Health Net Beats, Raises Guidance - Analyst Blog

Health Net (HNT) reported first quarter fiscal 2010 earnings per share (EPS) of 16 cents compared to earnings of 21 cents in the first quarter of 2009. The reported quarter included $37.7 million in pretax losses related to the divestment of the Northeast business to UnitedHealth (UNH) in December 2009 and $14.5 million in pretax losses arising from cost cuts and other expenses. Excluding these items, the company’s EPS came in at 47 cents, surpassing the Zacks Consensus Estimate by a penny.

Health Net reported a 13.1% year-over-year decline in revenues to $3.4 billion. The primary reason for the decline was reduced membership.

The company earns revenues in the form of health plan service premiums, government contracts, northeast administrative services fees, net investment income and administrative services, fees and other income. Health Net continues to serve members of the Northeast business under an agreement with UnitedHealth, the income from which has been shown separately.

Health plan services premium, accounting for approximately 74% of total revenues during the quarter, declined 19.5% year-over-year to $2.5 billion. Revenues from government contracts increased 6.6% to $809 million during the reported quarter. At the end of the first quarter of 2010, total health plan enrollment in Health Net’s Western health plans declined 2.6% to 3 million members in 2009.

Total commercial enrollment declined 10.5% to 1.4 million members. While enrollment in the Medicaid (873,000 members) and Medicare PDP plans (457,000 members) recorded a year-over-year increase of 10.1% and 1.8%, respectively, enrollment in Medicare Advantage plans (218,000 members) declined marginally.

Medical care ratio (MCR) for Health Net’s health plan services declined 20 basis points (bps) to 87.5% during the quarter compared to 87.7% in the year-ago period. In addition, the commercial MCR in the company’s Western health plans declined 20 bps.

Health Net has raised its EPS guidance for 2010. The company has also provided a detailed break-up of its health plan enrollment expectations. While enrollment in the Commercial (down 1%-2%) and Medicare Advantage (down 2%-3%) plans are likely to decline, enrollment in Medicaid (up 5%-6%) and PDP (up 1%-2%) plans are likely to go up.  Health Net expects revenues in the range of $13 - $13.5 billion and adjusted EPS in the range of $2.37 - $2.47, up from the earlier guidance of $2.32 - $2.42.

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