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Health Net Reports Drop in Earnings, Revenue; Tailored Networks Grow 45 Percent

Health Net Inc., the Woodland Hills based health insurer, reported a 1 percent drop in net income for the third quarter on lower revenues of $2.8 billion, down 18 percent from $3.4 billion in the third quarter of 2010. Tailored or narrow networks with fewer choices of doctors and hospitals were the company’s biggest seller, with enrollment up 45 percent, the company said. While total earnings fell to $61.8 million, earnings per share increased to 70 cents per diluted share, compared with 64 cents for the year ago quarter due to a stock repurchase. The company bought 5.2 million shares in the third quarter, bringing the total repurchased in 2011 to 11 million shares for a total of $303 million. The company said earnings were negatively affected by an $18.6 million pre-tax loss from the sale of its Northeast operations and another $4.6 million in expenses related to cost reductions. Excluding those charges, profit was 85 cents per share. Premium revenue increased 4.5 percent to $2.6 billion for the quarter while health plan service expenses grew 4.2 percent to $2.2 billion. Total enrollment in the company’s Western Region segment was 3 million, a 1 percent increase. California enrollment grew 2 percent. Enrollment in the company’s commercial plans was flat at 1.4 million. Membership in tailored or narrow networks was up 45 percent, and accounted for 30 percent of all commercial enrollments. Medicare Advantage and Prescription Drug Plans were both down, while enrollment in Medicaid plans increased 10.3 percent. The company’s revenue from government contracts dropped 80 percent to $175.8 million because of a new contract with the Tricare program under which Health Net is only reimbursed for expenses and paid fixed fees. CEO Jay Gellert was pleased with the company’s overall performance. “We continued to make progress on key strategic goals in the third quarter,” he said in a statement. “We expanded commercial margins and continued to produce membership growth in our tailored network products.”

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