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Health Net's CEO Discusses Q1 2012 Results - Earnings Call Transcript

As a result of prior period development booked in the first quarter and the higher commercial health care costs run rate entering 2012, we now expect commercial health care cost to be higher than our premium yields on a reported basis by 200 to 220 basis points.

In giving this guidance, we additionally took into account, first, our premium yields are coming in higher than previous guidance by about 50-basis-point, as we continue to hold the line on pricing. The pricing trend assumptions we had used were primarily based on claims experienced through the first half of 2011. They are basically unchanged even when we look at the fourth quarter of '11 with the prior period development included. We are still confident that our pricing adequately reflects underlying run rate medical claims trends. Second, as we've earlier indicated, we have a new pharmacy agreement with CVS Caremark that will improve our pharmacy trend. And third, negotiated provider unit costs are coming in slightly below expectations.

We are working on several other initiatives aimed at improving our results throughout the remainder of 2012. We are introducing new tailored network products in the second quarter. We are renegotiating provider contracts to improve unit cost trends. And there are many other contracting medical management expense and revenue initiatives.

Now let me discuss the impact the prior period development has on past and projected trends. We saw decelerating commercial trends throughout '11. With the $67 million of prior period development now reflected, we see that our medical cost trends through the second half of '11 have essentially leveled out at a slightly lower level than the trends in the first half of last year. We have indicated in prior presentations that our 2012 outlook of trend assumed stable underlying utilization trends. The resulting trends through the fourth quarter of 2011, after including the prior period development, are consistent with that outlook. To date, our first quarter 2012 claims experience also supports stable underlying utilization trends.

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