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Health Net's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Recent regulatory filings showed that our small group, MCRs are among the lowest in California, helped by the rapid growth of Tailored Network Products. To further support this, if we put prior period development back into the proper period, we see year-over-year improvement in the overall California commercial MCR for the first half of 2012 even with the large group headwinds. We believe our success with Tailored Network products and in small and mid markets continues to meet the customer needs for affordability, while producing solid margins and growth. The steps we’ve outlined will serve to strengthen our California commercial franchise.

Let’s next review California Medicaid. The Medicaid MCR was up by 460 basis points sequentially, primarily due to the SPD population. As we said in the past, we’ve been booking the SPD members at a high MCR. As we completed the enrollment process and the experience with the new book matured, it is now cleared that the MCR for these members was greater than a 100%.

The experience is centered in certain counties where institutional costs are well above projection. We also have had more high-risk patients than anticipated in areas such as end-stage renal disease. The patients recognized some of these issues and we are currently engaged in what we believe are productive discussions with the state. These discussion encompass a wide range of issues including past rate disputes, the adequacy of current and future rates and the structure of the SPD population.

We are hopeful that these discussions will result in rates that meet the state’s stated [2% to] 4% profit margin range for contracting plans. Let me add a few words about the dual eligibles. We’re making progress internally and continue to work with the state on many issues. We expect to hear about rates next month and still expect to begin enrolling Dual in the first half of next year. We will make sure that any dual activity is premised on adequate rate, keeping our SPG experience in mind.

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