Health Net 2009 Annual Report Download - page 58

Summary of Operating Results
Year Ended December 31, 2009 compared to Year Ended December 31, 2008
In the year ended December 31, 2009, we reported a net loss of $(49.0) million or $(0.47) per share as
compared to net income of $95.0 million, or $0.88 per diluted share, for the same period in 2008. Pretax margin
was (0.2)% for 2009 compared to 1.0% for 2008. Our operating results for the year ended December 31, 2009
were impacted by $404.4 million pretax expenses as follows:
• $174.9 million in asset impairments on Northeast operations,
• $105.9 loss on sale of our Northeast health plan subsidiaries, and
• $123.6 million charges related to our operations strategy, reductions for a litigation reserve true-up and
Northeast Sale related expenses (the 2009 Charges).
Our 2008 operating results were impacted by pretax charges of $175.1 million (the 2008 Charges), including
the following:
• $119.6 million recorded as part of G&A expenses primarily for severance and other costs associated
with Health Net’s operations strategy. This amount also includes attorney’s fees and regulatory fines
associated with our rescission practices and in connection with the settlement agreement for the
McCoy, Wachtel and Scharfman lawsuits, which were nationwide class actions principally relating to
our out-of-network claims payment practices.
• $37.5 million recorded as part of health plan services expenses for estimated litigation and regulatory
actions related to the Company’s rescission practices in Arizona and California and claim-related
matters in connection with the settlement agreement for the McCoy, Wachtel and Scharfman class
action lawsuits;
• $14.6 million loss recorded as part of net investment income from other-than-temporary impairments in
our available-for-sale investments and money market funds; and
• $3.4 million recorded as part of administrative services fees and other income for an impairment of
assets of a small, non-core subsidiary.
Total health plan enrollment, including Medicare Part D, decreased to 3,018,000 members at December 31,
2009 from 3,720,000 members at December 31, 2008, primarily due to a decline of 600,000 commercial and
ASO members, 85,000 Medicare Part D members and 62,000 Medicare Advantage members, partially offset by
an increase of 45,000 Medicaid members. Our TRICARE membership increased to approximately 3.1 million
beneficiaries at December 31, 2009 from 3.0 million beneficiaries at December 31, 2008, respectively.
Health Net’s total revenues increased 2% in 2009 to $15.7 billion from $15.4 billion in 2008. Health plan
services premium revenues were essentially flat with $12.4 billion in 2009 compared to $12.4 billion in 2008.
Our total premium revenue yield on a PMPM basis was 6% in 2009 compared to 5% in 2008. The health plan
services MCR was 86.3% in 2009 compared to 86.9% in 2008. The MCR for 2009 and 2008 included 4 and 40
basis points, respectively, impact from the charges taken during those periods.
Our Government contracts revenues increased 10% in 2009 to $3.1 billion from $2.8 billion in 2008. The
Government contracts cost ratio decreased to 94.7% in 2009 compared to 95.3% in 2008.
Our G&A expense ratio declined by 50 basis points to 10.9% in 2009 compared to 10.4% in 2008. The
G&A expense ratio for 2009 and 2008 included the impact of 100 basis points and 100 basis points, respectively,
of G&A expenses related to the operations strategy and litigation and regulatory-related charges. Our selling
costs ratio was 2.7% and 2.9% for the years ended December 31, 2009 and 2008, respectively.
56