Health Net Earnings Up 32% Over Year Ago

Health Net Inc., a leading managed-care company in California, on Thursday reported robust earnings growth for the third quarter as it continued to cull unprofitable accounts and benefit from strong premium increases.

Like other health insurers, Woodland Hills-based Health Net kept its premium increases at or ahead of medical cost trends and pursued an aggressive strategy of getting out of risky markets and lines of business.

Health Net’s membership declined about 5% from a year ago, to 3.8 million nationwide, about two-thirds in California. Its Medicare HMO rolls dropped 19% in the last year, and the company cut in half its exposure in Arizona.

At the same time, Health Net boosted its HMO enrollment in Medicaid -- the government insurance for the poor and the disabled -- which has been profitable.

Health Net’s third-quarter earnings were $69 million, or 55 cents a share. That compares with a profit of $2.3 million, or 2 cents a share, in the same quarter a year ago, when the company took special charges of $79 million, mostly for a restructuring that included a cut of 1,500 employees. Excluding special items, Health Net said its third-quarter earnings were up 32% from a year earlier.

Revenue for the quarter was $2.58 billion, about the same as a year ago.

The company said it expected earnings of $2.10 to $2.12 per share for all of this year and $2.42 to $2.47 for 2003. Those projections are in line with previous analyst consensus estimates.

David Olson, a Health Net spokesman, said the company’s premium increases across the country will average 12.5% next year -- about as much as expected health costs.

In the third quarter, Health Net benefited from a surprisingly big drop in the medical cost ratio, the amount spent for health services divided by the premium collected. But that isn’t expected to continue.

Health Net released its earnings after the close of markets Thursday. Its shares were off 44 cents at $25.80 on the New York Stock Exchange.