“We currently are actively engaged in what we believe are productive discussions with the state of California’s Department of Health Care Services (DHCS) on a wide range of issues, including rates for Medi-Cal and the SPDs,” Gellert continued. “Based on our experience to date, current SPD rates are inadequate. We are hopeful that these discussions with DHCS will result in a process intended to ensure adequate rates going forward.

“We are revising our full-year 2012 earnings guidance for the combined Western Region and Government Contracts segments to a range of $1.00 to $1.10 per diluted share due to the commercial large group and Medicaid issues,” Gellert added. “This guidance also reflects $20 million to $25 million in incremental G&A costs associated with the implementation of the dual-eligible demonstration pilots in California.”

CONSOLIDATED RESULTS

Health Net’s total revenues increased 7.1 percent in the second quarter of 2012 to $2.8 billion from $2.7 billion in the second quarter of 2011.

Health plan services premium revenues increased by approximately 7.2 percent to $2.6 billion in the second quarter of 2012 compared with $2.4 billion in the second quarter of 2011.

Health plan services expenses increased 11.1 percent to $2.4 billion in the second quarter of 2012 compared with $2.1 billion in the second quarter of 2011.

WESTERN REGION OPERATIONS SEGMENT

Health Plan Membership

Total enrollment in the Western Region at June 30, 2012 was approximately 2.6 million members, or essentially flat compared with enrollment at June 30, 2011. Total enrollment in the company’s California health plans at June 30, 2012 was also flat compared with enrollment at June 30, 2011.

Western Region commercial enrollment at June 30, 2012 declined 7.4 percent to approximately 1.3 million members from enrollment at June 30, 2011.

“Overall commercial enrollment declined primarily due to competitive markets,” said Jim Woys, Health Net’s chief operating officer. “However, we are very pleased that membership in our tailored network products grew by 6.5 percent to more than 450,000 members since June 30, 2011. We believe these products will continue to perform well and membership will continue to grow as they provide comprehensive benefits at affordable prices, positioning them well for the exchanges.”

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