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 Region Operations1 |
Government Contracts2 |
Corporate/ |
Western Region Operations1 |
Government Contracts2 |
Corporate/ Other3 | Consolidated |
Western Region Operations1 |
Government Contracts2 |
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. | ||||||||
Contacts:
The Abernathy MacGregor Group
David Olson
818-917-1469
dwo@abmac.com
or
Media
Contact:
Health Net, Inc.
Brad Kieffer
818-676-6833
brad.kieffer@healthnet.com