Health Net Tops Marginally - Analyst Blog

Health Net (HNT) reported fourth quarter earnings per share (EPS) of 69 cents, surpassing the Zacks Consensus Estimate of 67 cents and the year-ago quarter’s 61 cents.

For the full year 2009, EPS came in at $2.25 compared to $1.85 of 2008. This is excluding $137.3 million in charges associated with the sale of its Northeast business operations to UnitedHealth (UNH) in Dec 2009. Taking into account these charges, the company reported a fourth quarter net loss of 43 cents per share compared with EPS of 34 cents reported in the year-ago period.

Health Net reported $3.8 billion (1.8% down year-over-year) and $15.7 billion (2.2% decline) in revenues for the fourth quarter and full year, respectively. The primary reason for the decline was reduced membership due to a rise in unemployment.

The company earns revenues in the form of health plan service premiums, government contracts, net investment income and administrative services, fees and other income. Quarterly health plan services premium, accounting for approximately 79% of total revenues, declined 3% year-over-year to $2.9 billion. Revenues from government contracts increased marginally to $754 million during the reported quarter.

At the end of 2009, total health plan enrollment in Health Net’s Western health plans declined 3.1% to 3 million members in 2009 primarily due to higher unemployment arising from economic instability. Total commercial enrollment declined 10.4% to 1.44 million members. While enrollment in the Medicaid (857,000 members) and Medicare Advantage plans (227,000 members) recorded a year-over-year increase of 12% and 2.3%, respectively, enrollment in Medicare PDP plans (460,000 members) declined 5.5%.

Medical care ratio (MCR) for Health Net’s health plan services increased 50 basis points (bps) to 85.8% during the quarter compared to 85.3% in the year-ago period. In addition, the quarterly commercial MCR in the company’s Western health plans increased 80 bps, primarily due to higher costs related to the spread of H1N1 virus and expansion of COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) membership. Under COBRA, people can continue their employer sponsored insurance coverage even after they lose their jobs.

Health Net increased its guidance for 2010 due to a reduction in shares outstanding. While health plan enrollment is expected to remain flat, revenue is expected in the range of $13 - $13.5 billion. The company expects adjusted EPS in the range of $2.32 - $2.42, an increase of 3% - 7.5% over 2009, compared to the earlier guidance of $2.30 - $2.40. This is higher than the Zacks Consensus Estimate of $2.29.

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