In today's call, we will refer to adjusted days claims payable. This adjusted metric is not being presented in accordance with generally accepted accounting principles or GAAP. Please refer to today's press release, which is available on the company's website for a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure, days claims payable.
I will now turn the call over to Jay Gellert, Health Net CEO.
Jay M. Gellert
Thank you, Angie. I want to get directly to the issues impacting our first quarter and our revised guidance for 2012. After that, I'll spend just a few moments on other factors influencing the first quarter, and then open it up to your questions.As you've seen in our release, we recorded $67 million in adverse medical claims development from prior periods in the first quarter of 2012. The adverse development was due to an underestimate of our incurred but not reported claims liability at year-end 2011. As we indicated, it was the result of an unanticipated flattening of our commercial medical claims trend, coupled with a larger-than-expected impact from the implementation of HIPAA 5010, the new claims coding system mandated by the federal government.We did not have similar trend expectations in Medicare and Medicaid. As a result, we had adequate reserves for those lines. In late March, we saw substantial uptick in claims for 2011 service date coming from our intermediaries. The level was above our expectation. It led to slower claims completion factors than anticipated. This led to the unanticipated increase in commercial development. We believe that the 5010 issues have now been essentially resolved. We have seen the daily claims submissions have settled down to a reasonable and expected level. The $67 million of adverse development impacts our run rate for 2012. In addition, we recognized the $67 million in prior development in the first quarter. Therefore, we have adjusted the low end of our guidance to reflect the $134 million pretax impact of the adverse development and the run rate impact.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV