Health Net Wins Reprieve

Woodland Hills-based health plan Health Net of California won a reprieve late last month in the awarding of Medi-Cal contracts.  

Reversing an initial allocation decision in August that would have stripped more than 1 million Medi-Cal enrollees from Health Net as of next January, the state Department of Health Care Services on Dec. 30 restored to Health Net hundreds of thousands of those enrollees. 

The biggest turnaround for Health Net, a subsidiary of St. Louis-based health care giant Centene Corp., came in Los Angeles County.  

In that preliminary August decision, as part of an overhaul of the state’s contract awards to health insurers to serve low-income Californians eligible for Medi-Cal, the state agency put forward a plan to take roughly 1 million Medi-Cal enrollees away from Health Net in L.A. County and hand them over to Long Beach-based managed care company Molina Healthcare Inc. 

Health Net protested that decision and joined other health care insurers in a lawsuit seeking to have the state unveil its decision criteria. 

But in the final version of the Medi-Cal contract overhaul released on Dec. 30, the state agency split the vast Los Angeles market evenly between incumbent Health Net and challenger Molina, restoring to Health Net about 500,000 enrollees. HealthNet also picked up some additional enrollees in the Sacramento area.  

“We are pleased to have been issued contracts by DHCS and look forward to pioneering new and innovative approaches to improve access to quality care and drive health equity for the millions of members we serve,” Brian Ternan, Health Net’s chief executive, said in the Centene reaction announcement to the award revisions. 

That announcement also stated that Centene was raising its overall 2024 earnings guidance as a result of the Medi-Cal award revisions, boosting the guidance by 15 cents to $7.15. 

Also in the announcement, Centene said it was dropping its litigation against the state over the Medi-Cal contract award process. 

Even though its Medi-Cal enrollee gains were significantly scaled back, Molina was also pleased with the outcome, noting in its announcement that its Medi-Cal enrollment will still double to roughly 1.2 million low-income residents as of next January. And Molina Chief Executive Joseph Zubretsky said Molina still expects to gain roughly $3.9 billion in revenue from those 600,000 additional enrollees. 

“This confirmation of significant growth represents an important step forward for our enterprise, doubling our presence in the state of California,” Zubretsky said in the company’s announcement. “We are very pleased with the contribution these awards will make to our significant enterprise growth, the trajectory of which remains intact.” 

Interestingly, the share prices of both Molina and Centene have headed down since the revisions became widely known on Jan. 3.  

The stocks of both companies dropped about 3% on Jan. 3; those drops outpaced the slight declines in the broader markets for that day of between 0.4% and 0.8%. 

Centene shares fell in succeeding trading sessions, closing at $77.26 on Jan. 5, a drop of 6% since Dec. 30. Molina shares fell more steeply, closing on Jan. 5 at $298.54, a drop of nearly 10% since Dec. 30.