under government contracts | 266,456 | 213,000 | 270,810 | ||||||||||
|
Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract |
284,247 | 348,249 | 281,140 | ||||||||||
| Other receivables | 136,323 | 107,156 | 111,608 | ||||||||||
| Deferred taxes | 45,769 | 63,573 | 46,527 | ||||||||||
| Other assets | 182,252 | 207,545 | 187,086 | ||||||||||
| Total current assets | 3,181,386 | 3,213,415 | 3,244,835 | ||||||||||
| Property and equipment, net | 123,137 | 125,039 | 131,480 | ||||||||||
| Goodwill, net | 605,886 | 605,886 | 611,886 | ||||||||||
| Other intangible assets, net | 24,217 | 25,164 | 28,108 | ||||||||||
| Deferred taxes | 50,648 | 56,987 | 89,479 | ||||||||||
| Investments - available for sale- noncurrent | 8,756 | - | 20,870 | ||||||||||
| Other noncurrent assets | 91,754 | 165,922 | 155,993 | ||||||||||
| Total Assets | $ | 4,085,784 | $ | 4,192,413 | $ | 4,282,651 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
| Current Liabilities | |||||||||||||
| Reserves for claims and other settlements | $ | 942,024 | $ | 904,377 | $ | 951,655 | |||||||
| Health care and other costs payable under government contracts | 113,865 | 58,628 | 90,815 | ||||||||||
| IBNR health care costs payable under TRICARE North contract | 284,247 | 348,249 | 281,140 | ||||||||||
| Unearned premiums | 158,493 | 153,539 | 135,772 | ||||||||||
| Borrowings under amortizing financing facility | - | - | 104,007 | ||||||||||
| Accounts payable and other liabilities | 356,115 | 379,414 | 366,125 | ||||||||||
| Total current liabilities | 1,854,744 | 1,844,207 | 1,929,514 | ||||||||||
| Senior notes payable | 398,685 | 398,634 | 398,480 | ||||||||||
| Borrowings under revolving credit facility | - | 100,000 | 100,000 | ||||||||||
| Other noncurrent liabilities | 137,939 | 156,098 | 158,874 | ||||||||||
| Total Liabilities | 2,391,368 | 2,498,939 | 2,586,868 | ||||||||||
| Stockholders' Equity | |||||||||||||
| Common stock | 145 | 145 | 154 | ||||||||||
| Additional paid-in capital | 1,221,301 | 1,214,253 | 1,190,203 | ||||||||||
| Treasury common stock, at cost | (1,626,856 | ) | (1,567,603 | ) | (1,389,722 | ) | |||||||
| Retained earnings | 2,099,339 | 2,018,935 | 1,895,096 | ||||||||||
| Accumulated other comprehensive income | 487 | 27,744 | 52 | ||||||||||
| Total Stockholders' Equity | 1,694,416 | 1,693,474 | 1,695,783 | ||||||||||
| Total Liabilities and Stockholders' Equity | $ | 4,085,784 | $ | 4,192,413 | $ | 4,282,651 | |||||||
| Debt-to-Total Capital Ratio | 19.0 | % | 22.7 | % | 26.2 | % | |||||||
|
Health Net, Inc. |
|||||||||||||||||||||
|
Condensed Consolidated Statements of Cash Flows |
|||||||||||||||||||||
|
(Amounts in thousands) |
|||||||||||||||||||||
| Fourth Quarter | Third Quarter | Fourth Quarter | Year | Year | |||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | |||||||||||||||||
| December 31, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||||
| 2010 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||||
| Net Income (loss) | $ | 80,404 | $ | 62,683 | $ | (45,157 | ) | $ | 204,243 | $ | (49,004 | ) | |||||||||
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|||||||||||||||||||||
| Amortization and depreciation | 9,012 | 8,659 | 8,605 | 34,800 | 53,042 | ||||||||||||||||
| Debt refinancing charge | - | ||||||||||||||||||||
| Share-based compensation | 5,135 | 4,856 | 4,914 | 33,112 | 11,714 | ||||||||||||||||
| Deferred income taxes | 38,661 | (4,875 | ) | 22,060 | 37,164 | (1,913 | ) | ||||||||||||||
| Excess tax benefits from share-based compensation | (98 | ) | - | (23 | ) | (571 | ) | (23 | ) | ||||||||||||
| Loss on sale of business | - | - | 105,931 | - | 105,931 | ||||||||||||||||
| Asset and investment impairment charges | - | - | 4,309 | 6,000 | 187,263 | ||||||||||||||||
| Net realized (gain) loss on sale on investments | (4,396 | ) | (7,742 | ) | (17,619 | ) | (23,019 | ) | (45,319 | ) | |||||||||||
| Other changes | (5,091 | ) | (6,554 | ) | 5,931 | (21,413 | ) | 26,690 | |||||||||||||
| Changes in assets and liabilities, net of the effects of dispositions: |
|
||||||||||||||||||||
| Premiums receivable and unearned premiums | 113,529 | (47,565 | ) | 27,352 | 12,548 | (26,644 | ) | ||||||||||||||
| Other current assets, receivables and noncurrent assets | (14,906 | ) | (34,674 | ) | 120,941 | (48,316 | ) | 164,740 | |||||||||||||
| Amounts receivable/payable under government contracts | 1,781 | 31,163 | (16,537 | ) | 27,404 | (8,602 | ) | ||||||||||||||
| Reserves for claims and other settlements | 37,647 | (30,502 | ) | (19,533 | ) | (9,631 | ) | (162,735 | ) | ||||||||||||
| Accounts payable and other liabilities | (47,109 | ) | (29,740 | ) | (48,002 | ) | 19,101 | (7,607 | ) | ||||||||||||
| Net cash provided by (used in) operating activities | 214,569 | (54,291 | ) | 153,172 | 271,422 | 247,533 | |||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||
| Sales of investments | 210,533 | 248,354 | 680,676 | 1,118,957 | 1,785,741 | ||||||||||||||||
| Maturities of investments | 43,224 | 47,243 | 48,194 | 199,425 | 191,597 | ||||||||||||||||
| Purchases of investments | (543,696 | ) | (203,530 | ) | (689,740 | ) | (1,582,851 | ) | (1,923,692 | ) | |||||||||||
| Proceeds from sale of property and equipment | - | - | - | 19 | 3,847 | ||||||||||||||||
| Purchases of property and equipment | (9,793 | ) | (15,989 | ) | (7,461 | ) | (34,791 | ) | (25,342 | ) | |||||||||||
|
Net cash paid for acquisition and sale of businesses |
80,000 | 4,541 | (173,422 | ) | 76,126 | (173,422 | ) | ||||||||||||||
| Sales and purchases of restricted investments and other | 15,491 | 2,567 | (924 | ) | 22,522 | 6,097 | |||||||||||||||
| Net cash (used in) provided by investing activities | (204,241 | ) | 83,186 | (142,677 | ) | (200,593 | ) | (135,174 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||
| Proceeds from exercise of stock options and employee stock purchases | 2,030 | 568 | 869 | 3,644 | 1,354 | ||||||||||||||||
| Repurchases of common stock | (54,528 | ) | (8,825 | ) | (12,615 | ) | (236,847 | ) | (14,150 | ) | |||||||||||
| Excess tax benefits from share-based compensation | 98 | - | 23 | 571 | 23 | ||||||||||||||||
| Borrowings under financing arrangements | - | - | 55,000 | 100,000 | 80,000 | ||||||||||||||||
| Repayment of borrowings under financing arrangements | (100,000 | ) | - | (72,540 | ) | (316,771 | ) | (164,984 | ) | ||||||||||||
| Net cash used in financing activities | (152,400 | ) | (8,257 | ) | (29,263 | ) | (449,403 | ) | (97,757 | ) | |||||||||||
| Net (decrease) increase in cash and cash equivalents | (142,072 | ) | 20,638 | (18,768 | ) | (378,574 | ) | 14,602 | |||||||||||||
| Net change in cash and cash equivalents classified as assets held for sale | - | - | 238,260 | - | - | ||||||||||||||||
| Cash and cash equivalents, beginning of period | 446,301 | 425,663 | 463,311 | 682,803 | 668,201 | ||||||||||||||||
| Cash and cash equivalents, end of period | $ | 304,229 | $ | 446,301 | $ | 682,803 | $ | 304,229 | $ | 682,803 | |||||||||||
| Health Net, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION (page 1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands, except per share and PMPM data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The following table presents Health Net's operating segment information. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended December 31, 2010 | Quarter Ended September 30, 2010 | Quarter Ended December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Western Region | Government | Northeast | Corporate/ | Western Region | Government | Northeast | Corporate/ | Western Region | Government | Northeast | Corporate/ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operations1 | Contracts2 | Operations3 | Other4, 5A | Consolidated | Operations1 | Contracts2 | Operations3 | Other4, 5 | Consolidated | Operations1 | Contracts2 | Operations3, 6 | Other4, 5 | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
| Health plan services premiums | $ | 2,481,121 | $ | 10,003 | $ | 2,491,124 | $ | 2,457,977 | $ | 12,962 | $ | 2,470,939 | $ | 2,435,709 | $ | 545,969 | $ | 2,981,678 | ||||||||||||||||||||||||||||||||||||||||||
| Government contracts | 822,388 | 822,388 | 860,697 | 860,697 | 754,766 | 754,766 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment income | 15,138 | 88 | 15,226 | 19,240 | 226 | 19,466 | 24,234 | 9,252 | 33,486 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Administrative services fees and other income | 4,953 | - | 4,953 | 5,487 | - | 5,487 | 11,528 | 16,637 | 28,165 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Northeast administrative services fees and other | - | 39,643 | 39,643 | - | 36,863 | 36,863 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 2,501,212 | 822,388 | 49,734 | - | 3,373,334 | 2,482,704 | 860,697 | 50,051 | - | 3,393,452 | 2,471,471 | 754,766 | 571,858 | - | 3,798,095 | |||||||||||||||||||||||||||||||||||||||||||||
| Health plan services | 2,115,099 | 9,746 | (24,876 | ) | 2,099,969 | 2,122,005 | 12,696 | 2,134,701 | 2,089,248 | 467,901 | - | 2,557,149 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Government contracts | 770,321 | 166 | 770,487 | 813,524 | 861 | 814,385 | 703,721 | 3,632 | 707,353 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| G&A excluding insurance, taxes and fees | 211,894 | 1,576 | 13,015 | 226,485 | 196,014 | 3,466 | 7,771 | 207,251 | 195,391 | 101,507 | 38,723 | 335,621 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Insurance, taxes and fees | 19,003 | 373 | - | 19,376 | 18,272 | 406 | - | 18,678 | 19,786 | - | - | 19,786 | ||||||||||||||||||||||||||||||||||||||||||||||||
| G&A including insurance, taxes and fees | 230,897 | 1,949 | 13,015 | 245,861 | 214,286 | 3,872 | 7,771 | 225,929 | 215,177 | 101,507 | 38,723 | 355,407 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Selling | 63,866 | 467 | 64,333 | 58,267 | 754 | 59,021 | 58,877 | 25,191 | 84,068 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 8,980 | 32 | 9,012 | 8,585 | 74 | 8,659 | 7,905 | 700 | 8,605 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | 8,085 | - | 8,085 | 8,150 | 8,150 | 10,225 | (687 | ) | 9,538 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Early debt extinguishment | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairments | - | - | - | - | 4,309 | 4,309 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Northeast administrative services expenses | 63,727 | 63,727 | 61,878 | 61,878 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to loss on sale of Northeast health plans | (12,331 | ) | (12,331 | ) | (21,457 | ) | (21,457 | ) | 105,931 | 105,931 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 2,426,927 | 770,321 | 63,590 | (11,695 | ) | 3,249,143 | 2,411,293 | 813,524 | 57,817 | 8,632 | 3,291,266 | 2,381,432 | 703,721 | 700,543 | 46,664 | 3,832,360 | ||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before income taxes | 74,285 | 52,067 | (13,856 | ) | 11,695 | 124,191 | 71,411 | 47,173 | (7,766 | ) | (8,632 | ) | 102,186 | 90,039 | 51,045 | (128,685 | ) | (46,664 | ) | (34,265 | ) | |||||||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 27,389 | 21,320 | (9,830 | ) | 4,908 | 43,787 | 26,974 | 19,332 | (3,090 | ) | (3,713 | ) | 39,503 | 38,073 | 20,660 | (29,408 | ) | (18,433 | ) | 10,892 | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 46,896 | $ | 30,747 | $ | (4,026 | ) | $ | 6,787 | $ | 80,404 | $ | 44,437 | $ | 27,841 | $ | (4,676 | ) | $ | (4,919 | ) | $ | 62,683 | $ | 51,966 | $ | 30,385 | $ | (99,277 | ) | $ | (28,231 | ) | $ | (45,157 | ) | ||||||||||||||||||||||||
| Basic earnings (loss) per share | $ | 0.49 | $ | 0.32 | $ | (0.04 | ) | $ | 0.07 | $ | 0.84 | $ | 0.46 | $ | 0.29 | $ | (0.05 | ) | $ | (0.05 | ) | $ | 0.64 | $ | 0.50 | $ | 0.29 | $ | (0.96 | ) | $ | (0.27 | ) | $ | (0.43 | ) | ||||||||||||||||||||||||
| Diluted earnings (loss) per share | $ | 0.48 | $ | 0.32 | $ | (0.04 | ) | $ | 0.07 | $ | 0.83 | $ | 0.45 | $ | 0.29 | $ | (0.05 | ) | $ | (0.05 | ) | $ | 0.64 | $ | 0.50 | $ | 0.29 | $ | (0.96 | ) | $ | (0.27 | ) | $ | (0.43 | ) | ||||||||||||||||||||||||
| Basic weighted average shares outstanding | 95,697 | 95,697 | 95,697 | 95,697 | 95,697 | 97,349 | 97,349 | 97,349 | 97,349 | 97,349 | 103,902 | 103,902 | 103,902 | 103,902 | 103,902 | |||||||||||||||||||||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | 96,885 | 96,885 | 95,697 | 96,885 | 96,885 | 98,304 | 98,304 | 97,349 | 97,349 | 98,304 | 104,626 | 104,626 | 103,902 | 103,902 | 103,902 | |||||||||||||||||||||||||||||||||||||||||||||
| Pretax margin | 3.0 | % | 6.3 | % | 2.9 | % | 5.5 | % | 3.6 | % | 6.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial premium yield | 6.8 | % | 7.2 | % | 8.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial premium PMPM | $ | 343.85 | $ | 342.63 | $ | 322.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial health care cost trend | 5.7 | % | 5.2 | % | 9.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial health care cost PMPM | $ | 294.08 | $ | 295.73 | $ | 278.14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial MCR | 85.5 | % | 86.3 | % | 86.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Medicare Advantage MCR | 89.4 | % | 89.4 | % | 88.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Medicare Part D MCR | 53.1 | % | 64.6 | % | 59.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Medicaid MCR | 87.4 | % | 87.9 | % | 85.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Health plan services MCR | 85.2 | % | 86.3 | % | 85.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government contracts cost ratio | 93.7 | % | 94.5 | % | 93.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| G&A expense ratio | 9.3 | % | 8.7 | % | 8.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling costs ratio | 2.6 | % | 2.4 | % | 2.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 36.9 | % | 40.9 | % | 37.8 | % | 41.0 | % | 42.3 | % | 40.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1 | Includes the operations of the company's commercial, Medicare (including Part D) and Medicaid health plans in California, Arizona and Oregon. | |
| 2 | Includes the operations of government-sponsored managed care plans through the TRICARE program and other health care-related Department of Defense and Veterans Affairs government contracts. | |
| 3 | Includes the operations of the company's Northeast health plans that were sold on December 11, 2009 and the operations of the company's health and life insurance companies in Connecticut, New Jersey and New York. Subsequent to the sale, it also includes the operations of the administrative services provided to the buyer. | |
| 4 |
Includes a litigation reserve true-up related to a previously accrued for class action lawsuit. |
|
| 5 | Includes costs related to the company's operations strategy and corporate overhead cost reduction efforts resulting from the sale of the Northeast health plans. | |
| 5A |
Includes expenses primarily related to litigation and the company’s overhead cost reduction efforts. |
|
| 6 | Includes loss on sale of Northeast health plans in 2009. | |
| 7 | Includes asset impairments recorded in 2009. | |
| Health Net, Inc. | ||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION (page 2) | ||||||||||||||||||||||||||||||||||||||||
| ($ in thousands, except per share and PMPM data) | ||||||||||||||||||||||||||||||||||||||||
| The following table presents Health Net's operating segment information. | ||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2010 | Year Ended December 31, 2009 | |||||||||||||||||||||||||||||||||||||||
| Western Region | Government | Northeast | Corporate/ | Western Region | Government | Northeast | Corporate/ | |||||||||||||||||||||||||||||||||
| Operations1 | Contracts2 | Operations3 | Other4, 5, 5A | Consolidated | Operations1 | Contracts2 | Operations3, 6 | Other4, 5, 7 | Consolidated | |||||||||||||||||||||||||||||||
| Health plan services premiums | $ | 9,925,738 | $ | 71,150 | $ | 9,996,888 | $ | 9,850,783 | $ | 2,589,806 | $ | 12,440,589 | ||||||||||||||||||||||||||||
| Government contracts | 3,344,483 | 3,344,483 | 3,104,700 | 3,104,700 | ||||||||||||||||||||||||||||||||||||
| Net investment income | 70,279 | 902 | 71,181 | 67,568 | 38,362 | 105,930 | ||||||||||||||||||||||||||||||||||
| Administrative services fees and other income | 26,547 | 46 | (5,460 | ) | 21,133 | 38,737 | 23,285 | 62,022 | ||||||||||||||||||||||||||||||||
| Northeast administrative services fees and other | 186,167 | 186,167 | - | |||||||||||||||||||||||||||||||||||||
| Total revenues | 10,022,564 | 3,344,483 | 258,265 | (5,460 | ) | 13,619,852 | 9,957,088 | 3,104,700 | 2,651,453 | - | 15,713,241 | |||||||||||||||||||||||||||||
| Health plan services | 8,591,161 | 64,465 | (46,509 | ) | 8,609,117 | 8,542,361 | 2,194,389 | (4,799 | ) | 10,731,951 | ||||||||||||||||||||||||||||||
| Government contracts | 3,165,747 | 2,413 | 3,168,160 | 2,936,090 | 3,632 | 2,939,722 | ||||||||||||||||||||||||||||||||||
| G&A excluding insurance, taxes and fees | 807,450 | 14,886 | 58,840 | 881,176 | 762,510 | 401,811 | 124,797 | 1,289,118 | ||||||||||||||||||||||||||||||||
| Insurance, taxes and fees | 74,309 | 779 | - | 75,088 | 70,966 | 1,872 | - | 72,838 | ||||||||||||||||||||||||||||||||
| G&A including insurance, taxes and fees | 881,759 | 15,665 | 58,840 | 956,264 | 833,476 | 403,683 | 124,797 | 1,361,956 | ||||||||||||||||||||||||||||||||
| Selling | 235,608 | 3,151 | 238,759 | 233,278 | 96,834 | 330,112 | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 34,634 | 166 | 34,800 | 36,745 | 16,297 | 53,042 | ||||||||||||||||||||||||||||||||||
| Interest | 34,880 | - | 34,880 | 41,015 | (128 | ) | 40,887 | |||||||||||||||||||||||||||||||||
| Early debt extinguishment | 3,532 | 3,532 | ||||||||||||||||||||||||||||||||||||||
| Asset impairments | 6,000 | 6,000 | 174,879 | 174,879 | ||||||||||||||||||||||||||||||||||||
| Northeast administrative services expenses | 279,434 | 279,434 | - | |||||||||||||||||||||||||||||||||||||
| Adjustment to loss on sale of Northeast health plans | (41,959 | ) | (41,959 | ) | 105,931 | 105,931 | ||||||||||||||||||||||||||||||||||
| Total expenses | 9,778,042 | 3,165,747 | 326,922 | 18,276 | 13,288,987 | 9,686,875 | 2,936,090 | 2,817,006 | 298,509 | 15,738,480 | ||||||||||||||||||||||||||||||
| Income (loss) from operations before income taxes | 244,522 | 178,736 | (68,657 | ) | (23,736 | ) | 330,865 | 270,213 | 168,610 | (165,553 | ) | (298,509 | ) | (25,239 | ) | |||||||||||||||||||||||||
| Income tax provision (benefit) | 91,709 | 73,197 | (29,256 | ) | (9,028 | ) | 126,622 | 100,842 | 69,102 | (42,361 | ) | (103,818 | ) | 23,765 | ||||||||||||||||||||||||||
| Net income (loss) | $ | 152,813 | $ | 105,539 | $ | (39,401 | ) | $ | (14,708 | ) | $ | 204,243 | $ | 169,371 | $ | 99,508 | $ | (123,192 | ) | $ | (194,691 | ) | $ | (49,004 | ) | |||||||||||||||
| Basic earnings (loss) per share | $ | 1.56 | $ | 1.07 | $ | (0.40 | ) | $ | (0.15 | ) | $ | 2.08 | $ | 1.63 | $ | 0.96 | $ | (1.19 | ) | $ | (1.87 | ) | $ | (0.47 | ) | |||||||||||||||
| Diluted earnings (loss) per share | $ | 1.54 | $ | 1.06 | $ | (0.40 | ) | $ | (0.15 | ) | $ | 2.06 | $ | 1.62 | $ | 0.95 | $ | (1.19 | ) | $ | (1.87 | ) | $ | (0.47 | ) | |||||||||||||||
| Basic weighted average shares outstanding | 98,232 | 98,232 | 98,232 | 98,232 | 98,232 | 103,849 | 103,849 | 103,849 | 103,849 | 103,849 | ||||||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | 99,232 | 99,232 | 98,232 | 98,232 | 99,232 | 104,412 | 104,412 | 103,849 | 103,849 | 103,849 | ||||||||||||||||||||||||||||||
| Pretax margin | 2.4 | % | 5.3 | % | 2.7 | % | 5.4 | % | ||||||||||||||||||||||||||||||||
| Commercial premium yield | 7.9 | % | 9.4 | % | ||||||||||||||||||||||||||||||||||||
| Commercial premium PMPM | $ | 340.81 | $ | 315.73 | ||||||||||||||||||||||||||||||||||||
| Commercial health care cost trend | 7.1 | % | 9.6 | % | ||||||||||||||||||||||||||||||||||||
| Commercial health care cost PMPM | $ | 293.51 | $ | 274.05 | ||||||||||||||||||||||||||||||||||||
| Commercial MCR | 86.1 | % | 86.8 | % | ||||||||||||||||||||||||||||||||||||
| Medicare Advantage MCR | 88.8 | % | 88.1 | % | ||||||||||||||||||||||||||||||||||||
| Medicare Part D MCR | 77.2 | % | 78.4 | % | ||||||||||||||||||||||||||||||||||||
| Medicaid MCR | 87.7 | % | 86.6 | % | ||||||||||||||||||||||||||||||||||||
| Health plan services MCR | 86.6 | % | 86.7 | % | ||||||||||||||||||||||||||||||||||||
| Government contracts cost ratio | 94.7 | % | 94.6 | % | ||||||||||||||||||||||||||||||||||||
| G&A expense ratio | 8.9 | % | 8.4 | % | ||||||||||||||||||||||||||||||||||||
| Selling costs ratio | 2.4 | % | 2.4 | % | ||||||||||||||||||||||||||||||||||||
| Effective tax rate | 37.5 | % | 41.0 | % | 37.3 | % | 41.0 | % | ||||||||||||||||||||||||||||||||
| 1 | Includes the operations of the company's commercial, Medicare (including Part D) and Medicaid health plans in California, Arizona and Oregon. | |
| 2 | Includes the operations of government-sponsored managed care plans through the TRICARE program and other health care-related Department of Defense and Veterans Affairs government contracts. | |
| 3 |
Includes the operations of the company's Northeast health plans that were sold on December 11, 2009 and the operations of the company's health and life insurance companies in Connecticut, New Jersey and New York. Subsequent to the sale, it also includes the operations of the administrative services provided to the buyer. |
|
| 4 |
Includes a litigation reserve true-up related to a previously accrued for class action lawsuit. |
|
| 5 | Includes costs related to the company's operations strategy and corporate overhead cost reduction efforts resulting from the sale of the Northeast health plans. | |
| 5A |
Includes expenses primarily related to litigation and the company’s overhead cost reduction efforts. |
|
| 6 | Includes loss on sale of Northeast health plans in 2009. | |
| 7 | Includes asset impairments recorded in 2009. | |
| Reconciliation of Days Claims Payable: | Q4 2010 | Q3 2010 | Q4 2009 | FY 2010 | FY 2009 | ||||||||||||||||||
| (1 | ) | Reserve for Claims and Other Settlements | $ | 942.0 | $ | 904.4 | $ | 951.7 | $ | 942.0 | $ | 951.7 | |||||||||||
| Less: Reserve for Claims and Other Settlements for Divested Businesses | - | - | - | - | - | ||||||||||||||||||
| Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | (108.7 | ) | (130.0 | ) | (162.8 | ) | (108.7 | ) | (162.8 | ) | |||||||||||||
| (2 | ) | Reserve for Claims and Other Settlements - Adjusted | $ | 833.3 | $ | 774.4 | $ | 788.9 | $ | 833.3 | $ | 788.9 | |||||||||||
| (3 | ) | Health Plan Services Cost | $ | 2,100.0 | $ | 2,134.7 | $ | 2,557.1 | $ | 8,609.1 | $ | 10,732.0 | |||||||||||
| Less: Health Plan Services Cost for Divested Businesses | - | - | (460.7 | ) | - | (2,123.0 | ) | ||||||||||||||||
| Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | (762.6 | ) | (804.4 | ) | (818.4 | ) | (3,291.1 | ) | (3,296.0 | ) | |||||||||||||
| (4 | ) | Health Plan Services Cost - Adjusted | $ | 1,337.4 | $ | 1,330.3 | $ | 1,278.0 | $ | 5,318.0 | $ | 5,313.0 | |||||||||||
| (5 | ) | Number of Days in Period | 92 | 92 | 92 | 365 | 365 | ||||||||||||||||
| = (1) / (3) * (5) Days Claims Payable - (using end of period reserve amount) | 41.3 | 39.0 | 34.2 | 39.9 | 32.4 | ||||||||||||||||||
|
= (2) / (4) * (5) Days Claims Payable - Adjusted (using end of period reserve amount) |
57.3 | 53.6 | 56.8 | 57.2 | 54.2 | ||||||||||||||||||
| Health Net, Inc. | |||||||||||||
| Reconciliation of Reserves for Claims and Other Settlements | |||||||||||||
| ($ in millions) | |||||||||||||
| Health Plan Services | |||||||||||||
| FY 2010 | FY 2009 | FY 2008 | |||||||||||
| Reserve for claims (a), beginning of period | $ | 692.2 | $ | 957.1 | $ | 838.7 | |||||||
| Incurred claims related to: | |||||||||||||
| Current Year | 4,644.2 | 6,422.8 | 6,372.2 | ||||||||||
| Prior Years (c) | (70.0 | ) | (80.0 | ) | (8.3 | ) | |||||||
| Total Incurred (b) | 4,574.2 | 6,342.8 | 6,363.9 | ||||||||||
| Paid claims related to: | |||||||||||||
| Current Year | 3,929.3 | 5,572.2 | 5,443.2 | ||||||||||
| Prior Years | 609.6 | 857.8 | 802.3 | ||||||||||
| Total Paid (b) | 4,538.9 | 6,430.0 | 6,245.5 | ||||||||||
| Less: Divested businesses | - | (177.7 | ) | - | |||||||||
| Reserve for claims (a), end of period | 727.5 | 692.2 | 957.1 | ||||||||||
| Add: | |||||||||||||
| Claims Payable (d) | 123.6 | 165.6 | 284.8 | ||||||||||
| Other (e) | 90.9 | 93.9 | 96.2 | ||||||||||
| Reserves for claims and other settlements, end of period | $ | 942.0 | $ | 951.7 | $ | 1,338.1 | |||||||
| (a) | Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss adjustment expenses. | |
| (b) | Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are not included. | |
| (c) |
This line represents the change in reserves attributable to the difference between the original estimate of incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been no changes in the approach used to determine the key actuarial assumptions, which are the completion factor and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and generally accepted accounting principles. The majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred services because these are the services for which the fewest claims have been paid. The majority of the adjustments to reserves relate to variables and uncertainties associated with actuarial assumptions. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services. Revised estimates for prior years are determined in each quarter based on the most recent updates of paid claims for prior years. |
|
| (d) | Includes amount accrued for litigation and regulatory-related expenses. | |
| (e) | Includes accrued capitation, shared risk settlements, provider incentives and other reserve items. |