Western Region Operations and Government
Contracts Segments Produce Combined Net Income of $0.62 Per Diluted
Share in Second Quarter 2014
Year-over-Year, Health Plan Services Premium
Revenues Grew 26.5 Percent
Health Plan Enrollment Climbs
17.4 Percent Year-over-Year, Driven by Continued Commercial
Growth from Exchanges and Medicaid Growth from Expansion
Company Announces Letter of Intent for
Comprehensive Services Agreement in Collaboration with Cognizant
Technology Solutions: Health Net Expects $150 to $200 Million in
Annual G&A and Depreciation Expense Savings by 2017
Health Net, Inc. (NYSE: HNT) today announced 2014 second quarter
GAAP net income of $120.9 million, or $1.49 per diluted share,
compared with GAAP net income of $33.5 million, or $0.42 per
diluted share, for the second quarter of 2013.
The company’s Western Region Operations (Western Region) and
Government Contracts segments produced combined net income of
$50.3 million, or $0.62 per diluted share, in the second
quarter of 2014 compared with $41.4 million, or $0.52 per
diluted share, in the second quarter of 2013.
The second quarter 2014 results include approximately
$3.3 million in pretax expenses, primarily related to
severance costs, and a $72.6 million income tax benefit
resulting from a loss on the stock of our subsidiary, Health Net of
the Northeast.
Highlights from the second quarter of 2014 include:
- Health Net’s total revenues climbed
24.9 percent in the second quarter of 2014 compared with the
second quarter of 2013, and health plan services premiums revenues
grew 26.5 percent over the same period;
- The company achieved 17.4 percent
enrollment growth in its Western Region health plans in the second
quarter of 2014 compared with the second quarter of 2013;
- Individual enrollment increased by
260,000 members, or 226.1 percent, in the second quarter of
2014 compared with the second quarter of 2013 and increased by
168,000 members, or 81.2 percent, compared with the first
quarter of 2014. This sequential growth was primarily driven by the
enrollment of new individual members through the Affordable Care
Act (ACA) exchanges;
- Medicaid enrollment increased by
286,000 members, or 25.6 percent, in the second quarter of 2014
compared with the second quarter of 2013 and by more than
8 percent sequentially. This was primarily the result of new
members added in Arizona and California from the expansion of
Medicaid eligibility under the ACA; and
- The company’s Western Region commercial
Medical Care Ratio (MCR) improved by 260 basis points
year-over-year, as health care cost trends remained moderate, the
product mix improved and the company’s premiums reflect the new
Health Insurer Fee (HIF).
“We are very encouraged by our results so far in 2014. Our
focused and deliberate strategic approaches to the new
opportunities in the exchanges and Medicaid expansion are driving
substantial enrollment and revenue growth and higher income,” said
Jay Gellert, Health Net’s chief executive officer.
“We expect further growth in the second half of 2014 from the
dual eligible demonstrations in Los Angeles and San Diego counties
and continued enrollment growth from Medicaid expansion,” he
added.
The company also announced it has signed a Letter of Intent with
Cognizant Technology Solutions (Cognizant), a leading provider of
information technology, consulting and business process services,
as part of its commitment to address its scale issue. The company
expects to execute a definitive services agreement with Cognizant
before the end of the third quarter of 2014, which will be subject
to required regulatory approval. The services agreement is
currently expected to generate approximately $150 to
$200 million in annual General and Administrative (G&A)
and depreciation expense savings by 2017.
“Our decision to move forward with the services agreement was
the result of many months of careful consideration. We believe that
our expanded relationship with Cognizant will enhance our
capabilities, enable greater innovation and ensure that we will
maintain the high service levels our members and providers have
come to expect from Health Net,” noted Gellert. “We will begin
preparing for the transition immediately upon signing. We will then
submit our plan for the required regulatory approval. We expect to
receive approval in the first half of 2015.”
CONSOLIDATED RESULTS
Health Net’s total revenues increased 24.9 percent in the
second quarter of 2014 to $3.4 billion from $2.7 billion
in the second quarter of 2013.
Health plan services premium revenues of approximately
$3.3 billion in the second quarter of 2014 increased by
26.5 percent compared with the second quarter of 2013.
Health plan services expenses of approximately $2.8 billion
in the second quarter of 2014 increased by 26.1 percent
compared with the second quarter of 2013.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total enrollment in the Western Region at June 30, 2014 was
approximately 2.9 million members, an increase of
17.4 percent from enrollment at June 30, 2013.
Total enrollment in the company’s California health plans at
June 30, 2014 was approximately 2.5 million members, an
increase of 14.3 percent from enrollment at June 30,
2013.
Western Region commercial enrollment at June 30, 2014 was
approximately 1.3 million members, an increase of
10.4 percent compared with enrollment at June 30,
2013.
Membership in tailored network products represented
52.5 percent of the company’s Western Region commercial
membership at June 30, 2014 compared with 37.3 percent at
June 30, 2013.
“Our historical success with tailored network products provided
the basis for our product strategy in the exchanges where most of
our enrollment is in tailored network products,” said Jim Woys,
Health Net’s chief operating officer. “As a result of the exchange
growth, we expect the percentage of commercial enrollment in
tailored network products to remain at greater than 50 percent
through 2014,” explained Woys.
Enrollment in the company’s Medicare Advantage (MA) plans was
262,000 members at June 30, 2014, which represents an
11.0 percent increase compared with enrollment of 236,000
members at June 30, 2013.
Medicaid enrollment increased 25.6 percent to
1.4 million members at June 30, 2014 compared with
approximately 1.1 million members as of June 30, 2013,
primarily due to Medicaid expansion under the ACA.
Dual eligibles enrollment was 2,000 members at June 30,
2014.
“We expect duals enrollment to accelerate in the second half of
2014, primarily due to the start of passive enrollment in Los
Angeles County on July 1, 2014,” Woys added.
Revenues
Total revenues for the Western Region for the second quarter of
2014 were approximately $3.3 billion compared with
approximately $2.6 billion in the second quarter of 2013.
Net investment income in the Western Region was
$12.0 million in the second quarter of 2014 compared with
$17.1 million in the second quarter of 2013 and
$11.1 million in the first quarter of 2014.
Health Plan Services
Expenses
Health plan services expenses in the Western Region were
approximately $2.8 billion in the second quarter of 2014
compared with approximately $2.2 billion in the second quarter
of 2013.
Commercial Premium Yields and Health
Care Cost Trends
In the Western Region, commercial premiums per member per month
(PMPM) decreased by 0.4 percent to approximately $379 in the
second quarter of 2014 compared with approximately $380 in the
second quarter of 2013.
Commercial health care costs PMPM in the Western Region
decreased by 3.4 percent to approximately $312 in the second
quarter of 2014 compared with approximately $323 in the second
quarter of 2013.
“Health care cost trends remain moderate by historical standards
for physician, inpatient and outpatient services,” said Woys. “We
also benefit from the improving mix of our commercial business as
large group enrollment has declined and individual enrollment,
largely in our tailored network products, has increased
significantly due to our success with the exchanges.”
Medical Care Ratios
The health plan services MCR in the Western Region was
84.7 percent in the second quarter of 2014 compared with
85.0 percent in the second quarter of 2013.
The Western Region commercial MCR was 82.3 percent in the
second quarter of 2014 compared with 84.9 percent in the
second quarter of 2013 due to continued moderation in cost trends,
an improved product mix and premium increases to reflect the new
HIF.
The MA MCR in the Western Region was 90.9 percent in the
second quarter of 2014 compared with 89.9 percent in the
second quarter of 2013.
The Medicaid MCR was 83.6 percent in the second quarter of
2014 compared with 79.5 percent in the second quarter of 2013.
Retroactive reinstatement of premium taxes in the second quarter of
2013 benefited the Medicaid MCR in the second quarter of 2013 by
400 basis points.
G&A Expenses
G&A expenses in the Western Region were $342.0 million
in the second quarter of 2014 compared with $284.1 million in
the second quarter of 2013 and $357.9 million in the first
quarter of 2014. The G&A expense ratio was 10.5 percent in
the second quarter of 2014 compared with 11.0 percent in the
second quarter of 2013 and 12.4 percent in the first quarter
of 2014.
“The administrative expense ratio, which excludes premium taxes
and ACA-related fees, also declined sequentially and year-over-year
in the second quarter of 2014,” said Woys. “We are very focused on
continued improvement in our administrative efficiency while
preparing for the transition with Cognizant.”
GOVERNMENT CONTRACTS SEGMENT
Government Contracts revenues were $154.1 million in the
second quarter of 2014 compared with $139.9 million in the
second quarter of 2013.
Government Contracts expenses were $132.6 million in the
second quarter of 2014 compared with $121.8 million in the
second quarter of 2013.
BALANCE SHEET
Cash and investments as of June 30, 2014 were
$2.3 billion compared with $1.9 billion as of
June 30, 2013.
Reserves for claims and other settlements were $1.5 billion
as of June 30, 2014 compared with $1.0 billion as of
June 30, 2013 and $1.2 billion as of March 31,
2014.
Days claims payable (DCP) for the second quarter of 2014 was
49.0 days compared with 42.1 days in the second quarter
of 2013 and 43.2 days in the first quarter of 2014.
On an adjusted1 basis, DCP for the second quarter of 2014 was
64.4 days compared with 58.4 days in the second quarter
of 2013 and 63.1 days in the first quarter of 2014.
The company’s debt-to-total capital ratio was 21.5 percent
as of June 30, 2014 compared with 22.9 percent as of
March 31, 2014 and 25.6 percent as of June 30,
2013.
CASH FLOW FROM OPERATIONS
Operating cash flow was negative $13.8 million in the
second quarter of 2014 because the company did not receive
approximately $300 million of expected Medicaid payments in
the second quarter.
“We received approximately $262 million in June Medi-Cal
payments on July 28, 2014,” said Joseph Capezza, Health Net’s
chief financial officer. “We now have received all June
payments.”
The company noted that cash at the parent was approximately
$200.4 million at June 30, 2014.
STOCK REPURCHASE UPDATE
Health Net did not repurchase any shares of its common stock in
the second quarter of 2014 as it was evaluating its scale issues.
At June 30, 2014, approximately $280 million of
authorization under the company’s existing $400 million stock
repurchase program remained.
“We intend to resume repurchases in the third quarter of 2014
through privately negotiated transactions, accelerated share
repurchase programs, open market transactions, or by any
combination of such methods,” Capezza explained.
“We are increasing our guidance for weighted-average fully
diluted shares outstanding in 2014 to approximately 80 million
shares from our prior guidance of 77 million shares,” he
added.
2014 GUIDANCE
The company is maintaining GAAP earnings per diluted share of at
least $3.00 for the full year 2014.
The table included in this release provides specific 2014
guidance metrics, including updates to expectations for Medicaid
and total health plan membership, state health plans revenues, the
Medicaid MCR, tax rates and weighted-average fully diluted shares
outstanding.
“We are maintaining our diluted EPS guidance for the combined
Western Region and Government Contracts segments of at least $2.22
despite the higher share count. In effect, we are increasing our
pretax income guidance for the combined segments by approximately
$12 million for the full year,” Capezza noted.
CONFERENCE CALL
As previously announced, Health Net will discuss the company’s
second quarter 2014 financial results during a conference call on
Wednesday, August 6, 2014, 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:
(877) 407-4019 (Domestic)
(877) 660-6853 (Replay – Domestic)
(201) 689-8337 (International) (201) 612-7415 (Replay –
International)
An access code is not required for the live conference call on
August 6, 2014. The access code for the replay is 13585376.
The replay of the conference call will be available through
August 11, 2014. A live webcast and replay of the conference
call also will be available at www.healthnet.com under “Investor
Relations.” The conference call webcast is open to all interested
parties. Anyone listening to the company’s conference call or
webcast will be presumed to have read Health Net’s Annual Report on
Form 10-K for the year ended December 31, 2013, Quarterly
Report on Form 10-Q for the quarter ended March 31, 2014, and
other reports filed by the company from time to time with the
Securities and Exchange Commission.
ABOUT HEALTH NET
Health Net, Inc. is a publicly traded managed care organization
that delivers managed health care services through health plans and
government-sponsored managed care plans. Its mission is to help
people be healthy, secure and comfortable. Health Net provides and
administers health benefits to approximately 5.8 million
individuals across the country through group, individual, Medicare
(including the Medicare prescription drug benefit commonly referred
to as “Part D”), Medicaid, U.S. Department of Defense, including
TRICARE, and Veterans Affairs programs. Health Net also offers
behavioral health, substance abuse and employee assistance
programs, managed health care products related to prescription
drugs, managed health care product coordination for multi-region
employers, and administrative services for medical groups and
self-funded benefits programs.
For more information on Health Net, Inc., please visit the
company’s website at www.healthnet.com.
CAUTIONARY STATEMENTS
The company and its representatives may from time to time make
written and oral forward-looking statements within the meaning of
the Private Securities Litigation Reform Act (“PSLRA”) of 1995,
including statements in this and other press releases, in
presentations, filings with the Securities and Exchange Commission
(“SEC”), reports to stockholders and in meetings with investors and
analysts. All statements in this press release, other than
statements of historical information provided herein, may be deemed
to be forward-looking statements and as such are intended to be
covered by the safe harbor for “forward-looking statements”
provided by PSLRA. These statements are based on management’s
analysis, judgment, belief and expectation only as of the date
hereof, and are subject to changes in circumstances and a number of
risks and uncertainties. Without limiting the foregoing, statements
including the words “believes,” “anticipates,” “plans,” “expects,”
“may,” “should,” “could,” “estimate,” “intend,” “feels,” “will,”
“projects” and other similar expressions are intended to identify
forward-looking statements. Actual results could differ materially
from those expressed in, or implied or projected by the
forward-looking information and statements due to, among other
things, health care reform and other increased government
participation in and taxation or regulation of health benefits and
managed care operations, including but not limited to the
implementation of the Patient Protection and Affordable Care Act
and the Health Care and Education Reconciliation Act of 2010
(collectively, the "ACA") and related fees, assessments and taxes;
the company’s ability to successfully participate in California’s
Coordinated Care Initiative, which is subject to a number of risks
inherent in untested health care initiatives and requires the
company to adequately predict the costs of providing benefits to
individuals that are generally among the most chronically ill
within each of Medicare and Medi-Cal and implement delivery systems
for benefits with which the company has limited operating
experience; the company’s ability to successfully participate in
the federal and state health insurance exchanges under the ACA,
which have experienced technical challenges in implementation and
which involve uncertainties related to the mix and volume of
business that could negatively impact the adequacy of our premium
rates and may not be sufficiently offset by the risk apportionment
provisions of the ACA; increasing health care costs, including but
not limited to costs associated with the introduction of new
treatments or therapies; our ability to reduce administrative
expenses while maintaining targeted levels of service and operating
performance which could be significantly impacted if we are unable
to reach a final agreement with Cognizant or do not receive
applicable regulatory approval of any final services agreement;
negative prior period claims reserve developments; rate cuts and
other risks and uncertainties affecting the company’s Medicare or
Medicaid businesses; the company’s ability to successfully
participate in Arizona’s Medicaid program; trends in medical care
ratios; membership declines or negative changes in our health care
product mix; unexpected utilization patterns or unexpectedly severe
or widespread illnesses; the timing of collections on amounts
receivable from state and federal governments and agencies,
including collections of amounts owed under the T-3 contract;
litigation costs; regulatory issues with federal and state agencies
including, but not limited to, the California Department of Managed
Health Care, the Centers for Medicare & Medicaid Services, the
Office of Civil Rights of the U.S. Department of Health and Human
Services and state departments of insurance; operational issues;
changes in economic or market conditions; failure to effectively
oversee our third-party vendors; noncompliance by the company or
the company’s business associates with any privacy laws or any
security breach involving the misappropriation, loss or other
unauthorized use or disclosure of confidential information;
impairment of the company’s goodwill or other intangible assets;
investment portfolio impairment charges; volatility in the
financial markets; 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 Report on Form 10-Q
filed with the SEC and the other risks discussed in the company’s
filings with the SEC. Readers are cautioned not to place undue
reliance on these forward-looking statements. Except as may be
required by law, the company undertakes no obligation to address or
publicly update any 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 Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2014.
1 For a reconciliation of adjusted days claims payable to the
comparable GAAP financial measure, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Results
of Operations – Days Claims Payable” in the company’s Form 10-Q for
the quarter ended June 30, 2014, and Item 2.02 in the company’s
Form 8-K filed with the Securities and Exchange Commission on
August 6, 2014.
Health Net, Inc. 2014 GAAP Guidance (1)
MEMBERSHIP Current Previous
(updated 8/6/14) (as of 5/7/14)
Enrollment Enrollment at 12/31/2014
at 12/31/2014
Commercial
Large Group 560,000 560,000 Small Group 280,000 280,000 Individual
380,000 380,000 Total Commercial 1,220,000 1,220,000
Medicare Advantage
260,000 260,000
Medicaid
1,585,000 1,535,000
Dual Eligibles
38,000 38,000
Total Health Plan Membership
3,103,000 3,053,000
Premium Revenues
FY2014
FY2014
Commercial $5.6 billion $5.6 billion Medicare Advantage $3.0
billion $3.0 billion State Health Plans
$4.5 billion
$4.4 billion Dual Eligibles $342 million $342 million Total Health
Plans
$13.4 billion
$13.3 billion
Total Consolidated Revenues
$14.0 billion $14.0 billion Medical
Care Ratios (MCR) FY2014 FY2014
Commercial 83.0% 83.0% Medicare Advantage 90.9% 90.9% Medicaid
83.6% 83.9% Dual Eligibles 86.5% 86.5%
G&A
Expense Ratio 10.8% 10.8%
Tax
Rate(2) 31.1% 34.6%
Western Region and
Government Contracts Tax
Rate(3)
51.5% 52.2%
Weighted-average fully diluted
shares outstanding 80 million 77 million
GAAP
Earnings per Diluted Share (EPS)(2)
At least $3.00
At least $3.00
Western Region and
Government Contracts
EPS(3)
At least $2.22 At least $2.22
(1) All guidance metrics are approximations (2)
Includes a $72.6 million tax benefit (3) Excludes the $72.6 million
tax benefit
Health Net, Inc.
Enrollment Data - By State
(In thousands) Change from March 31,
2014 June 30, 2013 June 30, March 31,
June 30, Increase/ % Increase/ %
2014 2014 2013
(Decrease) Change (Decrease)
Change California Large Group 492 499 608 (7) (1.4)%
(116) (19.1)% Small Group 240 239 241 1 0.4% (1) (0.4)% Individual
272 158 98 114 72.2% 174
177.6% Commercial Risk 1,004 896 947 108 12.1% 57 6.0%
Medicare Advantage 162 156 146 6 3.8% 16 11.0% Medi-Cal 1,359 1,279
1,118 80 6.3% 241 21.6% Dual Eligibles 2
2
2
Total California 2,527 2,331 2,211
196 8.4% 316 14.3% Arizona Large
Group 48 50 64 (2) (4.0)% (16) (25.0)% Small Group 43 40 42 3 7.5%
1 2.4% Individual 99 47 14 52
110.6% 85 607.1% Commercial Risk 190 137 120 53 38.7%
70 58.3% Medicare Advantage 46 46 43 0 0.0% 3 7.0% Medicaid
45 18 27 150.0% 45
Total Arizona 281 201 163 80
39.8% 118 72.4% Northwest Large Group
28 29 23 (1) (3.4)% 5 21.7% Small Group 25 27 40 (2) (7.4)% (15)
(37.5)% Individual 4 2 3 2
100.0% 1 33.3% Commercial Risk 57 58 66 (1) (1.7)%
(9) (13.6)% Medicare Advantage 54 53 47
1 1.9% 7 14.9% Total Northwest
111 111 113 0 0.0% (2)
(1.8)%
Total Health Plan Enrollment Large
Group 568 578 695 (10) (1.7)% (127) (18.3)% Small Group 308 306 323
2 0.7% (15) (4.6)% Individual 375 207 115
168 81.2% 260 226.1% Commercial Risk
1,251 1,091 1,133 160 14.7% 118 10.4% Medicare Advantage 262 255
236 7 2.7% 26 11.0% Medi-Cal/Medicaid 1,404 1,297 1,118 107 8.2%
286 25.6% Dual Eligibles 2
2
2
Western Region Operations 2,919 2,643
2,487 276 10.4% 432 17.4%
TRICARE - North Contract Eligibles 2,849 2,851
2,865 (2) (0.1)% (16) (0.6)%
Health Net, Inc.
Enrollment Data - Line of Business (In
thousands) Change from March 31,
2014 June 30, 2013 June 30, March 31,
June 30, Increase/ % Increase/ %
2014 2014 2013
(Decrease) Change (Decrease)
Change Large Group California 492 499 608 (7)
(1.4)% (116) (19.1)% Arizona 48 50 64 (2) (4.0)% (16) (25.0)%
Northwest 28 29 23 (1) (3.4)%
5 21.7% 568 578 695 (10)
(1.7)% (127) (18.3)% Small Group
California 240 239 241 1 0.4% (1) (0.4)% Arizona 43 40 42 3 7.5% 1
2.4% Northwest 25 27 40 (2)
(7.4)% (15) (37.5)% 308 306 323
2 0.7% (15) (4.6)% Individual
California 272 158 98 114 72.2% 174 177.6% Arizona 99 47 14 52
110.6% 85 607.1% Northwest 4 2 3 2
100.0% 1 33.3% 375 207 115
168 81.2% 260 226.1%
Commercial Risk California 1,004 896 947 108 12.1% 57 6.0% Arizona
190 137 120 53 38.7% 70 58.3% Northwest 57 58 66
(1) (1.7)% (9) (13.6)% 1,251
1,091 1,133 160 14.7% 118
10.4% Medicare Advantage California 162 156 146 6
3.8% 16 11.0% Arizona 46 46 43 0 0.0% 3 7.0% Northwest 54 53
47 1 1.9% 7 14.9% 262
255 236 7 2.7% 26
11.0% Medi-Cal/Medicaid California 1,359 1,279 1,118 80 6.3%
241 21.6% Arizona 45 18
27 150.0% 45
1,404 1,297 1,118 107 8.2%
286 25.6% Dual Eligibles
California 2
2
2
Total Health Plan Enrollment
Large Group 568 578 695 (10) (1.7)% (127) (18.3)% Small Group 308
306 323 2 0.7% (15) (4.6)% Individual 375 207 115
168 81.2% 260 226.1% Commercial
Risk 1,251 1,091 1,133 160 14.7% 118 10.4% Medicare Advantage 262
255 236 7 2.7% 26 11.0% Medi-Cal/Medicaid 1,404 1,297 1,118 107
8.2% 286 25.6% Dual Eligibles 2
2
2
Western Region Operations 2,919 2,643
2,487 276 10.4% 432 17.4%
TRICARE - North Contract Eligibles 2,849 2,851
2,865 (2) (0.1)% (16)
(0.6)%
Health Net, Inc.
Consolidated Statements of
Operations
($ in thousands, except per share
data)
Quarter Ended Quarter Ended Quarter Ended June
30, March 31, June 30,
REVENUES: 2014
2014 2013 Health plan services premiums $ 3,261,878 $
2,881,345 $ 2,578,874 Government contracts 154,083 144,090 139,942
Net investment income 12,043 11,102 17,143 Administrative services
fees and other income (6,612 ) 2,398 2,472
Total revenues 3,421,392 3,038,935
2,738,431
EXPENSES: Health plan services 2,763,179
2,402,342 2,191,918 Government contracts 133,208 131,974 127,400
General and administrative 344,734 361,023 291,437 Selling 64,002
64,152 57,769 Depreciation and amortization 9,641 9,663 9,514
Interest 7,826 7,821 8,365 Total
expenses 3,322,590 2,976,975 2,686,403
Income from operations before income taxes 98,802 61,960 52,028
Income tax (benefit) provision (22,065 ) 33,173
18,545 Net income $ 120,867 $ 28,787 $ 33,483
Net income per share: Basic $ 1.51 $ 0.36 $ 0.42 Diluted $ 1.49 $
0.36 $ 0.42 Weighted average shares outstanding: Basic
80,250 79,802 79,367 Diluted 81,218 80,922 80,085
Health Net, Inc.
Condensed Consolidated Balance
Sheets
(Amounts in thousands, except ratio
data)
June 30, March 31, June 30, 2014
2014 2013
ASSETS Current Assets
Cash and cash equivalents $ 603,097 $ 737,024 $ 279,618 Investments
- available for sale 1,668,943 1,685,009 1,632,466 Premiums
receivable, net 849,089 450,224 579,206 Amounts receivable under
government contracts 193,043 188,843 205,168 Other receivables
183,795 54,251 52,283 Deferred taxes 81,293 75,321 80,382 Other
assets 259,878 254,702 119,015
Total current assets 3,839,138 3,445,374 2,948,138 Property
and equipment, net 209,385 206,410 190,394 Goodwill 565,886 565,886
565,886 Other intangible assets, net 13,229 13,949 15,556 Deferred
taxes 9,530 4,195 5,503 Investments - available for sale -
noncurrent 652 4,255 18,332 Other noncurrent assets 139,205
190,550 137,644 Total Assets $
4,777,025 $ 4,430,619 $ 3,881,453
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities Reserves for claims and other settlements $
1,488,322 $ 1,151,958 $ 1,013,086 Health care and other costs
payable under government contracts 94,195 80,232 76,231 Unearned
premiums 130,905 127,593 124,205 Accounts payable and other
liabilities 496,349 669,406
392,647 Total current liabilities 2,209,771 2,029,189
1,606,169 Senior notes payable 399,402 399,351 399,197 Deferred
taxes 22,376 18,057 - Borrowings under revolving credit facility
100,000 100,000 125,000 Other noncurrent liabilities 223,595
205,521 226,863 Total
Liabilities 2,955,144 2,752,118
2,357,229 Stockholders' Equity Common stock 152 152
150 Additional paid-in capital 1,406,768 1,397,962 1,360,749
Treasury common stock, at cost (2,197,890 ) (2,197,538 ) (2,178,121
) Retained earnings 2,613,302 2,492,435 2,377,055 Accumulated other
comprehensive (loss) income (451 ) (14,510 )
(35,609 ) Total Stockholders' Equity 1,821,881
1,678,501 1,524,224 Total Liabilities and
Stockholders' Equity $ 4,777,025 $ 4,430,619 $
3,881,453 Debt-to-Total Capital Ratio 21.5 % 22.9 %
25.6 %
Health Net, Inc.
Condensed Consolidated Statements of
Cash Flows
(Amounts in thousands)
Quarter Ended Quarter Ended Quarter Ended June 30, March 31,
June 30, 2014 2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 120,867 $
28,787 $ 33,483 Adjustments to reconcile net income to net cash
(used in) provided by operating activities: Amortization and
depreciation 9,641 9,663 9,514 Share-based compensation expense
6,536 9,164 6,942 Deferred income taxes (14,653 ) 18,129 9,169
Excess tax benefits from share-based compensation (357 ) (997 ) (36
) Net realized gain on sale on investments (1,928 ) (308 ) (5,647 )
Other changes 6,364 9,562 6,845 Changes in assets and liabilities:
Premiums receivable and unearned premiums (395,553 ) (16,588 )
(75,298 ) Other current assets, receivables and noncurrent assets
(69,421 ) (147,387 ) 20,054 Amounts receivable/payable under
government contracts (492 ) 34,089 3,160 Reserves for claims and
other settlements 336,364 167,883 (84,658 ) Accounts payable and
other liabilities (11,118 ) 199,461
(29,813 ) Net cash (used in) provided by operating activities
(13,750 ) 311,458 (106,285 )
CASH FLOWS FROM INVESTING ACTIVITIES: Sales of investments
125,751 66,499 218,593 Maturities of investments 19,210 24,469
21,346 Purchases of investments (102,873 ) (125,564 ) (194,361 )
Purchases of property and equipment (12,519 ) (17,437 ) (13,075 )
Sales and purchases of restricted investments and other
(2,777 ) 3,537 (1,418 ) Net cash provided by
(used in) investing activities 26,792 (48,496
) 31,085
CASH FLOWS FROM FINANCING
ACTIVITIES: Proceeds from exercise of stock options and
employee stock purchases 2,726 3,746 1,216 Repurchases of common
stock (1,226 ) (11,292 ) (70 ) Excess tax benefits from share-based
compensation 357 997 36 Borrowings under financing arrangements - -
233,000 Repayment of borrowings under financing arrangements - -
(208,000 ) Net increase (decrease) in checks outstanding, net of
deposits (713 ) 713 99,368 Customer funds administered
(148,113 ) 46,743 (1,067 ) Net cash (used in)
provided by financing activities (146,969 ) 40,907
124,483 Net (decrease) increase in cash
and cash equivalents (133,927 ) 303,869 49,283 Cash and cash
equivalents, beginning of period 737,024
433,155 230,335 Cash and cash equivalents, end
of period $ 603,097 $ 737,024 $ 279,618
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,
2014 Quarter Ended March 31, 2014
Quarter Ended June 30, 2013 Western
RegionOperations1 GovernmentContracts2
Corporate/Other5
Western RegionOperations1 GovernmentContracts2 Corporate/Other3
Consolidated Western RegionOperations1 GovernmentContracts2
Corporate/Other4 Consolidated Consolidated
Commercial
premiums $ 1,377,460 $ 1,377,460 $ 1,264,177 $ 1,264,177 $
1,298,569 $ 1,298,569 Medicare premiums 757,194 757,194 755,158
755,158 688,579 688,579 Medicaid premiums 1,121,912 1,121,912
862,010 862,010 591,726 591,726 Dual Eligibles premiums
5,312 5,312
0 0
0 0
Health plan services premiums 3,261,878 3,261,878 2,881,345
2,881,345 2,578,874 2,578,874 Government contracts 154,083 154,083
144,090 144,090 139,942 139,942 Net investment income 12,043 12,043
11,102 11,102 17,143 17,143 Administrative services fees and other
income (6,612 )
(6,612 ) 2,398
2,398 2,472
2,472 Total revenues 3,267,309 154,083
3,421,392 2,894,845 144,090 3,038,935 2,598,489 139,942 2,738,431
Health plan services 2,763,179 2,763,179 2,402,342 2,402,342
2,191,918 2,191,918 Government contracts 132,634 574 133,208
131,070 904 131,974 121,826 5,574 127,400 Premium tax 31,930 31,930
42,458 42,458 51,167 51,167 Health insurer fee 37,844 37,844 36,293
36,293 - - Other ACA fees 22,546 22,546 22,527 22,527 569 569
Administrative expenses 249,665
2,749 252,414
256,594 3,151
259,745 232,377
7,324 239,701 Total general and
administrative 341,985 2,749 344,734 357,872 3,151 361,023 284,113
7,324 291,437 Selling 64,002 64,002 64,152 64,152 57,769 57,769
Depreciation and amortization 9,641 9,641 9,663 9,663 9,514 9,514
Interest 7,826
7,826 7,821
7,821 8,365
8,365 Total expenses 3,186,633
132,634 3,323
3,322,590 2,841,850
131,070 4,055 2,976,975
2,551,679 121,826
12,898 2,686,403 Income (loss) from continuing
operations before income taxes 80,676 21,449 (3,323 ) 98,802 52,995
13,020 (4,055 ) 61,960 46,810 18,116 (12,898 ) 52,028 Income tax
provision (benefit) 42,874 8,942
(73,881 ) (22,065 ) 29,371
5,386 (1,584 )
33,173 16,023 7,537
(5,015 ) 18,545 Income (loss) from continuing
operations $ 37,802 $ 12,507 $ 70,558
$ 120,867 $ 23,624 $ 7,634
$ (2,471 ) $ 28,787 $ 30,787 $
10,579 $ (7,883 ) $ 33,483 Basic earnings
(loss) per share from continuing operations $ 0.47 $ 0.16 $ 0.88 $
1.51 $ 0.30 $ 0.10 $ (0.03 ) $ 0.36 $ 0.39 $ 0.13 $ (0.10 ) $ 0.42
Diluted earnings (loss) per share from continuing operations $ 0.47
$ 0.15 $ 0.87 $ 1.49 $ 0.29 $ 0.10 $ (0.03 ) $ 0.36 $ 0.39 $ 0.13 $
(0.10 ) $ 0.42 Basic weighted average shares outstanding
80,250 80,250 80,250 80,250 79,802 79,802 79,802 79,802 79,367
79,367 79,367 79,367 Diluted weighted average shares outstanding
81,218 81,218 81,218 81,218 80,922 80,922 79,802 80,922 80,085
80,085 79,367 80,085 Pretax margin 2.5 % 1.8 % 1.8 %
Commercial premium yield -0.4 % 3.9 % 2.0 % Commercial premium PMPM
$ 378.91 $ 400.34 $ 380.30 Commercial health care cost trend -3.4 %
-2.2 % -2.3 % Commercial health care cost PMPM $ 311.85 $ 323.92 $
322.98 Commercial MCR 82.3 % 80.9 % 84.9 % Medicare Advantage MCR
90.9 % 91.8 % 89.9 % Medicaid MCR 83.6 % 79.8 % 79.5 % Dual
Eligibles MCR 60.0 % - - Health plan services MCR 84.7 % 83.4 %
85.0 % Administrative expense ratio 7.7 % 8.9 % 9.0 % Total G&A
expense ratio 10.5 % 12.4 % 11.0 % Selling costs ratio 2.0 % 2.2 %
2.2 % 1
Includes the operations of the company's
commercial, Medicare and Medicaid health plans in California,
Arizona, Oregon and Washington, as well as the operations of the
company's health and life insurance companies, primarily in
Arizona, California, Oregon and Washington, and the operations of
the company's behavioral health and pharmaceutical services
subsidiaries in several states including California, Arizona and
Oregon.
2 Includes administrative services provided under the T-3
Managed Care Support Contract for the TRICARE North Region and
other health care-related Department of Defense and Veterans
Affairs government contracts. 3 Includes litigation reserve
true-up related to previous accrual for lawsuit and related legal
expenses. Also includes severance expense. 4 Primarily
severance expense. 5
Includes $72.6 million income tax benefit.
Also includes severance expense.
Health Net, Inc. Reconciliation of Reserves for Claims
and Other Settlements ($ in millions) Health
Plan Services YTD 6/2014 FY 2013 FY 2012 Reserve for
claims (a), beginning of period $ 807.4 $ 808.7 $ 720.8 Incurred
claims related to: Current Year (f) 2,627.3 4,666.0 4,950.9 Prior
Years (c) (26.6 ) (56.2 ) 34.5 Total Incurred
(b) 2,600.7 4,609.8 4,985.4 Paid claims related to: Current
Year 1,665.3 3,872.5 4,156.6 Prior Years 731.6
738.6 740.9 Total Paid (b) 2,396.9
4,611.1 4,897.5 Reserve for
claims (a), end of period 1,011.2 807.4 808.7 Add: Claims Payable
(d) 116.6 67.0 91.6 Other (e) 360.5 109.7 137.7
Reserves for claims and other settlements, end of
period $ 1,488.3 $ 984.1 $ 1,038.0
(a) Consists of incurred but not reported claims and
received but unprocessed claims and reserves for loss adjustment
expenses. (b) Includes medical claims only. Capitation,
pharmacy and other payments including provider settlements are not
included. (c) This line represents the change in reserves
attributable to the difference between the original estimate of
incurred claims for prior years and the revised estimate. Negative
amounts in this line represent favorable development in estimated
prior years' health care costs. Positive amounts in this line
represent unfavorable development in estimated prior years' health
care costs. For a detailed description of reserve development for
the six months ended June 30, 2014, see Note 2 to the Consolidated
Financial Statements in the company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2014. For a detailed description of
reserve development for fiscal years 2013 and 2012, see Note 2 to
the Consolidated Financial Statements in the company's Annual
Report on Form 10-K for the year ended December 31, 2013.
(d) Includes amount accrued for litigation and regulatory-related
expenses. (e) Includes accrued capitation, shared risk
settlements, provider incentives and other reserve items.
(f) Our IBNR estimate also includes a provision for adverse
deviation, which is an estimate for known environmental factors
that are reasonably likely to affect the required level of IBNR
reserves. Such amounts were $67 million, $53 million and $53
million as of June 30, 2014, December 31, 2013, and December 31,
2012, respectively.
Investor Contact:The Abernathy MacGregor GroupDavid
Olson818-917-1469dwo@abmac.comorMedia Contact:Health Net,
Inc.Brad Kieffer818-676-6833brad.kieffer@healthnet.com
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