Company Reports GAAP Fourth Quarter 2015 Net
Income of $37.1 Million, or $0.47 per Diluted Share
Western Region Operations and Government
Contracts Segments Produce Combined Net Income of $0.64 per Diluted
Share in Fourth Quarter of 2015
Health Net, Inc. (NYSE: HNT) today announced 2015 fourth
quarter GAAP net income of $37.1 million, or $0.47 per diluted
share, compared with GAAP net income of $4.9 million, or
$0.06 per diluted share, for the fourth quarter of 2014, and
GAAP net income of $60.3 million, or $0.77 per diluted share,
for the third quarter of 2015. For the full year 2015, the company
reported GAAP net income of $185.7 million, or $2.37 per
diluted share, compared with $145.6 million, or $1.80 per
diluted share, for the full year 2014.
In the fourth quarter of 2015, Health Net incurred
$22.7 million of corporate/other expenses. Included in these
expenses are, among other things:
- $11.6 million in information
technology costs associated with the suspension of the previously
announced transaction with a wholly owned subsidiary of Cognizant
Technology Solutions Corporation (Cognizant); and
- $5.8 million of corporate/other
expenses related to the company’s previously announced definitive
merger agreement with Centene Corporation (Centene).
For the full year 2015, Health Net incurred $118.2 million
of corporate/other expenses, primarily as a result of information
technology costs associated with the Cognizant transaction. Efforts
toward the commencement of services pursuant to the Cognizant
transaction were suspended in connection with Health Net’s
July 2, 2015 announcement that it had entered into a
definitive merger agreement with Centene (see Centene
Transaction).
The company’s Western Region Operations (Western Region) and
Government Contracts segments produced combined net income of
$50.5 million, or $0.64 per diluted share, in the fourth
quarter of 2015 compared with $47.4 million, or $0.60 per
diluted share, in the fourth quarter of 2014, and compared with
$75.1 million, or $0.96 per diluted share, in the third
quarter of 2015. The company’s Western Region and Government
Contracts segments produced combined net income of
$258.5 million, or $3.30 per diluted share, for the full
year 2015, compared with $187.5 million, or $2.32 per
diluted share, for the full year 2014.
"We are pleased that 2015's positive momentum continued in the
fourth quarter," said Jay Gellert, Health Net's president and
chief executive officer. "It should be noted that we achieved these
results without the anticipated incremental benefit of the
Cognizant transaction expected in the second half of 2015."
CENTENE TRANSACTION
On July 2, 2015, Health Net announced that it had entered
into a definitive merger agreement with Centene under which Centene
will acquire all of the issued and outstanding shares of Health
Net, subject to the terms and conditions of the merger
agreement.
Centene and Health Net received early termination of the waiting
period required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 on August 11, 2015.
On October 23, 2015, Health Net’s stockholders voted to
approve the adoption of the merger agreement with Centene. On the
same date, Centene’s stockholders voted to approve the issuance of
Centene common stock to stockholders of Health Net in connection
with Centene’s pending merger with Health Net.
Health Net continues to expect that the transaction will close
in the first quarter of 2016, subject to receipt of required
regulatory approvals and satisfaction of other customary closing
conditions. "Both Jim Woys, our chief financial and operating
officer, and I look forward to assisting Centene management with
the transition following the close of the deal," noted Gellert.
CONSOLIDATED RESULTS
Health Net’s total revenues increased 7.4 percent in the
fourth quarter of 2015 to $4.0 billion from $3.8 billion
in the fourth quarter of 2014 and decreased 2.8 percent
compared with the third quarter of 2015. Total revenues for the
full year 2015 were $16.2 billion, a 16.0 percent increase
compared with the full year 2014.
Total expenses increased 5.2 percent in the fourth quarter of
2015 to $3.9 billion from $3.7 billion in the fourth
quarter of 2014 and decreased 1.6 percent compared with the
third quarter of 2015. Total expenses in the full year 2015 were
$15.8 billion, up 14.3 percent from 2014.
Included in total expenses are $22.7 million,
$21.7 million, $26.4 million and $47.3 million of
corporate/other expenses primarily related to the transaction with
Cognizant for the three months ended December 31, 2015,
September 30, 2015, June 30, 2015, and March 31,
2015, respectively. In addition, these expenses in the third and
fourth quarters of 2015 included $5.2 million and
$5.8 million, respectively, of corporate/other expenses
related to Health Net’s definitive merger agreement with
Centene.
Western Region Health Plan
Services
Health plan services premiums revenues in the Western Region of
$3.9 billion in the fourth quarter of 2015 increased by
7.4 percent compared with $3.6 billion in the fourth
quarter of 2014 and decreased 3.2 percent compared with
$4.0 billion in the third quarter of 2015. The sequential
decrease in revenues was primarily due to an increase in the
estimated rebates booked for the Medicaid expansion population,
which was recorded as a reduction to revenues, as well as a
decrease in membership and corresponding revenues in the individual
exchanges. Health plan services premiums revenues of
$15.6 billion for the full year 2015 increased by 16.4 percent
compared with $13.4 billion in 2014, due to an increase in
membership.
Health plan services expenses in the company’s Western Region of
$3.2 billion in the fourth quarter of 2015 increased by
5.9 percent compared with $3.0 billion in the fourth
quarter of 2014 and decreased 3.1 percent compared with
$3.3 billion in the third quarter of 2015. Health plan
services expenses of $13.0 billion for the full year 2015
increased by 15.3 percent compared with $11.3 billion in 2014.
The year-over-year increase was primarily due to membership
growth.
Government Contracts
Segment
Government Contracts revenues in the fourth quarter of 2015 were
$172.0 million compared with $159.6 million in the fourth
quarter of 2014 and $160.7 million in the third quarter of
2015. Government Contracts revenues for the full year 2015 were
$628.5 million compared with $604.0 million in 2014.
Government Contracts expenses in the fourth quarter of 2015 were
$165.9 million compared with $147.2 million in the fourth
quarter of 2014 and $158.2 million in the third quarter of
2015. Government Contracts expenses for the full year 2015 were
$603.0 million compared with $534.4 million in 2014.
As a result of the expedited implementation of the
Patient-Centered Community Care (PC3) program for the Department of
Veterans Affairs, the company experienced higher-than-expected
costs in the third and fourth quarters of 2015. In total, the
company expected to spend approximately $40 million in ramp-up
costs in 2015 which are not expected to recur in 2016.
In March 2015, the U.S. Department of Defense (DoD)
modified the company's T-3 contract for the TRICARE North Region to
add three additional one-year option periods and awarded Health Net
the first of the three option periods, which allows the company to
continue providing access to health care services to TRICARE
beneficiaries through March 31, 2016. On February 1,
2016, the DoD provided the company with written notice of its
intent to exercise the second one-year option period ending on
March 31, 2017.
On July 23, 2015, Health Net responded to the DoD's request
for proposal for the next generation TRICARE contract which will
reduce the three existing TRICARE regions to two regions. On
February 16, 2016, Health Net submitted its final proposal to
the DoD for the next generation TRICARE contract.
WESTERN REGION OPERATIONS SEGMENT
Health Plan Membership
Total enrollment in the Western Region at December 31, 2015
was approximately 3.3 million members, an increase of
4.5 percent from enrollment at December 31, 2014, and an
increase of 0.9 percent from September 30, 2015.
Total enrollment in the company’s California health plans at
December 31, 2015 was approximately 3.0 million members,
an increase of 8.0 percent from December 31, 2014, and an
increase of 1.3 percent compared with enrollment at
September 30, 2015.
Western Region commercial enrollment at December 31, 2015
was approximately 1.1 million members, a decrease of
6.0 percent compared with enrollment at December 31,
2014, and a decrease of 1.3 percent compared with
September 30, 2015. The year-over-year enrollment decline was
primarily due to losses in the Arizona and Northwest individual
lines of business.
Membership in tailored network products represented
50.5 percent of the company’s Western Region commercial
membership at December 31, 2015, a 70 basis point increase
compared with 49.8 percent at December 31, 2014, and down
440 basis points compared with 54.9 percent at
September 30, 2015.
Enrollment in the company’s Medicare Advantage (MA) plans at
December 31, 2015 was approximately 269,000 members, a
decrease of 2.2 percent compared with enrollment of 275,000 at
December 31, 2014, and a decrease of 0.4 percent compared with
enrollment of 270,000 members at September 30, 2015.
Medicaid enrollment increased 12.8 percent to approximately
1.9 million members at December 31, 2015 compared with
approximately 1.7 million members at December 31, 2014, and
increased 2.5 percent to 1.8 million members compared with
September 30, 2015. These increases were primarily due to
Medicaid expansion under the Affordable Care Act (ACA).
In the fourth quarter of 2015, enrollment in each of the three
health plan categories for members who are dually eligible for both
Medicare and Medicaid was as follows:
- In MA plans for the dually-eligible
members, enrollment was approximately 27,000 members in
Los Angeles and San Diego counties at December 31, 2015,
essentially flat when compared with approximately 27,000 members at
December 31, 2014, and down by 1,000 members compared with
approximately 28,000 at September 30, 2015.
- Membership in the company’s managed
long-term services and supports (LTSS) program in these
demonstration counties was approximately 119,000 at
December 31, 2015, essentially flat when compared with
approximately 119,000 members at December 31, 2014, and down
by 1,000 members compared with approximately 120,000 at
September 30, 2015.
- Enrollment in Health Net’s dual
eligible demonstration project (Cal MediConnect) was approximately
22,000 at December 31, 2015, an increase of 6,000 members
compared with enrollment of approximately 16,000 at
December 31, 2014, and a decrease of 2,000 members compared
with dual eligible enrollment at September 30, 2015.
As of January 1, 2016, Health Net administered benefits to
41 percent of the Cal MediConnect enrollment in Los Angeles
County and 19 percent of the enrollment in San Diego County.
Enrollment in this line of business continued to be challenged by
higher-than expected opt-out rates during the fourth quarter of
2015.
Investment Income
Net investment income for the Western Region was
$11.9 million in the fourth quarter of 2015 compared with
$11.1 million in the fourth quarter of 2014 and $13.9 million in
the third quarter of 2015. Net investment income for the year ended
December 31, 2015 was $55.5 million compared with
$45.2 million for the year ended December 31, 2014.
Western Region Operations
Premiums
Western Region premiums per member per month (PMPM) increased by
3.0 percent to approximately $391 in the fourth quarter of
2015 compared with approximately $379 in the fourth quarter of
2014.
Western Region Health Care Cost Trends
and Medical Care Ratio (MCR)
Health care costs PMPM for the Western Region increased by
1.5 percent to approximately $326 in the fourth quarter of
2015 compared with approximately $321 in the fourth quarter of
2014.
Health care cost trends remained moderate and within
expectations in the fourth quarter of 2015.
The Western Region health plan services consolidated MCR was
83.5 percent in the fourth quarter of 2015 compared with
84.7 percent in the fourth quarter of 2014 and
83.4 percent in the third quarter of 2015, representing an
improvement of 120 basis points year-over-year and a decline
of 10 basis points sequentially. The Western Region health
plan services consolidated MCR was 83.8 percent for the year ended
December 31, 2015, an 80 basis point improvement
year-over-year.
General and Administrative (G&A)
Expenses
G&A expenses in the Western Region were $449.8 million
in the fourth quarter of 2015 compared with $404.7 million in the
fourth quarter of 2014 and $420.6 million in the third quarter of
2015. G&A expenses were $1.7 billion for the year ended
December 31, 2015 compared with $1.5 billion for the year
ended December 31, 2014. The G&A expense ratio was 11.7
percent in the fourth quarter of 2015 compared with
11.3 percent in the fourth quarter of 2014 and
10.6 percent in the third quarter of 2015. The G&A expense
ratio was 10.9 percent for the year ended December 31, 2015, flat
compared with 10.9 percent for the year ended December 31,
2014. G&A expenses increased sequentially in the fourth quarter
of 2015, as expected, due to expected higher marketing and other
expenses associated with commercial and Medicare open enrollment
periods.
Health Net’s administrative expense ratio was 7.8 percent in the
fourth quarter of 2015, flat compared with the fourth quarter of
2014 and up 100 basis points compared with the third quarter
of 2015. The administrative expense ratio was 7.2 percent for the
year ended December 31, 2015, a 50 basis point improvement compared
with 7.7 percent for the year ended December 31, 2014. The
administrative expense ratio does not include premium taxes, health
insurer fee and other ACA-related fees.
BALANCE SHEET
Cash and investments as of December 31, 2015 were
$3.2 billion compared with $2.7 billion as of
December 31, 2014.
Reserves for claims and other settlements as of
December 31, 2015 were $1.5 billion compared with
$1.9 billion as of December 31, 2014 and
$1.7 billion as of September 30, 2015.
Days claims payable (DCP) for the fourth quarter of 2015 was
42.7 days compared with 57.4 days in the fourth quarter of
2014 and 46.7 days in the third quarter of 2015. DCP for the
full year 2015 was 41.8 days compared with 61.2 days for the
full year 2014.
During the fourth quarter of 2015, the company completed its
migration to a single claims payment platform which resulted in a
substantial reduction in claims inventory through more efficient
claims processing. This, combined with better-than-expected
experience for the Medicaid expansion population and a
corresponding rebate liability increase, reduced DCP for the fourth
quarter of 2015 back to historical levels prior to the ACA and
system conversion.
On an adjusted(1) basis, DCP in the fourth quarter of 2015 was
55.8 days compared with 70.1 days in the fourth quarter of
2014 and 63.4 days in the third quarter of 2015. Adjusted DCP
for the full year 2015 was 57.7 days compared with 77.2 days
for the full year 2014.
Adjusted DCP was similarly impacted by the claims payment
platform migration and a reduction in inventory from the third
quarter of 2015 to the fourth quarter of 2015.
The company’s debt-to-total capital ratio was 27.2 percent as of
December 31, 2015 compared with 22.6 percent as of
December 31, 2014 and 25.4 percent as of
September 30, 2015.
(1) See “Disclosures Regarding Non-GAAP Financial Information”
attached to this press release for a reconciliation of this
information to the comparable GAAP financial measure.
CASH FLOW FROM OPERATIONS
Operating cash flow was negative $138.6 million in the
fourth quarter of 2015. For the full year 2015, operating cash flow
was positive $431.1 million. Cash flow for the quarter was
similarly impacted by the claims payment platform migration and a
concurrent reduction in claims inventory.
Cash at the parent was approximately $28 million at
December 31, 2015 compared with approximately $61 million
at December 31, 2014.
STOCK REPURCHASE UPDATE
Health Net did not repurchase any shares of its common stock in
the fourth quarter of 2015. During the full year 2015, Health Net
repurchased approximately 1.7 million shares of its common
stock for approximately $94 million at an average price of
$54.00 per share. At December 31, 2015, approximately
$306 million of authorization under the company’s existing
$400 million stock repurchase program remained.
The company’s stock repurchase program was suspended on
July 2, 2015 as a result of Health Net’s pending merger
with Centene.
ABOUT HEALTH NET
Health Net, Inc. is a publicly traded managed care organization
that delivers managed health care services through health plans and
government-sponsored managed care plans. Its mission is to help
people be healthy, secure and comfortable. Health Net provides and
administers health benefits to approximately 6.1 million
individuals across the country through group, individual, Medicare
(including the Medicare prescription drug benefit commonly referred
to as “Part D”), Medicaid and dual eligible programs, as well as
programs with the U.S. Department of Defense and U.S. Department of
Veterans Affairs. Health Net also offers behavioral health,
substance abuse and employee assistance programs, and managed
health care products related to prescription drugs.
For more information on Health Net, Inc., please visit the
company’s website at www.healthnet.com.
CAUTIONARY STATEMENTS
The company and its representatives may from time to time make
written and oral forward-looking statements within the meaning of
the Private Securities Litigation Reform Act (“PSLRA”) of 1995,
including statements in this and other press releases, in
presentations, filings with the Securities and Exchange Commission
(“SEC”), reports to stockholders and in meetings with investors and
analysts. All statements in this press release, other than
statements of historical information provided herein, may be deemed
to be forward-looking statements and as such are intended to be
covered by the safe harbor for “forward-looking statements”
provided by PSLRA. These statements are based on management’s
analysis, judgment, belief and expectation only as of the date
hereof, and are subject to changes in circumstances and a number of
risks and uncertainties. Without limiting the foregoing, statements
including the words “believes,” “anticipates,” “plans,” “expects,”
“may,” “should,” “could,” “estimate,” “intend,” “feels,” “will,”
“projects” and other similar expressions are intended to identify
forward-looking statements. Actual results could differ materially
from those expressed in, or implied or projected by the
forward-looking information and statements due to a number of
factors, variables or events. Certain of these factors relate to
the company’s proposed business combination with Centene
Corporation (“Centene”), including, among other things, the
expected closing date of the transaction; the possibility that the
expected synergies and value creation from the proposed merger will
not be realized, or will not be realized within the expected time
period, including, but not limited to, as a result of conditions,
terms, obligations or restrictions imposed by regulators in
connection with their approval of, or consent to, the merger; the
risk that the businesses will not be integrated successfully;
disruption from the merger making it more difficult to maintain
business and operational relationships; the risk that unexpected
costs will be incurred; the possibility that the merger does not
close, including, but not limited to, due to the failure to satisfy
the closing conditions, including the receipt of required
regulatory approvals; the risk that financing for the transaction
may not be on favorable terms; and certain other risks associated
with the merger, as more fully discussed in the definitive joint
proxy statement/prospectus that was filed with the SEC on
September 21, 2015, in connection with the merger. Other
factors include, among others, health care reform and other
increased government participation in and taxation or regulation of
health benefits and managed care operations, including but not
limited to the implementation of, and subsequent modifications to,
the Patient Protection and Affordable Care Act and the Health Care
and Education Reconciliation Act of 2010 and the regulations
promulgated thereunder (collectively, the “ACA”) as well as any
related fees, assessments and taxes; the company’s ability to
successfully participate in the federal and state health insurance
exchanges under the ACA, which involve uncertainties related to the
mix and volume of business that could negatively impact the
adequacy of the company’s premium rates and may not be sufficiently
offset by the risk apportionment provisions of the ACA; increasing
health care costs, including but not limited to costs associated
with adverse selection, undetected provider fraud and the
introduction of new treatments or therapies; the recompetition of
the company’s T-3 contract for the TRICARE North region; negative
prior period claims reserve developments; rate cuts and other risks
and uncertainties affecting the company’s Medicare or Medicaid
businesses; the company’s ability to successfully participate in
California’s Coordinated Care Initiative, which is subject to a
number of risks inherent in untested health care initiatives and
requires the company to adequately predict the costs of providing
benefits to individuals that are generally among the most
chronically ill within each of Medicare and Medi-Cal; trends in
medical care ratios; membership declines or negative changes in the
company’s health care product mix; unexpected utilization patterns
or unexpectedly severe or widespread illnesses; failure to
effectively oversee the company’s third-party vendors; the
company’s ability to reduce administrative expenses while
maintaining targeted levels of service and operating performance;
noncompliance by the company or the company’s business associates
with any privacy laws or any security breach involving the
misappropriation, loss or other unauthorized use or disclosure of
confidential information; the timing of collections on amounts
receivable from state and federal governments and agencies;
litigation costs; regulatory issues with federal and state agencies
including, but not limited to, the California Department of Managed
Health Care and Department of Health Care Services, the Arizona
Health Care Cost Containment System, the Centers for Medicare &
Medicaid Services, the Office of Civil Rights of the U.S.
Department of Health and Human Services and state departments of
insurance; operational issues; changes in political, economic or
market conditions; investment portfolio impairment charges;
volatility in the financial markets; and general business and
market conditions. The factors described in the context of such
forward-looking statements in this press release could cause the
company or Centene’s plans with respect to the proposed merger,
actual results, performance or achievements, industry results and
developments to differ materially from those expressed in or
implied by such forward-looking statements. Additional factors that
could cause actual results to differ materially from those
reflected in the forward-looking statements include, but are not
limited to, the risks discussed in the “Risk Factors” section
included within the company’s most recent Annual Report on Form
10-K and subsequent Quarterly Reports on Form 10-Q filed with the
SEC and the other risks discussed in the company’s filings with the
SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements. Except as may be required by law, the
company undertakes no obligation to address or publicly update any
of its forward-looking statements to reflect events or
circumstances that arise after the date of this release.
The financial information presented in this press release is
unaudited and is subject to change, including as a result of
subsequent events or adjustments, if any, arising prior to the
filing of the company’s Annual Report on Form 10-K for the year
ended December 31, 2015.
Health Net, Inc.
Enrollment Data - By State (In thousands)
Change from September 30, 2015
December 31, 2014 December 31, September
30, December 31, Increase/ %
Increase/ % 2015 2015
2014 (Decrease)
Change (Decrease)
Change California Large Group 451 450 474 1 0.2 % (23 ) (4.9
)% Small Group 244 236 246 8 3.4 % (2 ) (0.8 )% Individual 250
267 237 (17 )
(6.4 )% 13 5.5 %
Commercial 945 953 957 (8 ) (0.8 )% (12 ) (1.3 )% Medicare
Advantage 166 168 173 (2 ) (1.2 )% (7 ) (4.0 )% Medi-Cal 1,826
1,777 1,595 49 2.8 % 231 14.5 % Dual Eligibles 22
24 16 (2 )
(8.3 )% 6 37.5 % Total
California 2,959 2,922
2,741 37 1.3 % 218
8.0 % Arizona Large Group 32 32 44 0
0.0 % (12 ) (27.3 )% Small Group 35 36 43 (1 ) (2.8 )% (8 ) (18.6
)% Individual 59 65 92 (6
) (9.2 )% (33 ) (35.9 )%
Commercial 126 133 179 (7 ) (5.3 )% (53 ) (29.6 )% Medicare
Advantage 38 38 46 0 0.0 % (8 ) (17.4 )% Medicaid 65
67 81 (2 )
(3.0 )% (16 ) (19.8 )% Total Arizona
229 238 306
(9 ) (3.8 )% (77 ) (25.2
)% Northwest Large Group 27 25 29 2 8.0 % (2 ) (6.9 )% Small
Group 21 22 24 (1 ) (4.5 )% (3 ) (12.5 )% Individual 1
2 3 (1 ) (50.0 )%
(2 ) (66.7 )% Commercial 49 49 56 0 0.0
% (7 ) (12.5 )% Medicare Advantage 65
64 56 1 1.6 %
9 16.1 % Total Northwest
114 113 112 1
0.9 % 2 1.8
%
Total Health
Plan Enrollment Large Group 510 507 547 3 0.6 % (37 ) (6.8 )%
Small Group 300 294 313 6 2.0 % (13 ) (4.2 )% Individual 310
334 332 (24 ) (7.2
)% (22 ) (6.6 )% Commercial 1,120 1,135
1,192 (15 ) (1.3 )% (72 ) (6.0 )% Medicare Advantage 269 270 275 (1
) (0.4 )% (6 ) (2.2 )% Medi-Cal/Medicaid 1,891 1,844 1,676 47 2.5 %
215 12.8 % Dual Eligibles 22 24 16
(2 ) (8.3 )% 6
37.5 %
Western Region Operations
3,302 3,273 3,159 29
0.9 % 143
4.5 %
TRICARE - North Contract Eligibles
2,820 2,829 2,837
(9 ) (0.3 )% (17 )
(0.6 )%
Health
Net, Inc. Enrollment Data - Line of Business (In
thousands) Change from September
30, 2015 December 31, 2014 December
31, September 30, December 31, Increase/
% Increase/ % 2015
2015 2014
(Decrease) Change
(Decrease) Change Large Group
California 451 450 474 1 0.2 % (23 ) (4.9 )% Arizona 32 32 44 0 0.0
% (12 ) (27.3 )% Northwest 27 25 29
2 8.0 % (2 )
(6.9 )% 510 507 547
3 0.6 % (37 )
(6.8 )% Small Group California 244 236 246 8
3.4 % (2 ) (0.8 )% Arizona 35 36 43 (1 ) (2.8 )% (8 ) (18.6 )%
Northwest 21 22 24 (1 )
(4.5 )% (3 ) (12.5 )% 300
294 313 6
2.0 % (13 ) (4.2 )%
Individual California 250 267 237 (17 ) (6.4 )% 13 5.5 % Arizona 59
65 92 (6 ) (9.2 )% (33 ) (35.9 )% Northwest 1 2
3 (1 ) (50.0 )%
(2 ) (66.7 )% 310 334
332 (24 ) (7.2 )%
(22 ) (6.6 )% Commercial California 945 953
957 (8 ) (0.8 )% (12 ) (1.3 )% Arizona 126 133 179 (7 ) (5.3 )% (53
) (29.6 )% Northwest 49 49 56
0 0.0 % (7 )
(12.5 )% 1,120 1,135 1,192
(15 ) (1.3 )% (72 )
(6.0 )% Medicare Advantage California 166 168
173 (2 ) (1.2 )% (7 ) (4.0 )% Arizona 38 38 46 0 0.0 % (8 ) (17.4
)% Northwest 65 64 56 1
1.6 % 9
16.1 % 269 270 275 (1 )
(0.4 )% (6 ) (2.2 )%
Medi-Cal/Medicaid California 1,826 1,777 1,595 49 2.8 % 231
14.5 % Arizona 65 67 81
(2 ) (3.0 )% (16 ) (19.8
)% 1,891 1,844 1,676 47
2.5 % 215
12.8 % Dual Eligibles
California 22 24
16 (2 ) (8.3 )%
6 37.5 %
Total Health Plan Enrollment Large
Group 510 507 547 3 0.6 % (37 ) (6.8 )% Small Group 300 294 313 6
2.0 % (13 ) (4.2 )% Individual 310 334
332 (24 ) (7.2 )% (22 )
(6.6 )% Commercial 1,120 1,135 1,192 (15 ) (1.3 )%
(72 ) (6.0 )% Medicare Advantage 269 270 275 (1 ) (0.4 )% (6 ) (2.2
)% Medi-Cal/Medicaid 1,891 1,844 1,676 47 2.5 % 215 12.8 % Dual
Eligibles 22 24 16 (2 )
(8.3 )% 6 37.5 %
Western Region Operations 3,302
3,273 3,159 29 0.9
% 143 4.5 %
TRICARE - North Contract Eligibles 2,820
2,829 2,837 (9 )
(0.3 )% (17 ) (0.6 )%
Health Net, Inc.
Consolidated Statements of
Operations
($ in thousands, except per share
data)
Quarter Ended Quarter Ended Quarter Ended Year Ended Year
Ended December 31, September 30, December 31, December 31, December
31,
REVENUES: 2015 2015 2014 2015 2014 Health plan services
premiums $ 3,851,225 $ 3,977,891 $ 3,586,330 15,553,348 $
13,361,170 Government contracts 172,021 160,661 159,619 628,451
603,975 Net investment income 11,914 13,915 11,057 55,494 45,166
Administrative services fees and other income 1,241
1,200 1,383 6,294 (1,725 ) Total revenues
4,036,401 4,153,667 3,758,389
16,243,587 14,008,586
EXPENSES: Health
plan services 3,216,016 3,318,415 3,038,220 13,041,036 11,307,751
Government contracts 165,915 158,124 147,058 603,841 536,643
General and administrative 471,279 442,326 472,984 1,816,166
1,552,364 Selling 66,133 66,155 68,073 270,174 262,338 Depreciation
and amortization 7,142 6,882 3,982 22,533 29,786 Interest 8,431
8,417 7,919 33,309 31,376 Asset impairment — —
3,846 1,884 88,536 Total expenses
3,934,916 4,000,319 3,742,082 15,788,943
13,808,794 Income from operations before income taxes
101,485 153,348 16,307 454,644 199,792 Income tax provision
64,417 93,095 11,393 268,967 54,163
Net income (loss) $ 37,068 $ 60,253 $ 4,914 $ 185,677 $
145,629 Net income (loss) per share: Basic $ 0.48 $
0.78 $ 0.06 $ 2.40 $ 1.83 Diluted $ 0.47 $ 0.77 $ 0.06 $ 2.37 $
1.80 Weighted average shares outstanding: Basic 77,301
77,288 78,145 77,212 79,602 Diluted 78,499 78,405 79,479 78,358
80,777
Health Net, Inc.
Condensed Consolidated Balance
Sheets
(Amounts in thousands, except ratio
data)
December 31, September 30, December 31, 2015 2015 2014
ASSETS Current Assets Cash and cash equivalents $ 996,854 $
972,908 $ 869,133 Investments - available for sale 2,218,367
2,221,278 1,791,060 Premiums receivable, net 943,746 832,785
951,935 Amounts receivable under government contracts 267,655
165,073 150,546 Other receivables 467,526 430,987 424,910 Deferred
taxes 91,005 76,495 57,911 Assets held for sale — — 50,000 Other
assets 338,890 309,543 220,122
Total current assets 5,324,043 5,009,069 4,515,617 Property
and equipment, net 146,053 139,083 84,328 Goodwill 558,886 558,886
558,886 Other intangible assets, net 9,060 9,712 11,822 Deferred
taxes 12,230 16,520 33,081 Investments - available for sale -
noncurrent 27,580 20,064 4,570 Other noncurrent assets
319,794 270,097 187,630 Total
Assets $ 6,397,646 $ 6,023,431 $ 5,395,934
LIABILITIES AND STOCKHOLDERS' EQUITY Current
Liabilities Reserves for claims and other settlements $ 1,493,392 $
1,684,423 $ 1,896,035 Health care and other costs payable under
government contracts 85,132 56,417 71,988 Unearned premiums 134,232
121,061 96,106 Borrowings under revolving credit facility 285,000 —
— Accounts payable and other liabilities 1,874,154
1,486,133 880,374 Total current
liabilities 3,871,910 3,348,034 2,944,503 Senior notes payable
399,709 399,658 399,504 Borrowings under revolving credit facility
— 210,000 100,000 Other noncurrent liabilities 292,947
277,922 242,705 Total
Liabilities 4,564,566 4,235,614
3,686,712 Stockholders' Equity Common stock 154 154
153 Additional paid-in capital 1,497,562 1,489,532 1,444,705
Treasury common stock, at cost (2,454,939 ) (2,454,067 ) (2,341,652
) Retained earnings 2,794,954 2,757,886 2,609,277 Accumulated other
comprehensive (loss) income (4,651 ) (5,688 )
(3,261 ) Total Stockholders' Equity 1,833,080
1,787,817 1,709,222 Total Liabilities and
Stockholders' Equity $ 6,397,646 $ 6,023,431 $
5,395,934 Debt-to-Total Capital Ratio 27.2 % 25.4 %
22.6 %
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows (Amounts
in thousands) Quarter Ended Quarter Ended Quarter Ended
Year Ended Year Ended December 31, September 30, December 31,
December 31, December 31, 2015 2015 2014 2015 2014
CASH FLOWS
FROM OPERATING ACTIVITIES: Net income (loss) $ 37,068 $ 60,253
$ 4,914 $ 185,677 $ 145,629
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Amortization and depreciation 7,142 6,882 3,982 22,533 29,786
Share-based compensation expense 7,992 7,724 6,525 29,451 28,334
Deferred income taxes (10,139 ) 9,289 18,191 (10,894 ) (16,564 )
Excess tax benefits from share-based compensation 409 (74 ) (635 )
(4,855 ) (2,230 ) Asset impairment — — 3,846 1,884 88,536 Net
realized (gain) loss on sale on investments 1,896 82 (128 ) (191 )
(2,710 ) Other changes 8,403 9,210 6,648 38,119 29,838 Changes in
assets and liabilities: Premiums receivable and unearned premiums
(97,790 ) (467,678 ) (401,677 ) 46,315 (549,786 ) Other current
assets, receivables and noncurrent assets (136,454 ) 136,889
(192,809 ) (315,238 ) (444,288 ) Amounts receivable/payable under
government contracts (82,540 ) 30,893 (6,212 ) (98,039 ) 39,754
Reserves for claims and other settlements (191,031 ) (73,516 )
162,728 (402,643 ) 911,960 Accounts payable and other liabilities
316,477 249,365 284,965
938,976 517,742 Net cash (used in)
provided by operating activities (138,567 ) (30,681 )
(109,662 ) 431,095 776,001
CASH FLOWS FROM INVESTING ACTIVITIES: Sales of
investments 69,664 342,013 144,552 953,092 441,430 Maturities of
investments 26,730 23,911 34,158 104,095 98,901 Purchases of
investments (113,815 ) (110,065 ) (303,749 ) (1,538,128 ) (665,200
) Purchases of property and equipment (14,889 ) (17,731 ) (13,615 )
(60,949 ) (62,010 ) Sales and purchases of restricted investments
and other (1,295 ) 2,176 (735 )
(4,759 ) 2,027 Net cash provided by (used in)
investing activities (33,605 ) 240,304
(139,389 ) (546,649 ) (184,852 )
CASH FLOWS
FROM FINANCING ACTIVITIES: Proceeds from exercise of stock
options and employee stock purchases 413 2,008 6,310 18,972 27,727
Repurchases of common stock (838 ) (161 ) (82,863 ) (112,977 )
(152,549 ) Excess tax benefits from share-based compensation (409 )
74 635 4,855 2,230 Borrowings under financing arrangements 120,000
15,000 — 360,000 — Repayment of borrowings under financing
arrangements (45,000 ) (15,000 ) — (175,000 ) — Net (decrease)
increase in checks outstanding, net of deposits — (8,230 ) — — —
Customer funds administered 121,952 12,797
79,544 147,425 (32,579 )
Net cash provided by (used in) financing activities 196,118
6,488 3,626 243,275
(155,171 ) Net increase (decrease) in cash and
cash equivalents 23,946 216,111 (245,425 ) 127,721 435,978 Cash and
cash equivalents, beginning of period 972,908
756,797 1,114,558 869,133
433,155 Cash and cash equivalents, end of period $ 996,854
$ 972,908 $ 869,133 $ 996,854 $ 869,133
Health Net,
Inc. SEGMENT INFORMATION ($ in thousands, except per
share and PMPM data) The following table presents Health
Net's operating segment information. Quarter Ended December
31, 2015 Quarter Ended September 30, 2015 Quarter Ended December
31, 2014 Western Region Government Corporate/ Western Region
Government Corporate/ Western Region Government Corporate/
Operations1 Contracts2 Other3 Consolidated
Operations1 Contracts2 Other3 Consolidated
Operations1 Contracts2 Other4 Consolidated
Commercial premiums $ 1,372,368 $ 1,372,368 $ 1,412,264 $
1,412,264 $ 1,370,656 $ 1,370,656 Medicare premiums 746,767 746,767
778,237 778,237 768,595 768,595 Medicaid premiums 1,617,043
1,617,043 1,668,091 1,668,091 1,374,243 1,374,243 Dual Eligibles
premiums 115,047
115,047 119,299
119,299 72,836
72,836 Health plan services premiums 3,851,225
3,851,225 3,977,891 3,977,891 3,586,330 3,586,330 Government
contracts 172,021 172,021 160,661 160,661 159,619 159,619 Net
investment income 11,914 11,914 13,915 13,915 11,057 11,057
Administrative services fees and other income 1,241
1,241 1,200
1,200 1,383
1,383 Total revenues
3,864,380 172,021 4,036,401 3,993,006 160,661 4,153,667 3,598,770
159,619 3,758,389 Health plan services 3,214,786 1,230 3,216,016
3,318,415 3,318,415 3,038,220 3,038,220 Government contracts
165,919 (4 ) 165,915 158,158 (34 ) 158,124 147,167 (109 ) 147,058
Premium tax 68,776 68,776 71,374 71,374 63,345 63,345 Health
insurer fee 58,243 58,243 58,408 58,408 35,361 35,361 Other ACA
fees 21,068 21,068 22,163 22,163 25,841 25,841 Administrative
expenses 301,703 21,489
323,192 268,628
21,753 290,381 280,107
68,330
348,437 Total general and administrative 449,790 21,489 471,279
420,573 21,753 442,326 404,654 68,330 472,984 Selling 66,133 66,133
66,155 66,155 68,073 68,073 Depreciation and amortization 7,142 —
7,142 6,882
0
6,882 3,900 82 3,982 Interest 8,431 8,431 8,417 8,417 7,919 7,919
Asset impairment —
— —
— 3,846
3,846 Total expenses 3,746,282 165,919
22,715 3,934,916
3,820,442 158,158 21,719
4,000,319 3,522,766
147,167 72,149 3,742,082 Income
(loss) from operations before income taxes 118,098 6,102 (22,715 )
101,485 172,564 2,503 (21,719 ) 153,348 76,004 12,452 (72,149 )
16,307 Income tax provision (benefit) 70,563
3,119 (9,265 ) 64,417
98,812 1,182 (6,899 )
93,095 36,010 5,010
(29,627 ) 11,393 Income (loss) from operations
$ 47,535 $ 2,983 $ (13,450 ) $ 37,068 $
73,752 $ 1,321 $ (14,820 ) $ 60,253 $
39,994 $ 7,442 $ (42,522 ) $ 4,914
Basic earnings (loss) per share $ 0.61 $ 0.04 $ (0.17 ) $
0.48 $ 0.95 $ 0.02 $ (0.19 ) $ 0.78 $ 0.51 $ 0.10 $ (0.54 ) $ 0.06
Diluted earnings (loss) per share $ 0.60 $ 0.04 $ (0.17 ) $ 0.47 $
0.94 $ 0.02 $ (0.19 ) $ 0.77 $ 0.50 $ 0.10 $ (0.54 ) $ 0.06
Basic weighted average shares outstanding 77,301 77,301 77,301
77,301 77,288 77,288 77,288 77,288 78,145 78,145 78,145 78,145
Diluted weighted average shares outstanding 78,499 78,499 77,301
78,499 78,405 78,405 77,288 78,405 79,479 79,479 78,145 79,479
Pretax margin 3.1 % 4.3 % 2.1 % Western Region
Operations premium yield 3.0 % 1.2 % 9.3 % Western Region
Operations premium PMPM $ 390.59 $ 405.73 $ 379.13 Western Region
Operations health care cost trend 1.5 % (1.2 )% 6.3 % Western
Region Operations health care cost PMPM $ 326.04 $ 338.46 $ 321.19
Western region operations health plan services MCR 83.5 % 83.4 %
84.7 % Administrative expense ratio 7.8 % 6.8 % 7.8 % Total G&A
expense ratio 11.7 % 10.6 % 11.3 % Selling costs ratio 1.7 % 1.7 %
1.9 % 1 Includes the operations of the
company's commercial, Medicare, Medicaid and Dual Eligibles health
plans in California, Arizona, Oregon and Washington, as well as the
operations of the company's health and life insurance companies,
primarily in Arizona, California, Oregon and Washington, and the
operations of the company's behavioral health and pharmaceutical
services subsidiaries in several states including California,
Arizona and Oregon. 2 Includes administrative services
provided under the T-3 Managed Care Support Contract for the
TRICARE North Region and other health care-related Department of
Defense and Veterans Affairs government contracts. 3
Primarily includes costs related to the company's transaction with
Cognizant. Also includes costs related to the company's pending
merger with Centene. 4 Primarily includes costs related to
the company's transaction with Cognizant and related asset
impairment.
Health Net, Inc. SEGMENT INFORMATION ($ in
thousands, except per share and PMPM data) The following
table presents Health Net's operating segment information.
Year Ended December 31, 2015 Year Ended December 31, 2014 Western
Region Government Corporate/ Western Region Government Corporate/
Operations1 Contracts2
Other3 Consolidated Operations1
Contracts2 Other4
Consolidated Commercial premiums $ 5,530,545 $ 5,530,545 $
5,443,062 $ 5,443,062 Medicare premiums 3,076,302 3,076,302
3,044,274 3,044,274 Medicaid premiums 6,429,571 6,429,571 4,755,897
4,755,897 Dual Eligibles premiums 516,930
516,930 117,937
117,937 Health plan services premiums 15,553,348 15,553,348
13,361,170 13,361,170 Government contracts 628,451 628,451 603,975
603,975 Net investment income 55,494 55,494 45,166 45,166
Administrative services fees and other income 6,294
6,294 (1,725 )
(1,725 ) Total revenues 15,615,136 628,451 16,243,587 13,404,611
603,975 14,008,586 Health plan services 13,039,806 1,230 13,041,036
11,307,751 11,307,751 Government contracts 603,013 828 603,841
534,442 2,201 536,643 Premium tax 266,521 266,521 191,150 191,150
Health insurer fee 232,971 232,971 141,445 141,445 Other ACA fees
85,543 85,543 97,557 97,557 Administrative expenses
1,117,455
113,676 1,231,131
1,027,718
94,494 1,122,212
Total general and administrative 1,702,490 113,676 1,816,166
1,457,870 94,494 1,552,364 Selling 270,174 270,174 262,338 262,338
Depreciation and amortization 21,983 550 22,533 29,704 82 29,786
Interest 33,309 33,309 31,376 31,376 Asset impairment
1,884
1,884 88,536
88,536 Total expenses 15,067,762
603,013
118,168 15,788,943
13,089,039 534,442
183,112 13,808,794
Income (loss) from operations before income taxes 547,374
25,438 (118,168 ) 454,644 315,572 69,533 (183,112 ) 199,792 Income
tax provision (benefit) 303,036
11,294 (45,363 )
268,967 169,340
28,256 (143,433 )
54,163 Income (loss) from operations $ 244,338
$ 14,144 $ (72,805
) $ 185,677 $ 146,232
$ 41,277 $ (39,679 )
$ 145,629 Basic earnings (loss) per share $
3.16 $ 0.18 $ (0.94 ) $ 2.40 $ 1.84 $ 0.52 $ (0.50 ) $ 1.83 Diluted
earnings (loss) per share $ 3.12 $ 0.18 $ (0.94 ) $ 2.37 $ 1.81 $
0.51 $ (0.50 ) $ 1.80 Basic weighted average shares
outstanding 77,212 77,212 77,212 77,212 79,602 79,602 79,602 79,602
Diluted weighted average shares outstanding 78,358 78,358 77,212
78,358 80,777 80,777 79,602 80,777 Pretax margin 3.5
% 2.4 % Western Region Operations premium yield 4.6 % 9.8 % Western
Region Operations premium PMPM $ 401.91 $ 384.17 Western Region
Operations health care cost trend 3.60 % 8.5 % Western Region
Operations health care cost PMPM $ 336.96 $ 325.12 Western region
operations health plan services MCR 83.8 % 84.6 % Administrative
expense ratio 7.2 % 7.7 % Total G&A expense ratio 10.9 % 10.9 %
Selling costs ratio 1.7 % 2.0 % 1 Includes the
operations of the company's commercial, Medicare, Medicaid and Dual
Eligibles health plans in California, Arizona, Oregon and
Washington, as well as the operations of the company's health and
life insurance companies, primarily in Arizona, California, Oregon
and Washington, and the operations of the company's behavioral
health and pharmaceutical services subsidiaries in several states
including California, Arizona and Oregon. 2 Includes
administrative services provided under the T-3 Managed Care Support
Contract for the TRICARE North Region and other health care-related
Department of Defense and Veterans Affairs government contracts.
3
Primarily includes costs related to the
company's transaction with Cognizant and costs related to the
company's pending merger with Centene.
4
Primarily includes costs related to the
company's transaction with Cognizant and related asset impairment.
Also includes litigation reserve true-up, severance expenses and
$72.6 million income tax benefit.
Health Net, Inc. Disclosures
Regarding Non-GAAP Financial Information ($ in millions)
Set forth below is a reconciliation of
adjusted days claims payable (DCP), a non-GAAP financial measure,
to the comparable GAAP financial measure, DCP. DCP is calculated by
dividing the amount of reserve for claims and other settlements
(claims reserve) by health plan services cost (health plan costs)
during the period and multiplying that amount by the number of days
in the period. In this press release, management presents an
adjusted DCP metric which subtracts capitation and Medicare
Advantage-Prescription Drug (MAPD) payables/costs from the claims
reserve and health plan costs.
Management believes that adjusted DCP provides useful
information to investors because the adjusted DCP calculation
excludes from both claims reserve and health plan costs amounts
related to health care costs for which no or minimal reserves are
maintained. Therefore, management believes that adjusted DCP may
present a more accurate reflection of DCP than does GAAP DCP, which
includes such amounts. This non-GAAP financial information should
be considered in addition to, not as a substitute for, financial
information prepared in accordance with GAAP. You are
encouraged to evaluate these adjustments and the reasons we
consider them appropriate for supplemental analysis. In evaluating
the adjusted amounts, you should be aware that we have incurred
expenses that are the same as or similar to some of the adjustments
in the current presentation and we may incur them again in the
future. Our presentation of the adjusted amounts should not
be construed as an inference that our future results will be
unaffected by unusual or nonrecurring items.
Reconciliation of Days Claims Payable:
Q4 2015 Q3 2015 Q4 2014
FY 2015 FY 2014 (1)
Reserve for Claims and Other Settlements - GAAP $
1,493.4 $ 1,684.4 1,896.0 1,493.4 $ 1,896.0 Less: Capitation and
MAPD Payables (186.6 ) (251.2 ) (467.2 )
(186.6 ) (467.2 ) (2) Reserve for Claims and Other
Settlements - Adjusted $ 1,306.8 $ 1,433.2 1,428.8 1,306.8 $
1,428.8 (3) Health Plan Services Cost - GAAP $ 3,216.0 $
3,318.4 $ 3,038.2 $ 13,041.0 $ 11,307.8 Less: Capitation and MAPD
Costs (1,062.1 ) (1,237.6 ) (1,161.8 )
(4,769.9 ) (4,553.7 ) (4) Health Plan Services Cost -
Adjusted $ 2,153.9 $ 2,080.8 $ 1,876.4 $ 8,271.1 $ 6,754.1
(5) Number of Days in Period 92 92 92 365 365 = (1) / (3) *
(5) Days Claims Payable - GAAP Basis (using end of period reserve
amount) 42.7 46.7 57.4 41.8 61.2 = (2) / (4) * (5) Days Claims
Payable - Adjusted Basis (using end of period reserve amount) 55.8
63.4 70.1 57.7 77.2
Health Net, Inc. Reconciliation of Reserves for Claims
and Other Settlements ($ in millions)
Health Plan Services FY 2015
FY 2014 FY 2013
Reserve for claims (a), beginning of period $ 1,186.3 $ 807.4 $
808.7 Incurred claims related to: Current Year (f) 6,425.8 5,613.0
4,666.0 Prior Years (c) (107.4 )
(14.6 )
(56.2 ) Total Incurred (b) 6,318.4 5,598.4 4,609.8 Paid
claims related to: Current Year 5,321.0 4,443.2 3,872.5 Prior Years
1,058.5
776.3 738.6
Total Paid (b) 6,379.5
5,219.5
4,611.1 Reserve for claims (a), end of
period 1,125.2 1,186.3 807.4 Add: Claims Payable (d) 107.8 175.4
67.0 Other (e) 260.4
534.3
109.7 Reserves for claims and other settlements, end
of period $ 1,493.4 $
1,896.0 $ 984.1
(a) Consists of incurred but not reported
claims and received but unprocessed claims and reserves for loss
adjustment expenses. (b) Includes medical claims only.
Capitation, pharmacy and other payments including provider
settlements are not included. (c)
This line represents the change in
reserves attributable to the difference between the original
estimate of incurred claims for prior years and the revised
estimate. Negative amounts in this line represent favorable
development in estimated prior years' health care costs. Positive
amounts in this line represent unfavorable development in estimated
prior years' health care costs. The favorable developments related
to prior years do not directly correspond to an increase in our
operating results because any favorable prior period reserve
development increases current period net income only to the extent
that the current period provision for adverse deviation (see
footnote (f)) is less than the benefit recognized from the prior
period favorable development. The favorable development related to
prior years that was recorded in the year ended December 31, 2015
consisted of $29.7 million in favorable prior year development
primarily due to the growth of the new Medicaid expansion
population in 2014 and a release of $77.7 million of the provision
for adverse deviation held at December 31, 2014. For a detailed
description of reserve development for fiscal years 2014 and 2013,
see Note 2 to the Consolidated Financial Statements in the
company's Annual Report on Form 10-K for the year ended December
31, 2014.
(d) Includes amount accrued for litigation and
regulatory-related expenses. (e) Includes accrued
capitation, shared risk settlements, provider incentives and other
reserve items. (f) Our IBNR estimate also includes a
provision for adverse deviation, which is an estimate for known
environmental factors that are reasonably likely to affect the
required level of IBNR reserves. Such amounts were $74.3 million,
$77.7 million and $53.4 million as of December 31, 2015, December
31, 2014, and December 31, 2013, respectively.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160225005450/en/
Health Net, Inc.Investors:Peter O’Neill,
818-676-8692peter.oneill@healthnet.comorMedia:Brad
Kieffer, 818-676-6833brad.kieffer@healthnet.com
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