Health Net Reports Second Quarter 2012 GAAP Net Income Of $124.6 Million, Or $1.48 Per Diluted Share

Health Net, Inc. (NYSE: HNT) today announced 2012 second quarter GAAP net income of $124.6 million, or $1.48 per diluted share, compared with $58.3 million, or $0.63 per diluted share, for the second quarter of 2011.

The 2011 and 2012 financial results included in this release and the attached financial tables reflect the treatment of the company’s Medicare stand-alone Part D (Medicare PDP) business as discontinued operations.

The 2012 second quarter GAAP results include:

1. a $119.4 million net gain from the sale of discontinued operations, representing the company’s Medicare PDP business that was sold to an affiliate of CVS Caremark Corporation on April 1, 2012;
2. a $6.5 million pretax loss related to the company’s divested operations and services; and
3. $10.8 million in expenses related to the company’s general and administrative (G&A) cost reduction efforts.

For the second quarter of 2012, the company’s Western Region Operations (Western Region) and Government Contracts segments produced combined net earnings of $15.9 million, or $0.19 per diluted share, compared with $71.0 million, or $0.77 per diluted share, for the second quarter of 2011.

Two key factors impacting the performance in the second quarter of 2012 were:

1. higher than expected commercial health care costs primarily arising from a select number of large group accounts with membership in full-network products; and
2. higher than expected Medicaid health care costs primarily arising from the senior and persons with disabilities (SPDs) membership.

The $61.0 million in adverse prior period development in the second quarter of 2012 includes $48.9 million of adverse prior development related to the first quarter of 2012. The majority of this adverse prior period development is attributable to the commercial business.

“We believe that we have identified and are on the path to resolving the issues in the commercial and Medicaid businesses that impacted our second quarter performance,” said Jay Gellert, Health Net’s chief executive officer. “We identified specific commercial large group accounts that contributed to increased health care costs early enough this year. We are adjusting rates, modifying network configurations, and taking other actions to achieve substantial commercial improvement in 2013.

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