Health Net’s Profit Falls 95% on Severance Charge
Health Net Inc., one of California’s biggest health insurers, said Friday that net income fell 95% in the third quarter as it took a charge for restructuring and cutting more than 1,500 jobs.
The company said that excluding the charges, earnings rose 20% to 42 cents a share, matching the average estimate of analysts surveyed by Thomson Financial/First Call.
Net income fell to $2.3 million, or 2 cents a share, from $44.6 million, or 36 cents a share, a year earlier, the company said. Revenue rose 11% to $2.54 billion from $2.29billion.
Health Net took a $79.7-million pretax charge for severance benefits and other costs related to cutting more than 1,500 jobs, or 15% of its work force. The company said most of the job cuts already have occurred; others will come over the next quarters. Some of the cuts are related to the July sale of a money-losing Florida operation.
“This company was built through a series of mergers and acquisitions,” Chief Executive Jay Gellert told investors in a conference call. “That’s led us to conclude that in many places we just have too many people.”
Shares of the Woodland Hills-based company fell $2.98, or 13%, to $19.20 on the New York Stock Exchange.
Health Net expects earnings of 44 cents a share in the fourth quarter and 2002 earnings of $1.83 a share, both in line with estimates.
The insurer, which also has customers in the Northeast, has raised premiums faster than medical costs increased and has controlled administrative costs. Health Net has said its health plans may be attractive as health-care costs rise because the plans offer lower premiums than some rivals.
In the quarter, medical costs fell to 85.2 cents of each premium dollar from 85.3 cents a year earlier, the company said. Medical costs rose 5.1% per member a month for employer health plans and less for Medicare and Medicaid plans.
The company said enrollment rose 11% for health plans in markets where it will remain. Health Net added 250,000 customers in individual and small-group plans in California, 80,000 in New Jersey and 18,000 in New York since the year-earlier period.
