Health Net reports profit down 71%, new deal with California

Health Net Inc. on Monday said its third-quarter net income plunged 71% as it kept shedding unprofitable employer business and preparing to enroll more Medicaid and Medicare patients.

The Woodland Hills health insurer reported net income of $18 million, or 22 cents a share, compared to $61.8 million, or 70 cents a share, for the same period a year ago. Revenue for the quarter ended Sept. 30 rose 3.3% to $2.78 billion from the third quarter of last year.

Health Net also said it reached a wide-ranging agreement with the California Department of Health Care Services to resolve prior litigation over rates in certain government health programs.

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As part of that agreement, Health Net said, the state will extend four existing Medi-Cal contracts by five years and limit the company’s potential losses as new government programs get underway next year. Medi-Cal is the state’s Medicaid program for the poor and disabled.

“The early stages of these programs can produce volatile and unpredictable financial results,” said Jay Gellert, Health Net’s chief executive, on a conference call with analysts and investors. “We are poised for Medicaid growth with downside protection.”

Health Net’s shares rose $3.20, or 14%, to $25.88 in midday trading Monday.

The company’s commercial business continued to shrink. Employer and individual enrollment decreased by 9.5% to 1.3 million in the third quarter compared to a year earlier. In contrast, Medicaid enrollment went up 8.2% to 1.1 million for the same period.

The company said it continued to see strong interest in its narrow network plans, which offer businesses lower premiums in exchange for a more limited number of hospitals and doctors.

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