Health Net's Improvement Continues as It Reports Net Income of $77 Million, or $.65 Per Diluted Share; 220 Basis Point Improvement in Health Plan MCR Key to Better Performance Medicare Part D Enrollment at 255,000.LOS ANGELES Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. -- Health Net, Inc. (NYSE NYSE See: New York Stock Exchange :HNT HNT Hostage Negotiation Team ) today announced 2006 first quarter net income per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share of $.65 compared with net income per diluted share of $.19 in the first quarter of 2005. Health Net's net income climbed more than 250 percent, reaching $76,593,000 in the first quarter of 2006 compared to net income of $21,348,000 in the first quarter of 2005. Net income in the first quarter of 2005 included $67,042,000 in pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern charges for the settlement of the MDL MDL - (Originally "Muddle"). C. Reeve, Carl Hewitt and Gerald Sussman, Dynamic Modeling Group, MIT ca. 1971. Intended as a successor to Lisp, and a possible base for Planner-70. Basically LISP 1.5 with data types and arrays. physician-class action lawsuit lawsuit: see procedure; tort. and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and related benefit costs related to the May 2004 workforce reduction. Key highlights behind Health Net's improved performance in 2006's first quarter included: --An increase in the pretax margin to 3.9 percent compared to the first quarter 2005 pretax margin of 1.1 percent (the pretax charges in the first quarter of 2005 reduced pretax margin for that quarter by 2.3 percentage points). --A more than 20 percent gain in the commercial gross margin on a per member per month (PMPM PMPM Per Member Per Month PMPM Pilgrim Monument and Provincetown Museum (Massachusetts) ) basis compared with the first quarter of 2005, underscoring the company's pricing discipline and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. health care cost trends. --Health Net's health plan medical care ratio (MCR MCR My Chemical Romance (band) MCR Minimum Capital Requirement MCR Minimum Cell Rate MCR Middle Common Room (UK universities) MCR Multivariate Curve Resolution ) was 82.8 percent in the first quarter of 2006, compared with 85.0 percent in the first quarter of 2005, a 220 basis point improvement, driven in large part by lower hospital utilization hospital utilization The usage rate of a particular health care facility; a group of statistics referring to a population's use of hospital services . Commercial premiums PMPM rose 9.1 percent while commercial health care costs rose 6.6 percent compared with the first quarter of 2005. --Total health plan enrollment at March 31, 2006 was approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 3.4 million members, an increase of 10,000 compared with the fourth quarter of 2005. This total includes 112,000 members added as a result of Health Net's acquisition of certain health plan assets of Universal Care, Inc. on March 31, 2006. --Enrollment of 255,000 new members in the company's Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. Part D prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, benefit plans. Additionally, Health Net's Medicare Advantage plans added approximately 16,000 new members in the first quarter of 2006, a 9 percent increase compared to the fourth quarter of 2005. Approximately 7,000 members came from the Universal Care acquisition. "We are pleased to have achieved further progress as we use the strength of our diverse businesses to build a better Health Net," said Jay Gellert Jay Gellert (born 1956 in New York City, New York) is the current CEO and President of Health Net, Inc. , president and chief executive officer of Health Net. "Our improved performance enables us to make key investments in our future, such as the Universal Care acquisition and our Medicare efforts. We can see the momentum building across the company. Coupled with our ongoing strong financial metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. and substantial improvements in TRICARE, we remain confident that we're we're Contraction of we are. we're we are on the right track. "Our commercial enrollment was essentially on plan in the first quarter. We are seeing early encouraging signs that lapse rates lapse rate n. The rate of decrease of atmospheric temperature with increase in altitude. lapse rate The rate of change of any meteorological phenomenon, especially atmospheric temperature with altitude. are declining and new sales are increasing as investments in product innovations, marketing, sales and advertising are gaining traction Traction Definition Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. in the marketplace. In California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , for example, April commercial enrollment was higher than March. At the same time, we are maintaining our commercial pricing discipline," Gellert Gellert (or Killhart) is a name shared by several people (and a dog):
Medicare The company began offering the new Part D prescription drug benefit to seniors in 10 states on January January: see month. 1, 2006. "We are pleased with Part D results as they were essentially breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations in the first quarter as expected," said Gellert. "Now that we're nearing the end of the open enrollment period for the Part D program, the company is exploring additional product opportunities for Medicare expansion in 2007." Revenues Health Net's total revenues increased 9.4 percent in the first quarter of 2006 to $3,186,630,000 from $2,911,745,000 in the first quarter of 2005. Health plan premiums increased 6.2 percent to $2,546,130,000 in the first quarter of 2006 compared to $2,397,689,000 in the first quarter of 2005. In the first quarter of 2006, Health Net's Government contracts revenue rose 24.0 percent from the first quarter of 2005, increasing by $119,187,000 to $615,897,000. "TRICARE revenues were consistent with expectations as the impact of heightened military activity continues to drive revenues and costs higher," said Buddy Piszel, executive vice president and chief financial officer of Health Net. Commercial premium yields PMPM climbed 9.1 percent in the first quarter of 2006 compared to the first quarter of 2005. "The commercial premium yield increases are consistent with expectations," noted Piszel. Total health plan enrollment increased by approximately 10,000 members in the first quarter of 2006 compared to the fourth quarter of 2005. The same comparison shows that Medicaid Medicaid, national health insurance program in the United States for low-income persons; established in 1965 with passage of the Social Security Amendments and now run by the Centers for Medicare and Medicaid Services. enrollment increased by approximately 14,000 members, as the Universal Care acquisition added 23,000 new members. Commercial enrollment, including both at-risk at-risk adj. Being endangered, as from exposure to disease or from a lack of parental or familial guidance and proper health care: efforts to make the vaccine available to at-risk groups of children. and Administrative Services Only (ASO ASO arteriosclerosis obliterans. ASO 1 Administrative services organization, see there 2 Allele-specific–oligonucleotide hybridization 3 Anti-streptolysin O, see there ) membership, declined by approximately 20,000 members, or 0.9 percent, in the first quarter of 2006 compared to the fourth quarter of 2005. Excluding the 81,000 Universal Care commercial members added on March 31, 2006, commercial enrollment declined by 101,000 members, or 4.2 percent, from December December: see month. 31, 2005. Health Care Costs The health plan MCR improved to 82.8 percent in the first quarter of 2006 from 85.0 percent in the first quarter of 2005. "This was very gratifying grat·i·fy tr.v. grat·i·fied, grat·i·fy·ing, grat·i·fies 1. To please or satisfy: His achievement gratified his father. See Synonyms at please. 2. performance as it demonstrated that the initiatives we've we've Contraction of we have. we've have undertaken to improve our health care cost structure are showing results," Piszel noted. Commercial health care costs rose by 6.6 percent PMPM between the first quarters of 2005 and 2006. "Commercial hospital bed days were down by 2 percent in the quarter, compared with last year's first quarter. Physician and pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. costs came in a bit better than expected. We now believe that our commercial health care costs are at a competitive level, and that's a vital accomplishment in our ongoing company-wide improvement process," Piszel explained. The Government contracts cost ratio of 95.5 percent in the first quarter of 2006 represented a 110 basis point improvement compared with the first quarter of 2005. "As our experience with the TRICARE North contract grows, we are gaining efficiencies on the administrative side and we are better managing the increased beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. use of private sector health care resources," Piszel added. Administrative Expenses In the first quarter of 2006, total general, administrative and depreciation expenses increased by $68,798,000 to $295,581,000 compared to $226,783,000 in the first quarter of 2005. "Our administrative spending is up as we invest in our future. We continue to support Medicare efforts and increased marketing in the commercial arena. These commitments are essential if we are to continue to build a stronger, more competitive company," Piszel commented. Health Net recorded $4,229,000, or $.02 per diluted share, in stock option expenses for the first time in the first quarter of 2006. Balance Sheet Highlights Cash and investments as of March 31, 2006 were $2,226,610,000 compared with $2,106,303,000 as of December 31, 2005. Reserves for claims and other settlements decreased by $53,646,000 to $986,525,000 at March 31, 2006, from $1,040,171,000 at December 31, 2005. Days claims payable (DCP DCP - definitional constraint programming ) declined by 6.2 days, to 43.2 days at March 31, 2006, from 49.4 days at December 31, 2005, and by 8.2 days compared with the 51.4 days at March 31, 2005. These amounts include the effects of provider settlements, capitation CAPITATION. A poll tax; an imposition which is yearly laid on each person according to his estate and ability. 2. The Constitution of the United States provides that "no capitation, or other direct tax, shall be laid, unless in proportion to the census, or payments and Medicare Part D. DCP, excluding provider settlements, capitation payments and the impact of Medicare Part D expenses, declined by only 1.8 days to 58.1 days in the first quarter of 2006, compared to the to the 59.9 days in the first quarter of 2005. DCP declined by 5.4 days compared to the fourth quarter of 2005, as a result of the higher paid claims in the first quarter of 2006 compared with the fourth quarter of 2005, and the resulting reduction in claims inventory on hand (see Footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." (d) in the attached tables). The company's debt-to-total capital ratio was 18.5 percent as of March 31, 2006 compared to 19.6 percent as of December 31, 2005. Interest expense increased in the first quarter of 2006 by $1,617,000 compared with the first quarter of 2005, due to higher market interest rates. Cash Flow Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. was $185,904,000 in the first quarter of 2006 compared to operating cash flow of $95,151,000 in the first quarter of 2005, reflecting, in part, the company's receipt of its April 2006 Centers for Medicare & Medicaid Services (CMS (1) See content management system and color management system. (2) (Conversational Monitor System) Software that provides interactive communications for IBM's VM operating system. ) payment of approximately $169,000,000 in March 2006. The higher levels of claims paid and the provider settlement payments referenced above also affected operating cash flow. Universal Care Acquisition The acquisition of certain health plan assets of Universal Care, Inc. closed on March 31, 2006. Because the acquisition closed on the last day of the quarter, Universal Care did not have a material impact on the company's operating results in the first quarter of 2006. Outlook Health Net continues to believe that its earnings per diluted share for the full year 2006 will be between $2.90 and $3.10. The company historically experiences earnings distribution of approximately 45 percent in the first half of the year and approximately 55 percent in the second half of the year. The company previously noted that it expects earnings distribution to be more weighted to the second half of the year due to the anticipated impact of the Universal Care acquisition and the concentration of earnings from Medicare Part D expected to occur in the third and fourth quarters of 2006. Accordingly, Health Net expects earnings per diluted share in the second quarter of 2006 to be in a range of $.61 to $.66. The company noted that it expects to absorb absorb To offset sell orders or a new security offering with buy orders. approximately $6.5 million in one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. general and administrative transition expenses in the second quarter related to the Universal Care acquisition. Conference Call As previously announced, Health Net will discuss the company's first quarter results during a conference call scheduled on Monday Monday: see week. , May 8, 2006, at approximately 11:00 a.m. Eastern Time. To listen to the call, please dial 800.474.8920, code 9496826. A live webcast and replay of the conference call also will be available at www.healthnet.com. The conference call webcast is open to all interested parties. A replay of the conference call will be available from May 8, 2006 through May 12, 2006, by dialing 888.203.1112, code 9496826. Anyone listening to the company's conference call will be presumed to have read Health Net's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2005, and other reports filed by the company from time to time with the Securities and Exchange Commission. About Health Net Health Net, Inc. is among the nation's largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company's HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, , POS (1) See point of sale and packet over SONET. (2) "Parent over shoulder." See digispeak. POS - point of sale , insured The person who obtains or is otherwise covered by insurance on his or her health, life, or property. The insured in a policy is not limited to the insured named in the policy but applies to anyone who is insured under the policy. insured n. PPO PPO abbr. preferred provider organization PPO Managed care Preferred provider organization, see there Infectious disease Pleuropneumonia-like organism, see there and government contracts subsidiaries provide health benefits to approximately 6.6 million individuals in 27 states and the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs Veterans Affairs is a term of the business that deals with the relation between a government and its veteran communities, usually administered by the designated government agency. programs. Health Net's behavioral health Behavioral health was first used in the 1980's to name the combination of the fields mental health and substance abuse. As an example, an organization serving both mental health and substance abuse clients might refer to its practice as behavioral health or subsidiary, MHN MHN Men's Health Network MHN Mental Health Nursing MHN Mental Health Net MHN Main Hoon Na (Hindi movie) MHN Mullen, Nebraska (airport code) , provides mental health benefits to approximately 7.3 million individuals in all 50 states. The company's subsidiaries also offer managed health care products related to prescription drugs, and offer managed health care product coordination coordination /co·or·di·na·tion/ (ko-or?di-na´shun) the harmonious functioning of interrelated organs and parts. co·or·di·na·tion n. 1. The harmonious adjustment or interaction of parts. 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 Web site at www.healthnet.com. Cautionary Statements This release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , and Section 27A of the Securities Act of 1933, as amended, that involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking statements. These statements are based on management's analysis, judgment, belief and expectation only as of the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" , and are subject to uncertainty and changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Without limiting the foregoing, 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, rising health care costs, negative prior period claims reserve developments, trends in medical care ratios, issues relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc provider contracts, litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. costs, operational issues, health care reform and general business 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 Form 10-Q See 10-Q. filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this release.
(tables follow)
Health Net, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share and ratio data)
First Second
Quarter Quarter
Ended Ended
March 31, June 30,
REVENUES: 2005 2005
------------- -------------
Health plan services premiums $2,397,689 $2,390,679
Government contracts 496,710 610,656
Net investment income 15,763 17,213
Other income 1,583 1,309
------------- -------------
Total revenues 2,911,745 3,019,857
------------- -------------
EXPENSES:
Health plan services 2,036,873 2,023,174
Government contracts 479,974 580,685
General and administrative 215,227 233,723
Selling 57,273 56,082
Depreciation 11,556 10,467
Amortization 861 861
Interest 10,609 10,543
------------- -------------
2,812,373 2,915,535
Litigation and severance related costs 67,042 (a) 16,237 (c)
------------- -------------
Total expenses 2,879,415 2,931,772
------------- -------------
Income from operations before income taxes 32,330 88,085
Income tax provision 10,982 (b) 34,522
------------- -------------
Net income $ 21,348 $ 53,563
============= =============
Basic earnings per share $ 0.19 $ 0.48
Diluted earnings per share $ 0.19 $ 0.47
Weighted average shares outstanding:
Basic 111,544 112,451
Diluted 113,235 114,851
Pretax margin (Income from operations
before income taxes / Total revenues) 1.1% 2.9%
Health plan services MCR 85.0% 84.6%
Government contracts cost ratio 96.6% 95.1%
Administrative ratio ((G&A+Dep) / (HP serv
rev + Other income)) 9.5% 10.2%
Selling costs ratio (Selling costs / HP
serv rev) 2.4% 2.3%
Days claims payable (d) 51.4 49.9
Days claims payable (excluding capitation,
provider settlements and Medicare Part D)
(d) 59.9 60.3
Effective tax rate 34.0% 39.2%
Health plan services premiums PMPM $ 231.84 $ 235.03
Health plan services costs PMPM $ 196.96 $ 198.90
Third Fourth First
Quarter Quarter Quarter
Ended Ended Ended
September 30, December 31, March 31,
REVENUES: 2005 2005 2006
---------- ---------- ----------
Health plan services premiums $2,398,100 $2,367,057 $2,546,130
Government contracts 639,626 560,491 615,897
Net investment income 19,536 20,239 23,359
Other income 1,511 2,371 1,244
---------- ---------- ----------
Total revenues 3,058,773 2,950,158 3,186,630
---------- ---------- ----------
EXPENSES:
Health plan services 2,000,661 1,952,309 2,108,712
Government contracts 614,794 535,800 587,980
General and administrative 241,847 266,043 290,823
Selling 55,000 53,200 56,611
Depreciation 4,007 4,220 4,758
Amortization 861 861 591
Interest 11,789 11,690 12,226
---------- ---------- ----------
2,928,959 2,824,123 3,061,701
Litigation and severance related
costs - - -
---------- ---------- ----------
Total expenses 2,928,959 2,824,123 3,061,701
---------- ---------- ----------
Income from operations before
income taxes 129,814 126,035 124,929
Income tax provision 51,609 49,366 48,336
---------- ---------- ----------
Net income $ 78,205 $ 76,669 $ 76,593
========== ========== ==========
Basic earnings per share $ 0.69 $ 0.67 $ 0.67
Diluted earnings per share $ 0.67 $ 0.65 $ 0.65
Weighted average shares
outstanding:
Basic 113,371 114,276 114,594
Diluted 116,543 117,902 118,398
Pretax margin (Income from
operations before income taxes /
Total revenues) 4.2% 4.3% 3.9%
Health plan services MCR 83.4% 82.5% 82.8%
Government contracts cost ratio 96.1% 95.6% 95.5%
Administrative ratio ((G&A+Dep) /
(HP serv rev + Other income)) 10.2% 11.4% 11.6%
Selling costs ratio (Selling
costs / HP serv rev) 2.3% 2.2% 2.2%
Days claims payable (d) 48.8 49.4 43.2
Days claims payable (excluding
capitation, provider settlements
and Medicare Part D) (d) 61.1 63.5 58.1
Effective tax rate 39.8% 39.2% 38.7%
Health plan services premiums
PMPM $ 240.10 $ 241.13 $ 246.89
Health plan services costs PMPM $ 200.31 $ 198.88 $ 204.48
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
March 31, June 30,
2005 2005
---------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 765,842 $ 939,057
Investments - available for sale 1,129,760 1,060,936
Premiums receivable, net 124,041 119,776
Amounts receivable under government
contracts 134,447 139,540
Incurred but not reported (IBNR)
health care costs receivable under
TRICARE North contract 216,740 184,214
Other receivables 82,401 89,437
Deferred taxes 106,150 100,277
Other assets 112,044 118,904
---------------- --------------
Total current assets 2,671,425 2,752,141
Property and equipment, net 183,176 103,314
Goodwill, net 723,595 723,595
Other intangible assets, net 20,993 20,132
Deferred taxes 24,917 26,941
Other noncurrent assets 163,732 148,647
---------------- --------------
Total Assets $ 3,787,838 $ 3,774,770
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Reserves for claims and other
settlements $ 1,155,291 $ 1,065,465
Health care and other costs payable
under government contracts 128,570 131,909
IBNR health care costs payable under
TRICARE North contract 216,740 184,214
Unearned premiums 115,859 97,038
Accounts payable and other
liabilities 348,068 385,995
---------------- --------------
Total current liabilities 1,964,528 1,864,621
Senior notes payable 388,981 400,659
Other noncurrent liabilities 126,471 116,824
---------------- --------------
Total Liabilities 2,479,980 2,382,104
---------------- --------------
Stockholders' Equity
Common stock and additional paid-in
capital 838,176 861,595
Treasury common stock, at cost (632,926) (632,926)
Retained earnings 1,115,728 1,169,291
Accumulated other comprehensive loss (13,120) (5,294)
---------------- --------------
Total Stockholders' Equity 1,307,858 1,392,666
---------------- --------------
Total Liabilities and Stockholders'
Equity $ 3,787,838 $ 3,774,770
================ ==============
Debt-to-Total Capital Ratio 22.9% 22.3%
September 30, December 31, March 31,
2005 2005 2006
------------- ------------ -----------
ASSETS
Current Assets
Cash and cash equivalents $ 1,027,848 $ 742,485 $ 870,224
Investments - available for
sale 1,150,738 1,363,818 1,356,386
Premiums receivable, net 127,020 132,019 171,977
Amounts receivable under
government contracts 122,295 122,796 143,625
Incurred but not reported
(IBNR) health care costs
receivable under TRICARE
North contract 263,329 265,517 295,800
Other receivables 85,873 79,572 84,414
Deferred taxes 110,445 93,899 99,866
Other assets 107,618 111,512 147,600
------------- ------------ -----------
Total current assets 2,995,166 2,911,618 3,169,892
Property and equipment, net 112,218 125,773 136,727
Goodwill, net 723,595 723,595 751,949
Other intangible assets, net 19,271 18,409 47,062
Deferred taxes 29,527 31,060 46,560
Other noncurrent assets 143,555 130,267 137,645
------------- ------------ -----------
Total Assets $ 4,023,332 $ 3,940,722 $ 4,289,835
============= ============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Reserves for claims and other
settlements $ 1,057,848 $ 1,040,171 $ 986,525
Health care and other costs
payable under government
contracts 62,778 62,536 62,529
IBNR health care costs
payable under TRICARE North
contract 263,329 265,517 295,800
Unearned premiums 218,527 106,586 324,063
Accounts payable and other
liabilities 404,362 364,266 434,605
------------- ------------ -----------
Total current liabilities 2,006,844 1,839,076 2,103,522
Senior notes payable 391,106 387,954 379,983
Other noncurrent liabilities 123,376 124,617 129,507
------------- ------------ -----------
Total Liabilities 2,521,326 2,351,647 2,613,012
------------- ------------ -----------
Stockholders' Equity
Common stock and additional
paid-in capital 899,400 911,672 932,254
Treasury common stock, at
cost (633,153) (633,375) (636,252)
Retained earnings 1,247,496 1,324,165 1,400,758
Accumulated other
comprehensive loss (11,737) (13,387) (19,937)
------------- ------------ -----------
Total Stockholders' Equity 1,502,006 1,589,075 1,676,823
------------- ------------ -----------
Total Liabilities and
Stockholders' Equity $ 4,023,332 $ 3,940,722 $ 4,289,835
============= ============ ===========
Debt-to-Total Capital Ratio 20.7% 19.6% 18.5%
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
First Quarter Second Quarter
Ended Ended
March 31, June 30,
2005 2005
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,348 $ 53,563
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization and depreciation 12,417 11,328
Share-based compensation expense - -
Other changes 3,189 3,100
Changes in assets and liabilities,
net of the effects of dispositions:
Premiums receivable and unearned
premiums (29,427) (14,556)
Other receivables, deferred taxes
and other assets (6,685) (14,336)
Amounts receivable/payable under
government contracts 4,387 (1,754)
Reserves for claims and other
settlements (14,006) (89,826)
Accounts payable and other
liabilities 103,928 41,761
---------------- --------------
Net cash provided by (used in)
operating activities 95,151 (10,720)
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments 23,090 184,483
Maturities of investments 13,777 38,653
Purchases of investments (125,650) (143,776)
Proceeds from sale of property and
equipment 33 79,395
Purchases of property and equipment (10,425) (7,441)
Cash received from sale (paid for
acquisition) of businesses 1,949 -
Sales and purchases of restricted
investments and other 29,246 13,460
---------------- --------------
Net cash (used in) provided by
investing activities (67,980) 164,774
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options and employee stock purchases 16,569 19,161
Repurchases of common stock - -
Excess tax benefits from share-based
compensation - -
Medicare Part D deposits - -
---------------- --------------
Net cash provided by financing
activities 16,569 19,161
---------------- --------------
Net increase (decrease) in cash and
cash equivalents 43,740 173,215
Cash and cash equivalents, beginning
of period 722,102 765,842
---------------- --------------
Cash and cash equivalents, end of
period $ 765,842 $ 939,057
================ ==============
Third Fourth First
Quarter Quarter Quarter
Ended Ended Ended
September 30, December 31, March 31,
2005 2005 2006
------------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 78,205 $ 76,669 $ 76,593
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Amortization and
depreciation 4,868 5,081 5,349
Share-based compensation
expense - - 4,435
Other changes 3,229 3,032 4,344
Changes in assets and
liabilities, net of the
effects of dispositions:
Premiums receivable and
unearned premiums 114,245 (116,940) 177,519
Other receivables, deferred
taxes and other assets 4,901 18,476 (41,899)
Amounts receivable/payable
under government contracts (51,886) (743) (20,836)
Reserves for claims and
other settlements (7,617) (17,677) (53,647)
Accounts payable and other
liabilities 28,826 (35,706) 34,046
------------- ----------- -----------
Net cash provided by (used in)
operating activities 174,771 (67,808) 185,904
------------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Sales of investments 13,283 179,102 228,995
Maturities of investments 20,215 41,037 15,770
Purchases of investments (126,917) (437,250) (252,973)
Proceeds from sale of property
and equipment 417 - -
Purchases of property and
equipment (13,242) (17,738) (15,730)
Cash received from sale (paid
for acquisition) of businesses - - (73,100)
Sales and purchases of
restricted investments and
other (8,840) 9,093 (9,027)
------------- ----------- -----------
Net cash (used in) provided by
investing activities (115,084) (225,756) (106,065)
------------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from exercise of
stock options and employee
stock purchases 29,331 8,423 10,380
Repurchases of common stock (227) (222) (1,724)
Excess tax benefits from
share-based compensation - - 3,099
Medicare Part D deposits - - 36,145
------------- ----------- -----------
Net cash provided by financing
activities 29,104 8,201 47,900
------------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 88,791 (285,363) 127,739
Cash and cash equivalents,
beginning of period 939,057 1,027,848 742,485
------------- ----------- -----------
Cash and cash equivalents, end
of period $ 1,027,848 $ 742,485 $ 870,224
============= =========== ===========
Health Net, Inc.
Notes to Condensed Consolidated Statements of Operations
Notes:
(a) Pretax $67.0 million charge for litigation settlement and
restructuring charges included the following:
$65.6 million related to settlement of the MDL physician-class
lawsuit
$1.4 million for severance and related benefit costs related to
our workforce reduction announced in May 2004
(b) Includes $2.2 million of income tax benefit related to the sale of
a small subsidiary.
(c) Pretax $15.9 million charge representing total estimated legal
defense costs associated with the AmCareco case, and $0.3 million
for severance and related benefit costs related to our workforce
reduction announced in May 2004.
(d) Management believes that days claims payable (excluding
capitation, provider settlements and Medicare Part D), a
non-GAAP financial measure, provides useful information to
investors because, in excluding those health care costs for
which no or minimal reserves are maintained, it is a more
accurate reflection of days claims payable calculated from
claims-based reserves than is days claims payable, which does
not exclude such costs. This non-GAAP financial information
should be considered in addition to, not as a substitute for,
financial information prepared in accordance with GAAP. The
following table provides a reconciliation of the differences
between days claims payable (excluding capitation, provider
settlements and Medicare Part D) and days claims payable, the
most directly comparable financial measure calculated and
presented in accordance with GAAP:
Calculation of Days Claims Payable
(Excluding Capitation, Provider Settlements and Medicare Part D)
Q1 2005 Q2 2005
---------------- ---------------
(Dollars in thousands)
Reserve for Claims and Other
Settlements $ 1,155,291 $ 1,065,465
Less: Capitation Payable,
Provider Settlements and
Medicare Part D (169,733) (132,795)
--------------- --------------
Adjusted Reserve for Claims and
Other Settlements $ 985,558 $ 932,670
(1) Average Reserve for Claims and
Other Settlements $ 1,162,294 $ 1,110,378
(2) Average Adjusted Reserve for
Claims and Other Settlements $ 975,551 $ 959,114
(3) Health Plan Services Cost 2,036,873 2,023,174
Less: Capitation Payments,
Provider Settlements and
Medicare Part D (571,593) (576,367)
--------------- --------------
(4) Adjusted Health Plan Services
Cost $ 1,465,280 $ 1,446,807
(5) Number of Days in Period 90 91
=(1)/(3)x(5) Days Claims Payable 51.4 49.9
=(2)/(4)x(5) Days Claims Payable
(Excl. Capitation, Provider
Settlements and Medicare Part D) 59.9 60.3
Q3 2005 Q4 2005 Q1 2006
------------- ------------ ------------
(Dollars in thousands)
Reserve for Claims and
Other Settlements $ 1,057,848 $ 1,040,171 $ 986,525
Less: Capitation Payable,
Provider Settlements and
Medicare Part D (105,154) (95,422) (120,477)
------------ ----------- -----------
Adjusted Reserve for
Claims and Other
Settlements $ 952,694 $ 944,749 $ 866,048
(1) Average Reserve for
Claims and Other
Settlements $ 1,061,657 $ 1,049,010 $ 1,013,348
(2) Average Adjusted Reserve
for Claims and Other
Settlements $ 942,682 $ 948,722 $ 905,399
(3) Health Plan Services Cost 2,000,661 1,952,309 2,108,712
Less: Capitation
Payments, Provider
Settlements and
Medicare Part D (580,791) (578,504) (705,919)
------------ ----------- -----------
(4) Adjusted Health Plan
Services Cost $ 1,419,870 $ 1,373,805 $ 1,402,793
(5) Number of Days in Period 92 92 90
=(1)/(3)x(5) Days Claims
Payable 48.8 49.4 43.2
=(2)/(4)x(5) Days Claims
Payable (Excl. Capitation,
Provider Settlements and
Medicare Part D) 61.1 63.5 58.1
HEALTH NET, INC.
Medical Covered Lives at March 31, 2006
(in Thousands)
------------------------ ----------------------
Commercial - Large Commercial - Small
Group(a) Group & Individual
------------------------ ----------------------
3/06 12/05 3/05 3/06 12/05 3/05
------ ------ ------ ----- ------ -----
Arizona 71 69 66 47 48 54
California 1,031 1,083 1,113 365 373 433
Universal Care 24 - - 56 - -
California 1,055 1,083 1,113 421 373 433
Connecticut 161 176 182 28 30 38
New Jersey 47 53 71 64 74 98
New York 117 116 124 98 102 106
Oregon 101 102 103 37 37 34
------ ------ ------ ----- ------ -----
Total 1,552 1,599 1,659 694 664 763
====== ====== ====== ===== ====== =====
Year over Year (6)% (9)%
Sequential (3)% 4%
------ ------ ------ ----- ------ -----
------------------------ ----------------------
Commercial Risk ASO
Subtotal
------------------------ ----------------------
3/06 12/05 3/05 3/06 12/05 3/05
------ ------ ------ ----- ------ -----
Arizona 118 117 120 - - -
California 1,396 1,457 1,546 6 7 7
Universal Care 81 - - - - -
California 1,477 1,457 1,546 6 7 7
Connecticut 189 207 220 70 69 48
New Jersey 110 127 169 20 20 18
New York 215 218 230 17 20 21
Oregon 138 138 137 - - 1
------ ------ ------ ----- ------ -----
Total 2,247 2,264 2,422 113 116 95
====== ====== ====== ===== ====== =====
Year over Year (7)% 19%
Sequential (1)% (3)%
------ ------ ------ ----- ------ -----
--------------------------------
Commercial Subtotal
--------------------------------
3/06 12/05 3/05
------ ------ ------
Arizona 118 117 120
California 1,402 1,464 1,552
Universal Care 81 - -
California 1,482 1,464 1,552
Connecticut 259 276 268
New Jersey 130 147 188
New York 232 238 251
Oregon 138 138 138
------ ------ ------
Total 2,360 2,380 2,516
====== ====== ======
Year over Year (6)%
Sequential (1)%
------ ------ ------
------------------ ------------------ -------------------
Medicare Risk Medicaid Health Plan Total
------------------ ------------------ -------------------
3/06 12/05 3/05 3/06 12/05 3/05 3/06 12/05 3/05
----- ------ ----- ----- ------ ----- ------ ------ -----
Arizona 33 31 32 - - - 151 148 152
California 95 93 93 690 698 696 2,187 2,255 2,341
Universal
Care 7 - - 23 - - 112 - -
California 103 93 93 713 698 696 2,298 2,255 2,341
Connecticut 29 27 27 87 88 93 375 391 388
New Jersey - - - 45 44 42 175 191 229
New York 7 7 6 - - - 239 244 256
Oregon 18 16 12 - - - 157 155 150
- -
----- ------ ----- ----- ------ ----- ------ ------ -----
Total 190 174 169 845 830 831 3,394 3,384 3,517
===== ====== ===== ===== ====== ===== ====== ====== =====
Year over
Year 12% 2% (3)%
Sequential 9% 2% 0%
----- ------ ----- ----- ------ ----- ------ ------ -----
------ ------ ------
3/06 12/05 3/05
------ ------ ------
Medicare PDP (Stand-Alone) 255 - -
------ ------ ------
3/06 12/05 3/05
------ ------ ------
TRICARE
Previous TRICARE Contracts(b) - - -
North Contract(c) 2,941 2,962 2,941
------ ------ ------
Total TRICARE 2,941 2,962 2,941
(a) Commercial Large Group includes Medicare Supplement
(b) Includes only Tricare eligible for which we have health care risk
(c) Includes Tricare eligible for which we have health care risk, and
those for which we provide Administrative Services Only (ASO),
primarily active duty
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In thousands)
Health Plan Services
-----------------------------------
Q1 2006 Year 2005 Year 2004
----------- ----------- -----------
Reserve for claims(a), beginning
of period $ 768,737 $ 794,614 $ 777,059
Incurred claims related to:
Current Year 1,287,821 5,130,415 5,048,289
Prior Years(c) (64,278) (114,540) 8,769
---------- ---------- ----------
Total Incurred(b) 1,223,543 5,015,875 5,057,058
Paid claims related to:
Current Year 745,793 4,401,247 4,286,929
Prior Years 565,493 640,505 752,574
---------- ---------- ----------
Total Paid(b) 1,311,286 5,041,752 5,039,503
Reserve for claims(a), end of
period 680,994 768,737 794,614
Add:
Claims Payable 200,213 177,233 288,331
Other(d) 105,318 94,201 86,352
---------- ---------- ----------
Reserves for claims and other
settlements, end of period $ 986,525 $1,040,171 $1,169,297
========== ========== ==========
(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 accrued capitation, shared risk settlements, provider
incentives and other reserve items.
|
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion