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Wednesday, Nov 6, 2024

Health Net Calif. President Leads Company’s Growth

When Stephen Lynch was in university it’s doubtful that anyone would have guessed that he would one day head the largest subsidiary of one of America’s top publicly traded managed health care companies. That’s because the Health Net of California president majored in English literature as an undergraduate and went on to obtain a master’s degree in Irish literature. While it would seem that Lynch’s literature background would have no relevance to the work he’s doing now, he believes the opposite is true. “I think a liberal arts education teaches you how to think and how to communicate,” he said. “I find that most of my job is about thinking and communicating. It makes me particularly well suited for my job.” Lynch has held the position for two-and-a-half years. Prior to that, he was head of Health Net of Oregon. When he made the switch to the California subsidiary, Health Net Inc. was recovering from a financial crisis. In 2004, the Woodland Hills company’s profits plummeted to $42 million from $234 million. It rebounded the next year,stock prices doubled,only after raising rates and giving its product line a facelift. “It was a time of transition in some ways for the company,” Lynch recalled. “It was a time fundamentally of trying to put a steady hand on the tiller because it’s a matter of needing to focus, needing to have discipline, needing to meet your promises and commitments and do it every single day. To me, it wasn’t something complicated or difficult to understand, but it required showing up at work every day with a positive and steady approach to the business.” Now the San Fernando Valley’s fifth-largest public company is in the midst of a financial upswing. Its 2007 second quarter net income was $92.0 million, or $0.80 per diluted share, a marked jump from last year during this period, when net income was $77.0 million, or $0.65 per diluted share. And Health Net of California, the subsidiary that’s setting trends in areas such as cross-border health care, has undoubtedly played a key role in the company’s financial turnaround. Question: How has Health Net of California contributed to Health Net Inc.’s recent financial performance? Answer: It’s 60 percent of the corporation. It has significant effects. What’s happened in Health Net of California really is we’ve turned around our growth pattern. We’re selling more business. We think the market is more vibrant. Diversity sort of plays to our strength, so it’s mostly about growth and mostly on the small end of the business in terms of small employers. We also have some Medicare growth, which has helped the cause. It’s the first time in a few years that we’ve grown in Medicare. Q: How has Health Net generated enrollment momentum by focusing on the small group and individual segment? A: For years, Health Net has been a company that was available to the very large employers. We still do that work. We still have a lot of big-name clients, but by trying to grow in the small employer segments, I think the difference can start to show up about how we can seem more local with offices in multiple parts of the state. We also try to be as good as possible in understanding the dynamics of a local market with the local offices. Small groups are really a local phenomenon. Because there’s a lot of entrepreneurial activity in the state, there’s a lot of growth in the small group segment of the market for employers. If we can be local and if they can see us as meeting their needs, then we can really start to do some work that we really haven’t been all that involved in over the years. So in the last two years, three years, we’ve grown a lot in the small group market and it’s a good business to be in. Q: Let’s discuss the insurance stores that you have in East LA and Modesto. What role do they play in helping the uninsured know that they can indeed get insurance and insurance that’s appropriate for them? A: The stores help us do business the old-fashioned way. There’s a certain segment of the population that really wants to know the company they’re doing business with. The point of this is we’re really trying to reach people where they live, where they work and where they shop and just try to see if this is a way for us to expand doing business. The beauty of the stores is that we cover employers and insurance that way, but we also do Medicare and we also do Medi-Cal. We have over 500,000 Medi-Cal members in Los Angeles County. Sometimes when you meet the whole family you start to realize that people are eligible for different programs, but they need to run into the insurance business as a complete family because if they talk to Medicare, they don’t necessarily end up with how to get the employee covered. If they talk to their employer, they don’t necessarily know how to get their Medi-Cal-eligible person covered or Healthy Families’ child covered. So what we do is we’re able to really focus on the multiple products that are available, that they might be eligible for, all of which are different, but it’s one family. In a sense, it helps us to find those people that are uninsured but are still eligible for multiple programs. Q: Discuss your cross-border plan. A: The program is called Salud Con Health Net, and it’s a series of products. It can vary from group coverage so an employer can put this kind of coverage in or any individual can buy it. We saw a need because Latinos are twice as likely as other ethnic populations to be uninsured. Latinos are also a part of the state’s economic engine. In some ways, particularly first-generation immigrants are not as accustomed to the way care is delivered here, and there are some differences. We’ve moved to a position to say, “Well, if somebody wants to cross the border and get coverage in Mexico, as long as we could accredit the institutions and the physicians and make sure the quality is of the same standard we would look for here, then why wouldn’t we let that happen?” Once we started thinking like that, it become relatively easy to do this sort of product. People can cross the border and get coverage in Mexico for medical care and they can also, if they have family members, dependents, that they could cover who still live in Mexico, then they can go to those doctors in Mexico in hospitals that are in our network. What’s nice about this is that we established the network for this product line that is 30 to 40 percent less expensive than our normal products. So whether they go to U.S. doctors or to Mexican doctors, we have a very affordable product pricing. Q: What about your new health plan that combines a consumer-directed health plan with a traditional HMO? A: Health care in California is cheaper than it is in anywhere else in the country. It’s because of the way business is done here. The way that all plans work with physicians in hospitals, using a prepayment methodology called capitation, you pay for how many members the medical group has. It’s really interesting because I moved from Oregon to California, for example, and nothing else is cheaper here , but healthcare is. That’s because the HMO concept has been in place in California for 25 to 30 years, and it actually keeps the cost down, whereas much of the rest of the country has moved away from HMO as this sort of dominant way to do business. What we thought was all this talk about consumer directed,where people have more money to spend on their own health care but have some funds and some tax breaks,we thought let’s try to put that together with an HMO instead of giving people a $25,000 deductible. This program is a zero dollar deductible. It has a savings account attached to it. It has incentives for healthy behaviors, but it also has the cost predictability of an HMO. We think it’s a good hybrid for people to take a good solid look at. We still offer high deductible plans and straight HMO plans, but this seems to be one that has attracted some interest. I expect a little tweakage as we hear from people about things that they’d like to see improved or changed in the product. Q: What have been the high points and low points for Health Net so far this year? A: I think because we spent three hard years of trying to better understand our customers, we’re starting to get some traction on growth and profitability. We’ve had moments of real exhilaration this year because we can see we have a unique position potentially available to us in California. Many of our competitors are headquartered outside of California now. We’re a major employer of Los Angeles County. Our roots are in California. Even though we’re in other states, we’re essentially a California company. I think what we’re learning, and learning pretty fast, is that it matters to be local even in a sophisticated, diverse state like California. So we’re trying to learn to be local in the San Fernando Valley, in San Diego, in Oakland, in Fresno, etc. It’s because we’ve begun to understand that California itself is like a big local market, although it’s extraordinarily large and diverse. Q: What’s in store for next year? A: In our business, a lot of the very large employers renew for January 1, so we work on those starting in March to May and we hear through the summer and early fall about our results, and we’ve learned that we probably expect to pick up somewhere around 100,000 new members in January that we’ve already heard about. That will be the first time in a number of years that we will really pick up significant membership on January 1, so we’re really excited about that and are preparing to ensure that those new customers have a positive experience right from the start. Snapshot Information Title: Health Net of California President Age: 56 Education: Bachelor’s degree in English literature, University of Georgia; master’s degree in Irish literature, University College, Dublin Most Admired: I’m going to choose Laurie Miller. She was a 10-year-old girl I knew very well who got leukemia and passed away a year ago. The way she handled that was very instructive to me and very moving. And she also designed a shoe for Nike. Career Turning Point: You can see I didn’t follow a typical path, so I think it was probably when I decided that business was an honorable profession. That was about 25 years ago. Personal: Married with four children. My youngest child is 20, and he is about to be deployed to Iraq. I would ask the readers to support that.

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