Los Angeles Business Journal

Health Net Profit Drops on Lower Government Revenue

By Deborah Crowe Originally published February 3, 2012 at 11:04 a.m., updated February 3, 2012 at 3:05 p.m.

Editor's Note: This story has been changed to correct the earnings guidance that the company has provided for fiscal 2012.

Health Net Inc. said its fourth quarter net income fell 25 percent, in part due to terms of its new contract with the U.S. military's TriCare health program. Adjusted results were above Wall Street expectations.

The Woodland Hills health insurer on Friday reported net income $60.2 million (71 cents a share) compared with $80.4 million (83 cents) in the same period a year earlier. Revenue fell 17 percent to $2.8 billion.

Excluding costs related to the 2009 sale of its Northeast business, Health Net said it earned 90 cents a share. Analysts surveyed by FactSet on average expected the company to report adjusted earnings of 89 cents a share on revenue of $2.78 billion.

Premium revenue grew 4 percent to $2.6 billion, but government contract revenue dropped 76 percent to less than $195 million. Health Net now is only reimbursed for expenses and paid fixed fees under its TriCare contract, which provides health insurance for active and retired military members and their families.

Total health plan enrollment growth was nearly flat at about 3 million members, but membership in the company’s commercial tailored network products rose 35 percent to 428,000.

For the full-year, Health Net’s net income dropped 65 percent to $72.1 million (80 cents), with revenue down 13 percent to $11.9 billion.

“We are pleased with all we accomplished in 2011,” said Chief Executive Jay Gellert in a statement. “Our commercial strategy resulted in continued enrollment growth in tailored network products. In 2011, we also successfully transitioned to the new TriCare contract and Medicaid membership rose.”

In guidance for the full year, Health Net expects a profit of $3.30 to $3.49 a share, and $11.5 billion to $12 billion in consolidated revenue. The Wall Street consensus was for profit of $3.35 a share and $11.6 billion in revenue.

Shares were down $1.80, or 4.7 percent, to $36.77 in midday trading on the New York Stock Exchange.