Health Net Reports Second Quarter 2015 Results and Reaffirms Full Year 2015 Earnings Guidance

Company Reports GAAP Net Income of $58.4 Million, or $0.75 per Diluted Share

Western Region Operations and Government Contracts Segments Produce Combined Net Income of $0.95 per Diluted Share in Second Quarter of 2015

Year-over-Year, Health Plan Services Premium Revenues Grew 22.7 Percent in Second Quarter of 2015

Health Plan Enrollment Climbs 11.0 Percent Year-over-Year, Largely Driven by Medicaid Expansion Growth

LOS ANGELES--(BUSINESS WIRE)-- Health Net, Inc. (NYSE: HNT) today announced 2015 second quarter GAAP net income of $58.4 million, or $0.75 per diluted share, compared with GAAP net income of $120.9 million, or $1.49 per diluted share, for the second quarter of 2014 and $30.0 million, or $0.38 per diluted share, for the first quarter of 2015.

In the second quarter of 2015, Health Net incurred approximately $26.4 million of pretax expenses primarily related to its previously announced transaction with a wholly owned subsidiary of Cognizant Technology Solutions Corporation (Cognizant). Efforts toward the commencement of services pursuant to this transaction were suspended in connection with Health Net’s announcement that it had entered into a definitive merger agreement with Centene Corporation (see Recent Events).

The company’s Western Region Operations (Western Region) and Government Contracts segments produced combined net income of $74.6 million, or $0.95 per diluted share, in the second quarter of 2015 compared with $50.3 million, or $0.62 per diluted share, in the second quarter of 2014 and $58.3 million, or $0.74 per diluted share, in the first quarter of 2015.

RECENT EVENTS

On July 2, 2015, Health Net announced that it had entered into a definitive merger agreement with Centene Corporation (Centene) under which Centene will acquire all of the issued and outstanding shares of Health Net. The transaction is expected to close in early 2016 and is subject to approval by Centene and Health Net shareholders and other customary closing conditions.

2015 GUIDANCE

Health Net is maintaining GAAP earnings per diluted share guidance of at least $2.70 for the full year 2015, and is maintaining diluted EPS guidance for the combined Western Region and Government Contracts segments at a range of $3.25 to $3.35 for the full year 2015.

GAAP diluted EPS guidance and diluted EPS guidance for the combined Western Region and Government Contracts segments do not include the combined effect and costs associated with the merger transaction with Centene and the suspension of the Cognizant transaction for the second half of 2015.

A summary of our current guidance is contained in the table and footnotes below.

Health Net, Inc. 2015 Guidance (1)
			Current(updated 8/4/15)
			FY2015
Total Health Plan Membership (At 12/31/2015)(5)			3,457,000
Total Consolidated Revenues(2)			$16.7 billion
Health Plan Services Medical Care Ratio (MCR)(3)(5)			84.1%
G&A Expense Ratio(5)			10.8%
Admin Expense Ratio(5)			7.2%
Western Region and Government Contracts Tax Rate			54.0%
Weighted-average fully diluted shares outstanding(4)			78.5 million
Western Region and Government Contracts EPS(6)			$3.25 - $3.35
(1) All guidance metrics are approximations and do not include the combined effect and costs related to the merger transaction with Centene or to the suspension of the Cognizant transaction for the second half of 2015
(2) Reflects a change in the timing of redeterminations for the Medicaid and individual exchange businesses and a delay in membership for the duals demonstration business
(3) Reflects improved performance for the Medicaid business in California
(4) Reflects the suspension of the company’s share repurchase program
(5) For the company's Western Region Operations segment
(6) Reflects approximately $23 million deterioration for Government Contracts segment, primarily as a result of increased costs in the PC3/Choice program

SECOND QUARTER 2015 HIGHLIGHTS

Highlights from the second quarter of 2015 include:

1. Health Net’s total revenues climbed 21.7 percent in the second quarter of 2015 compared with the second quarter of 2014, and health plan services premiums revenues grew 22.7 percent over the same period;
2. The company achieved 11.0 percent enrollment growth in its Western Region health plans as of June 30, 2015 compared with June 30, 2014;
3. Medicaid enrollment as of June 30, 2015 increased by 384,000 members, or 27.4 percent, compared with June 30, 2014, and increased by 4.9 percent compared with March 31, 2015. This was primarily the result of new members added in Arizona and California from the expansion of Medicaid eligibility under the ACA;
4. The company's Western Region health plan services consolidated Medical Care Ratio (MCR) improved by 70 basis points year-over-year to 84.0 percent in the second quarter of 2015 and improved by 50 basis points sequentially compared with the first quarter of 2015. The improvement in the consolidated MCR was largely driven by strong performance in the Medicaid business in California; and
5. Health Net's Western Region administrative expense ratio was 6.9 percent in the second quarter of 2015, an 80 basis point improvement compared with the second quarter of 2014. The administrative expense ratio does not include premium taxes, the health insurer fee and other ACA-related fees.

“We are pleased with our performance this quarter,” said Jay Gellert, Health Net’s chief executive officer. “We intend to continue a disciplined execution of our strategy as we work to complete the Centene merger transaction.”

CONSOLIDATED RESULTS

Health Net’s total revenues increased approximately 22 percent in the second quarter of 2015 to $4.2 billion from $3.4 billion in the second quarter of 2014 and increased approximately 7 percent in the second quarter of 2015 from $3.9 billion in the first quarter of 2015.

Total expenses increased approximately 21 percent in the second quarter of 2015 to $4.0 billion from $3.3 billion in the second quarter of 2014 and increased approximately 5 percent in the second quarter of 2015 from $3.8 billion in the first quarter of 2015.

Included in total expenses are $26.4 million, $47.3 million and $3.3 million of expenses primarily related to the transaction with Cognizant for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively. The company continued to incur costs in the second quarter of 2015, in preparation for the then-expected implementation of its arrangement with Cognizant.

Western Region Health Plan Services

Health plan services premiums revenues in the Western Region of $4.0 billion in the second quarter of 2015 increased by approximately 23 percent compared with $3.3 billion in the second quarter of 2014, primarily as a result of year-over-year enrollment gains in Health Net’s Medicaid business.

Health plan services expenses in the Western Region of $3.4 billion in the second quarter of 2015 increased by approximately 22 percent compared with $2.8 billion in the second quarter of 2014, primarily as a result of Health Net’s year-over-year enrollment gains in Medicaid and dual eligibles.

Government Contracts Segment

Government Contracts revenues in the second quarter of 2015 were $141.1 million compared with $154.1 million in the second quarter of 2014 and $154.7 million in the first quarter of 2015.

Government Contracts expenses in the second quarter of 2015 were $137.2 million compared with $132.6 million in the second quarter of 2014 and $141.7 million in the first quarter of 2015. The year-over-year increase in the second quarter of 2015 reflects costs associated with the ramp-up of operations associated with the U.S. Department of Veterans Affairs (VA)-related programs and services.

“Health Net expects its VA-related programs and services to become a growing part of the Government Contracts segment as the VA Patient-Centered Community Care and Choice (PC3/Choice) programs mature,” said James Woys, Health Net's chief financial and operating officer.

As a result of expedited implementation of the PC3/Choice programs, the company experienced greater costs in the second quarter of 2015, which we expect to continue into the second half of the year. In total, the company expects to spend approximately $40 million in ramp-up costs in 2015 which are not expected to recur in 2016.

The VA notified us on July 27, 2015 of its intent to exercise option period two for the PC3/Choice program. This one-year option period is expected to commence on October 1, 2015, and continues the health care services provided to veterans in all or portions of 37 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.

On July 23, 2015, the company responded to the U.S. Department of Defense’s (DoD) request for proposal for the next generation TRICARE contract which will reduce the three existing TRICARE regions to two regions. In March 2015, the DoD modified our T-3 contract for the TRICARE North Region to add three additional one-year option periods and awarded us the first of the three option periods, which allows us to continue providing access to health care services to TRICARE beneficiaries through March 31, 2016.

WESTERN REGION OPERATIONS SEGMENT

Health Plan Membership

Total enrollment in the Western Region at June 30, 2015 was 3.2 million members, an increase of approximately 11 percent from enrollment at June 30, 2014 and an increase of approximately 2 percent from March 31, 2015.

Total enrollment in the company’s California health plans at June 30, 2015 was approximately 2.9 million members, an increase of 13.6 percent from enrollment at June 30, 2014, and an increase of approximately 3 percent from enrollment at March 31, 2015.

Western Region commercial enrollment at June 30, 2015 was approximately 1.2 million members, a decrease of 7.5 percent compared with enrollment at June 30, 2014 and essentially flat compared with March 31, 2015. The year-over-year decline was primarily due to losses in the Arizona individual business and California large group business as a result of competitive pricing on the individual exchange in Arizona and large group competitive pricing in California.

Membership in tailored network products represented 54.7 percent of the company’s Western Region commercial membership at June 30, 2015, flat compared with the first quarter of 2015 and up 220 basis points compared with 52.5 percent at June 30, 2014. As of June 30, 2015, membership in tailored networks accounted for 93 percent of the company's individual exchange business.

Enrollment in the company’s Medicare Advantage (MA) plans was 269,000 members at June 30, 2015, which represents a 2.7 percent increase compared with enrollment of 262,000 members at June 30, 2014, and is essentially flat compared with 267,000 members at March 31, 2015.

Medicaid enrollment increased 27.4 percent to 1.8 million members at June 30, 2015 compared with approximately 1.4 million members as of June 30, 2014 and approximately 5 percent compared with March 31, 2015. These increases are primarily due to Medicaid expansion under the ACA.

Enrollment in the company’s dual eligible demonstration project was 27,000 members at June 30, 2015, flat compared with March 31, 2015. Higher-than-expected opt-out rates in the duals demonstration project continued to challenge membership growth in the second quarter of 2015. In addition to the demonstration project, dual eligible enrollment in Health Net’s Medicare Advantage products in Los Angeles and San Diego counties was approximately 27,000 at June 30, 2015 compared with approximately 23,000 at March 31, 2015, and membership in its managed Medi-Cal program in these demonstration counties was approximately 112,000 at June 30, 2015 compared with approximately 87,000 at March 31, 2015.

Investment Income

Net investment income for the Western Region was $16.4 million in the second quarter of 2015 compared with $12.0 million in the second quarter of 2014 and $13.2 million in the first quarter of 2015.

Western Region Operations Premiums and Health Care Cost Trends

Western Region premiums per member per month (PMPM) increased by 8.0 percent to approximately $415 in the second quarter of 2015 compared with approximately $384 in the second quarter of 2014.

Health care costs PMPM for the Western Region increased by 7.1 percent to approximately $348 in the second quarter of 2015 compared with approximately $325 in the second quarter of 2014.

“Health care cost trends continued to remain moderate in the first half of 2015,” Woys noted. “We are not seeing evidence of a shift in cost trends that would likely impact the remainder of the year.”

Medical Care Ratio (MCR)

The Western Region health plan services consolidated MCR was 84.0 percent in the second quarter of 2015 compared with 84.7 percent in the second quarter of 2014 and 84.5 percent in the first quarter of 2015, representing an improvement of 70 basis points year-over-year and 50 basis points sequentially. The improvement is primarily due to better performance in Health Net’s state health programs, particularly its Long-Term Services and Supports program for California Medicaid.

General and Administrative (G&A) Expenses

G&A expenses in the Western Region were $422.6 million in the second quarter of 2015 compared with $342.0 million in the second quarter of 2014 and $409.6 million in the first quarter of 2015. The G&A expense ratio was 10.5 percent in the second quarter of 2015 compared with 10.5 percent in the second quarter of 2014 and 11.0 percent in the first quarter of 2015.

“Health Net’s administrative expense ratio, which does not include premium taxes and ACA-related fees, declined sequentially for the second quarter of 2015,” said Woys.

BALANCE SHEET

Cash and investments as of June 30, 2015 were $3.1 billion compared with $2.3 billion as of June 30, 2014.

Reserves for claims and other settlements were $1.8 billion as of June 30, 2015 compared with $1.5 billion as of June 30, 2014 and $1.9 billion as of March 31, 2015.

Days claims payable (DCP) for the second quarter of 2015 was 47.6 days compared with 49.0 days in the second quarter of 2014 and 54.8 days in the first quarter of 2015.

On an adjusted1 basis, DCP for the second quarter of 2015 was 59.1 days compared with 64.4 days in the second quarter of 2014 and 66.3 days in the first quarter of 2015.

The reduction in DCP in the second quarter of 2015 is primarily due to the payment of provider risk-sharing and incentive programs. Of particular note, while DCP and adjusted DCP were both lower in the second quarter of 2015 compared with the first quarter of 2015, the company’s reserve for claims incurred but not reported as of June 30, 2015 increased by $90 million compared with March 31, 2015.

As of June 30, 2015, the company accrued $340.1 million for net receivables associated with premium stabilization programs, an increase of $67.9 million from March 31, 2015. In the second quarter of 2015, the change in estimates for the 3Rs related to 2014 reduced pretax income for the quarter by $9 million. This net receivable balance continues to be driven principally by reinsurance recoverables.

The company’s debt-to-total capital ratio was 26.3 percent as of June 30, 2015 compared with 26.4 percent as of March 31, 2015 and 21.5 percent as of June 30, 2014.

CASH FLOWS FROM OPERATIONS

Operating cash flow was negative $260.3 million in the second quarter of 2015.

“Operating cash flow in the second quarter of 2015 was negatively impacted by the timing of payments related to state health programs,” explained Woys. “We did not receive the June 2015 California Medicaid payment of approximately $333 million until July 2015.”

The company noted that cash at the parent was $33.1 million at June 30, 2015.

SHARE REPURCHASE UPDATE

Health Net did not repurchase any shares of its common stock in the second quarter of 2015. At June 30, 2015, approximately $306 million of authorization under the company’s existing $400 million stock repurchase program remained.

Share repurchases are suspended for the balance of 2015 as a result of our pending merger agreement with Centene.

ABOUT HEALTH NET

Health Net, Inc. is a publicly traded managed care organization that delivers managed health care services through health plans and government-sponsored managed care plans. Its mission is to help people be healthy, secure and comfortable. Health Net provides and administers health benefits to approximately 6.1 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, dual eligible, U.S. Department of Defense, including TRICARE, and U.S. Department of Veterans Affairs programs. Health Net also offers behavioral health, substance abuse and employee assistance programs, and managed health care products related to prescription drugs.

For more information on Health Net, Inc., please visit Health Net’s website at www.healthnet.com.

CAUTIONARY STATEMENTS

The company and its representatives may from time to time make written and oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act (“PSLRA”) of 1995, including statements in this and other press releases, in presentations, filings with the Securities and Exchange Commission (“SEC”), reports to stockholders and in meetings with investors and analysts. All statements in this press release, other than statements of historical information provided herein, including the guidance for future periods and the assumptions underlying such projections, may be deemed to be forward-looking statements and as such are intended to be covered by the safe harbor for “forward-looking statements” provided by PSLRA. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to changes in circumstances and a number of risks and uncertainties. Without limiting the foregoing, the guidance as to expected future period results and statements including the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend,” “feels,” “will,” “projects” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those expressed in, or implied or projected by the forward-looking information and statements due to a number of factors, variables or events. Certain of these factors relate to the company’s proposed business combination with Centene Corporation (“Centene”), including, among other things, the expected closing date of the transaction; the possibility that the expected synergies and value creation from the proposed merger will not be realized, or will not be realized within the expected time period; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the possibility that the merger does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of approval of both Centene’s stockholders and Health Net’s stockholders; and the risk that financing for the transaction may not be available on favorable terms. Other factors include health care reform and other increased government participation in and taxation or regulation of health benefits and managed care operations, including but not limited to the implementation of, and subsequent modifications to, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and the regulations promulgated thereunder (collectively, the “ACA”) as well as any related fees, assessments and taxes; the company’s ability to successfully participate in California’s Coordinated Care Initiative, which is subject to a number of risks inherent in untested health care initiatives and requires the company to adequately predict the costs of providing benefits to individuals that are generally among the most chronically ill within each of Medicare and Medi-Cal and implement delivery systems for benefits with which the company has limited operating experience; the company’s ability to successfully participate in the federal and state health insurance exchanges under the ACA, which involve uncertainties related to the mix and volume of business that could negatively impact the adequacy of the company’s premium rates and may not be sufficiently offset by the risk apportionment provisions of the ACA; increasing health care costs, including but not limited to costs associated with the introduction of new treatments or therapies; the company’s ability to reduce administrative expenses while maintaining targeted levels of service and operating performance; the recompetition of the company’s T-3 contract for the TRICARE North region; negative prior period claims reserve developments; rate cuts and other risks and uncertainties affecting the company’s Medicare or Medicaid businesses; trends in medical care ratios; membership declines or negative changes in the company’s health care product mix; unexpected utilization patterns or unexpectedly severe or widespread illnesses; failure to effectively oversee the company’s third-party vendors; noncompliance by the company or the company’s business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information; the timing of collections on amounts receivable from state and federal governments and agencies; litigation costs; regulatory issues with federal and state agencies including, but not limited to, the California Department of Managed Health Care and Department of Health Care Services, the Arizona Health Care Cost Containment System, the Centers for Medicare & Medicaid Services, the Office of Civil Rights of the U.S. Department of Health and Human Services and state departments of insurance; operational issues; changes in political, economic or market conditions; investment portfolio impairment charges; volatility in the financial markets; and general business and market conditions. The factors described in the context of such forward-looking statements in this press release could cause the company or Centene’s plans with respect to the proposed merger, actual results, performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the SEC and the other risks discussed in the company’s filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by law, the company undertakes no obligation to address or publicly update any of its guidance, the assessment of the underlying assumptions or forward-looking statements to reflect events or circumstances that arise after the date of this release.

The financial information presented in this press release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

The proposed merger transaction involving Centene and Health Net will be submitted to the respective stockholders of Centene and Health Net for their consideration. In connection with the proposed merger, Centene will prepare a registration statement on Form S-4 that will include a joint proxy statement/prospectus for the stockholders of Centene and Health Net to be filed with the SEC, and each will mail the joint proxy statement/prospectus to their respective stockholders and file other documents regarding the proposed transaction with the SEC. Centene and Health Net urge investors and stockholders to read the joint proxy statement/prospectus when it becomes available, as well as other documents filed with the SEC, because they will contain important information. Investors and security holders will be able to receive the registration statement containing the joint proxy statement/prospectus and other documents free of charge at the SEC’s web site, www.sec.gov. These documents can also be obtained (when they are available) free of charge from Centene upon written request to the Investor Relations Department, Centene Plaza, 7700 Forsyth Blvd., St. Louis, MO 63105, (314) 725-4477, or from Centene’s website, www.centene.com/investors/, or from Health Net upon written request to the Investor Relations Department, Health Net, Inc., 21650 Oxnard Street, Woodland Hills, CA 91367, (800) 291-6911, or from Health Net’s website, www.healthnet.com/InvestorRelations.

PARTICIPANTS IN SOLICITATION

Centene, Health Net and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the respective stockholders of Centene and Health Net in favor of the merger. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the respective stockholders of Centene and Health Net in connection with the proposed merger will be set forth in the joint proxy statement/prospectus when it is filed with the SEC. You can find information about Centene’s executive officers and directors in its definitive proxy statement for its 2015 Annual Meeting of Stockholders, which was filed with the SEC on March 16, 2015. You can find information about Health Net’s executive officers and directors in its definitive proxy statement for its 2015 Annual Meeting of Stockholders, which was filed with the SEC on March 26, 2015. You can obtain free copies of these documents from Centene and Health Net using the contact information above.

NO OFFER OR SOLICITATION

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

1 See “Disclosures Regarding Non-GAAP Financial Information” attached to this press release for a reconciliation of this information to the comparable GAAP financial measure.

Health Net, Inc.
Enrollment Data - By State
(In thousands)
													Change from
													March 31, 2015						June 30, 2014
				June 30,			March 31,			June 30,			Increase/			%			Increase/			%
				2015			2015			2014			(Decrease)			Change			(Decrease)			Change
California
	Large Group			444			443			492			1			0.2	%		(48	)		(9.8	)%
	Small Group			241			243			240			(2	)		(0.8	)%		1			0.4	%
	Individual			279			284			272			(5	)		(1.8	)%		7			2.6	%
	Commercial			964			970			1,004			(6	)		(0.6	)%		(40	)		(4.0	)%
	Medicare Advantage			168			166			162			2			1.2	%		6			3.7	%
	Medi-Cal			1,712			1,623			1,359			89			5.5	%		353			26.0	%
	Dual Eligibles			27			27			2			0			0.0	%		25			1,250.0	%
		Total California		2,871			2,786			2,527			85			3.1	%		344			13.6	%
Arizona
	Large Group			36			37			48			(1	)		(2.7	)%		(12	)		(25.0	)%
	Small Group			37			38			43			(1	)		(2.6	)%		(6	)		(14.0	)%
	Individual			69			74			99			(5	)		(6.8	)%		(30	)		(30.3	)%
	Commercial			142			149			190			(7	)		(4.7	)%		(48	)		(25.3	)%
	Medicare Advantage			38			39			46			(1	)		(2.6	)%		(8	)		(17.4	)%
	Medicaid			76			81			45			(5	)		(6.2	)%		31			68.9	%
		Total Arizona		256			269			281			(13	)		(4.8	)%		(25	)		(8.9	)%
Northwest
	Large Group			27			28			28			(1	)		(3.6	)%		(1	)		(3.6	)%
	Small Group			22			22			25			0			0.0	%		(3	)		(12.0	)%
	Individual			2			2			4			0			0.0	%		(2	)		(50.0	)%
	Commercial			51			52			57			(1	)		(1.9	)%		(6	)		(10.5	)%
	Medicare Advantage			63			62			54			1			1.6	%		9			16.7	%
		Total Northwest		114			114			111			0			0.0	%		3			2.7	%
Total Health Plan Enrollment
	Large Group			507			508			568			(1	)		(0.2	)%		(61	)		(10.7	)%
	Small Group			300			303			308			(3	)		(1.0	)%		(8	)		(2.6	)%
	Individual			350			360			375			(10	)		(2.8	)%		(25	)		(6.7	)%
	Commercial			1,157			1,171			1,251			(14	)		(1.2	)%		(94	)		(7.5	)%
	Medicare Advantage			269			267			262			2			0.7	%		7			2.7	%
	Medi-Cal/Medicaid			1,788			1,704			1,404			84			4.9	%		384			27.4	%
	Dual Eligibles			27			27			2			0			0.0	%		25			1,250.0	%
Western Region Operations				3,241			3,169			2,919			72			2.3	%		322			11.0	%
TRICARE - North Contract Eligibles				2,829			2,837			2,849			(8	)		(0.3	)%		(20	)		(0.7	)%

Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
													Change from
													March 31, 2015						June 30, 2014
				June 30,			March 31,			June 30,			Increase/			%			Increase/			%
				2015			2015			2014			(Decrease)			Change			(Decrease)			Change
Large Group
	California			444			443			492			1			0.2	%		(48	)		(9.8	)%
	Arizona			36			37			48			(1	)		(2.7	)%		(12	)		(25.0	)%
	Northwest			27			28			28			(1	)		(3.6	)%		(1	)		(3.6	)%
				507			508			568			(1	)		(0.2	)%		(61	)		(10.7	)%
Small Group
	California			241			243			240			(2	)		(0.8	)%		1			0.4	%
	Arizona			37			38			43			(1	)		(2.6	)%		(6	)		(14.0	)%
	Northwest			22			22			25			0			0.0	%		(3	)		(12.0	)%
				300			303			308			(3	)		(1.0	)%		(8	)		(2.6	)%
Individual
	California			279			284			272			(5	)		(1.8	)%		7			2.6	%
	Arizona			69			74			99			(5	)		(6.8	)%		(30	)		(30.3	)%
	Northwest			2			2			4			0			0.0	%		(2	)		(50.0	)%
				350			360			375			(10	)		(2.8	)%		(25	)		(6.7	)%
Commercial
	California			964			970			1,004			(6	)		(0.6	)%		(40	)		(4.0	)%
	Arizona			142			149			190			(7	)		(4.7	)%		(48	)		(25.3	)%
	Northwest			51			52			57			(1	)		(1.9	)%		(6	)		(10.5	)%
				1,157			1,171			1,251			(14	)		(1.2	)%		(94	)		(7.5	)%
Medicare Advantage
	California			168			166			162			2			1.2	%		6			3.7	%
	Arizona			38			39			46			(1	)		(2.6	)%		(8	)		(17.4	)%
	Northwest			63			62			54			1			1.6	%		9			16.7	%
				269			267			262			2			0.7	%		7			2.7	%
Medi-Cal/Medicaid
	California			1,712			1,623			1,359			89			5.5	%		353			26.0	%
	Arizona			76			81			45			(5	)		(6.2	)%		31			68.9	%
				1,788			1,704			1,404			84			4.9	%		384			27.4	%
Dual Eligibles
	California			27			27			2			0			0.0	%		25			1,250.0	%
Total Health Plan Enrollment
	Large Group			507			508			568			(1	)		(0.2	)%		(61	)		(10.7	)%
	Small Group			300			303			308			(3	)		(1.0	)%		(8	)		(2.6	)%
	Individual			350			360			375			(10	)		(2.8	)%		(25	)		(6.7	)%
	Commercial			1,157			1,171			1,251			(14	)		(1.2	)%		(94	)		(7.5	)%
	Medicare Advantage			269			267			262			2			0.7	%		7			2.7	%
	Medi-Cal/Medicaid			1,788			1,704			1,404			84			4.9	%		384			27.4	%
	Dual Eligibles			27			27			2			0			0.0	%		25			1,250.0	%
Western Region Operations				3,241			3,169			2,919			72			2.3	%		322			11.0	%
TRICARE - North Contract Eligibles				2,829			2,837			2,849			(8	)		(0.3	)%		(20	)		(0.7	)%

Health Net, Inc. Consolidated Statements of Operations ($ in thousands, except per share data)
								Quarter Ended				Quarter Ended				Quarter Ended
								June 30,				March 31,				June 30,
REVENUES:								2015				2015				2014
	Health plan services premiums							$	4,003,432			$	3,720,800			$	3,261,878
	Government contracts							141,055				154,714				154,083
	Net investment income							16,424				13,241				12,043
	Administrative services fees and other income							2,712				1,141				(6,612		)
	Total revenues							4,163,623				3,889,896				3,421,392
EXPENSES:
	Health plan services							3,363,742				3,142,863				2,763,179
	Government contracts							137,262				142,540				133,208
	General and administrative							448,713				453,848				344,734
	Selling							69,190				68,696				64,002
	Depreciation and amortization							4,202				4,307				9,641
	Interest							8,412				8,049				7,826
	Asset impairment							—				1,884				—
	Total expenses							4,031,521				3,822,187				3,322,590
Income from operations before income taxes								132,102				67,709				98,802
Income tax provision								73,734				37,721				(22,065		)
Net income (loss)								$	58,368			$	29,988			$	120,867
Net income (loss) per share:
Basic								$	0.76			$	0.39			$	1.51
Diluted								$	0.75			$	0.38			$	1.49
Weighted average shares outstanding:
Basic								77,172				77,085				80,250
Diluted								78,157				78,370				81,218

Health Net, Inc. Condensed Consolidated Balance Sheets (Amounts in thousands, except ratio data)
						June 30,				March 31,				June 30,
						2015				2015				2014
ASSETS
Current Assets
	Cash and cash equivalents					$	756,797			$	1,018,353			$	603,097
	Investments - available for sale					2,371,540				2,520,429				1,668,943
	Premiums receivable, net					434,067				299,286				849,089
	Amounts receivable under government contracts					223,160				229,227				193,043
	Other receivables					459,090				367,135				183,795
	Deferred taxes					62,983				55,529				81,293
	Assets held for sale					50,000				50,000				—
	Other assets					501,200				348,240				259,878
Total current assets						4,858,837				4,888,199				3,839,138
Property and equipment, net						80,816				84,095				209,385
Goodwill						558,886				558,886				565,886
Other intangible assets, net						10,415				11,119				13,229
Deferred taxes						43,588				42,449				9,530
Investments - available for sale - noncurrent						6,544				6,328				652
Other noncurrent assets						300,572				288,954				139,205
Total Assets						$	5,859,658			$	5,880,030			$	4,777,025
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
	Reserves for claims and other settlements					$	1,757,939			$	1,913,778			$	1,488,322
	Health care and other costs payable under government contracts					75,092				80,831				94,195
	Unearned premiums					190,021				160,597				130,905
	Accounts payable and other liabilities					1,168,014				1,180,454				496,349
Total current liabilities						3,191,066				3,335,660				2,209,771
Senior notes payable						399,607				399,556				399,402
Deferred taxes						—				—				22,376
Borrowings under revolving credit facility						210,000				195,000				100,000
Other noncurrent liabilities						346,915				290,714				223,595
Total Liabilities						4,147,588				4,220,930				2,955,144
Stockholders' Equity
	Common stock					154				154				152
	Additional paid-in capital					1,481,691				1,465,793				1,406,768
	Treasury common stock, at cost					(2,453,869		)		(2,453,410		)		(2,197,890		)
	Retained earnings					2,697,633				2,639,265				2,613,302
	Accumulated other comprehensive (loss) income					(13,539		)		7,298				(451		)
Total Stockholders' Equity						1,712,070				1,659,100				1,821,881
Total Liabilities and Stockholders' Equity						$	5,859,658			$	5,880,030			$	4,777,025
Debt-to-Total Capital Ratio						26.3		%		26.4		%		21.5		%

Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
					Quarter Ended				Quarter Ended				Quarter Ended
					June 30,				March 31,				June 30,
					2015				2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)					$	58,368			$	29,988			$	120,867
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Amortization and depreciation					4,202				4,307				9,641
Share-based compensation expense					7,067				6,668				6,536
Deferred income taxes					2,691				(12,735		)		(14,653		)
Excess tax benefits from share-based compensation					(1,653		)		(3,537		)		(357		)
Asset impairment					—				1,884				—
Net realized gain on sale on investments					(1,564		)		(605		)		(1,928		)
Other changes					12,296				8,210				6,364
Changes in assets and liabilities:
Premiums receivable and unearned premiums					(105,357		)		717,140				(395,553		)
Other current assets, receivables and noncurrent assets					(128,040		)		(187,633		)		(69,421		)
Amounts receivable/payable under government contracts					2,439				(48,831		)		(492		)
Reserves for claims and other settlements					(155,839		)		17,743				336,364
Accounts payable and other liabilities					45,115				328,019				(11,118		)
Net cash (used in) provided by operating activities					(260,275		)		860,618				(13,750		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments					447,939				93,476				125,751
Maturities of investments					24,393				29,061				19,210
Purchases of investments					(517,529		)		(796,719		)		(102,873		)
Purchases of property and equipment					(19,108		)		(9,221		)		(12,519		)
Sales and purchases of restricted investments and other					1,258				(6,898		)		(2,777		)
Net cash (used in) provided by investing activities					(63,047		)		(690,301		)		26,792
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock purchases					6,860				9,691				2,726
Repurchases of common stock					(298		)		(111,680		)		(1,226		)
Excess tax benefits from share-based compensation					1,653				3,537				357
Borrowings under financing arrangements					95,000				130,000				—
Repayment of borrowings under financing arrangements					(80,000		)		(35,000		)		—
Net increase (decrease) in checks outstanding, net of deposits					8,230				—				(713		)
Customer funds administered					30,321				(17,645		)		(148,113		)
Net cash provided by (used in) financing activities					61,766				(21,097		)		(146,969		)
Net (decrease) increase in cash and cash equivalents					(261,556		)		149,220				(133,927		)
Cash and cash equivalents, beginning of period					1,018,353				869,133				737,024
Cash and cash equivalents, end of period					$	756,797			$	1,018,353			$	603,097

Health Net, Inc.
SEGMENT INFORMATION
($ in thousands, except per share and PMPM data)
The following table presents Health Net's operating segment information.
						Quarter Ended June 30, 2015																Quarter Ended March 31, 2015																Quarter Ended June 30, 2014
						Western Region				Government				Corporate/								Western Region				Government				Corporate/								Western Region				Government				Corporate/
						Operations1				Contracts2				Other3				Consolidated				Operations1				Contracts2				Other4				Consolidated				Operations1				Contracts2				Other5				Consolidated
		Commercial premiums				$	1,412,920											$	1,412,920			$	1,332,994											$	1,332,994			$	1,377,460											$	1,377,460
		Medicare premiums				782,412												782,412				768,885												768,885				757,194												757,194
		Medicaid premiums				1,673,083												1,673,083				1,471,354												1,471,354				1,121,912												1,121,912
		Dual Eligibles premiums				135,017												135,017				147,567												147,567				5,312												5,312
		Health plan services premiums				4,003,432												4,003,432				3,720,800												3,720,800				3,261,878												3,261,878
		Government contracts								141,055								141,055								154,714								154,714								154,083								154,083
		Net investment income				16,424												16,424				13,241												13,241				12,043												12,043
		Administrative services fees and other income				2,712												2,712				1,141												1,141				(6,612		)										(6,612		)
		Total revenues				4,022,568				141,055								4,163,623				3,735,182				154,714								3,889,896				3,267,309				154,083								3,421,392
		Health plan services				3,363,742												3,363,742				3,142,863												3,142,863				2,763,179												2,763,179
		Government contracts								137,248				14				137,262								141,687				853				142,540								132,634				574				133,208
		Premium tax				67,954												67,954				58,417												58,417				31,930												31,930
		Health insurer fee				58,500												58,500				57,820												57,820				37,844												37,844
		Other ACA fees				21,495												21,495				20,817												20,817				22,546												22,546
		Administrative expenses				274,610								26,154				300,764				272,514								44,280				316,794				249,665								2,749				252,414
		Total general and administrative				422,559								26,154				448,713				409,568								44,280				453,848				341,985								2,749				344,734
		Selling				69,190												69,190				68,696												68,696				64,002												64,002
		Depreciation and amortization				3,958								244				4,202				4,000								307				4,307				9,641												9,641
		Interest				8,412												8,412				8,049												8,049				7,826												7,826
		Asset impairment												—				—												1,884				1,884																—
		Total expenses				3,867,861				137,248				26,412				4,031,521				3,633,176				141,687				47,324				3,822,187				3,186,633				132,634				3,323				3,322,590
		Income (loss) from operations before income taxes				154,707				3,807				(26,412		)		132,102				102,006				13,027				(47,324		)		67,709				80,676				21,449				(3,323		)		98,802
		Income tax provision (benefit)				82,300				1,587				(10,153		)		73,734				51,361				5,406				(19,046		)		37,721				42,874				8,942				(73,881		)		(22,065		)
		Income (loss) from operations				$	72,407			$	2,220			$	(16,259	)		$	58,368			$	50,645			$	7,621			$	(28,278	)		$	29,988			$	37,802			$	12,507			$	70,558			$	120,867
		Basic earnings (loss) per share				$	0.94			$	0.03			$	(0.21	)		$	0.76			$	0.66			$	0.10			$	(0.37	)		$	0.39			$	0.47			$	0.16			$	0.88			$	1.51
		Diluted earnings (loss) per share				$	0.92			$	0.03			$	(0.21	)		$	0.75			$	0.64			$	0.10			$	(0.37	)		$	0.38			$	0.47			$	0.15			$	0.87			$	1.49
		Basic weighted average shares outstanding				77,172				77,172				77,172				77,172				77,085				77,085				77,085				77,085				80,250				80,250				80,250				80,250
		Diluted weighted average shares outstanding				78,157				78,157				77,172				78,157				78,370				78,370				77,085				78,370				81,218				81,218				81,218				81,218
		Pretax margin				3.8		%														2.7		%														2.5		%
		Western Region Operations premium yield				8.0		%														6.9		%														10.8		%
		Western Region Operations premium PMPM				$	414.68															$	396.69															$	384.03
		Western Region Operations health care cost trend				7.1		%														8.3		%														10.5		%
		Western Region Operations health care cost PMPM				$	348.42															$	335.08															$	325.32
		Western Region operations health plan services MCR				84.0		%														84.5		%														84.7		%
		Administrative expense ratio				6.9		%														7.3		%														7.7		%
		Total G&A expense ratio				10.5		%														11.0		%														10.5		%
		Selling costs ratio				1.7		%														1.8		%														2.0		%
(1	)	Includes the operations of the company's commercial, Medicare, Medicaid and Dual Eligibles health plans in California, Arizona, Oregon and Washington, as well as the operations of the company's health and life insurance companies, primarily in Arizona, California, Oregon and Washington, and the operations of the company's behavioral health and pharmaceutical services subsidiaries in several states including California, Arizona and Oregon.
(2	)	Includes administrative services provided under the T-3 Managed Care Support Contract for the TRICARE North Region and other health care-related Department of Defense and Veterans Affairs government contracts.
(3	)	Primarily includes costs related to the company's transaction with Cognizant. Also includes severance expenses.
(4	)	Primarily includes costs related to the company's transaction with Cognizant and related asset impairment. Also includes severance expenses.
(5	)	Includes $72.6 million income tax benefit. Also includes severance expense.

Health Net, Inc.
Disclosures Regarding Non-GAAP Financial Information
($ in millions)
Set forth below is a reconciliation of adjusted days claims payable (DCP), a non-GAAP financial measure, to the comparable GAAP financial measure, DCP. DCP is calculated by dividing the amount of reserve for claims and other settlements (claims reserve) by health plan services cost (health plan costs) during the quarter and multiplying that amount by the number of days in the quarter. In this press release, management presents an adjusted DCP metric which subtracts capitation and Medicare Advantage-Prescription Drug (MAPD) payables/costs from the claims reserve and health plan costs.
Management believes that adjusted DCP provides useful information to investors because the adjusted DCP calculation excludes from both claims reserve and health plan costs amounts related to health care costs for which no or minimal reserves are maintained. Therefore, management believes that adjusted DCP may present a more accurate reflection of DCP than does GAAP DCP, which includes such amounts. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.
You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating the adjusted amounts, you should be aware that we have incurred expenses that are the same as or similar to some of the adjustments in the current presentation and we may incur them again in the future.
Our presentation of the adjusted amounts should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.
Reconciliation of Days Claims Payable:											Q2 2015				Q1 2015				Q2 2014
(1	)	Reserve for Claims and Other Settlements - GAAP									$	1,757.9			$	1,913.8			$	1,488.3
		Less: Capitation and MAPD Payables									(374.4		)		(509.3		)		(351.7		)
(2	)	Reserve for Claims and Other Settlements - Adjusted									$	1,383.5			$	1,404.5			$	1,136.6
(3	)	Health Plan Services Cost - GAAP									$	3,363.7			$	3,142.9			$	2,763.2
		Less: Capitation and MAPD Costs									(1,233.0		)		(1,237.3		)		(1,156.0		)
(4	)	Health Plan Services Cost - Adjusted									$	2,130.7			$	1,905.6			$	1,607.2
(5	)	Number of Days in Period									91				90				91
= (1) / (3) * (5) Days Claims Payable - GAAP Basis (using end of period reserve amount)											47.6				54.8				49.0
= (2) / (4) * (5) Days Claims Payable - Adjusted Basis (using end of period reserve amount)											59.1				66.3				64.4

Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
($ in millions)
			Health Plan Services
			YTD 6/2015			YTD 3/2015			FY 2014			FY 2013
Reserve for claims (a), beginning of period			$	1,186.3		$	1,186.3		$	807.4		$	808.7
Incurred claims related to:
	Current Year (f)		3,133.3			1,477.2			5,613.0			4,666.0
	Prior Years (c)		(99.6		)	(85.3		)	(14.6		)	(56.2		)
Total Incurred (b)			3,033.7			1,391.9			5,598.4			4,609.8
Paid claims related to:
	Current Year		2,034.1			601.6			4,443.2			3,872.5
	Prior Years		981.0			861.7			776.3			738.6
Total Paid (b)			3,015.1			1,463.3			5,219.5			4,611.1
Reserve for claims (a), end of period			1,204.9			1,114.9			1,186.3			807.4
Add:
Claims Payable (d)			100.4			131.9			175.4			67.0
Other (e)			452.6			667.0			534.3			109.7
Reserves for claims and other settlements, end of period			$	1,757.9		$	1,913.8		$	1,896.0		$	984.1
(a)	Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss adjustment expenses.
(b)	Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are not included.
(c)	This line represents the change in reserves attributable to the difference between the original estimate of incurred claims for prior years and the revised estimate. Negative amounts in this line represent favorable development in estimated prior years' health care costs. Positive amounts in this line represent unfavorable development in estimated prior years' health care costs. The favorable developments related to prior years do not directly correspond to an increase in our operating results because any favorable prior period reserve development increases current period net income only to the extent that the current period provision for adverse deviation (see footnote (f)) is less than the benefit recognized from the prior period favorable development. The favorable development related to prior years that was recorded in the six months ended June 30, 2015 consisted of $23.0 million in favorable prior year development primarily due to the growth of the new Medicaid expansion population in 2014 and a release of $76.7 million of the provision for adverse deviation held at December 31, 2014. For a detailed description of reserve development for the first quarter ended March 31, 2015, see Note 2 to the Consolidated Financial Statements in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and for fiscal years 2014 and 2013, see Note 2 to the Consolidated Financial Statements in the company's Annual Report on Form 10-K for the year ended December 31, 2014.
(d)	Includes amount accrued for litigation and regulatory-related expenses.
(e)	Includes accrued capitation, shared risk settlements, provider incentives and other reserve items.
(f)	Our IBNR estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. Such amounts were $79.4 million, $73.5 million, $77.7 million and $53.4 million as of June 30, 2015, March 31, 2015, December 31, 2014, and December 31, 2013, respectively.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150804005649/en/

Health Net, Inc.
Investors:
Peter O’Neill, 818-676-8692
[email protected]
or
Media:
Brad Kieffer, 818-676-6833
[email protected]

Source: Health Net, Inc.

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