Health Net Has a Robust Fourth Quarter

Health Net Inc., one of California’s biggest health insurers, said Wednesday that fourth-quarter profit rose 24% as it attracted customers with lower-cost health plans.

Net income rose to $46.2 million, or 37 cents a share, from $37.4 million, or 31 cents, a year earlier, the company said. Revenue rose 7.1% to $2.4 billion from $2.2 billion.

Woodland Hills-based Health Net raised premiums faster than medical costs increased and controlled administrative expenses. It said it added 125,000 customers in the quarter, mostly in its less-expensive employer plans popular with businesses trying to save money on health-care costs.

“I think you see a slower economy and employers saying, ‘How do we cut costs?’ � said Joshua Raskin, a Lehman Bros. analyst. “It works to Health Net’s advantage.�

Health Net’s earnings matched the 37-cent average estimate of analysts surveyed by First Call/Thomson Financial.

Its shares fell $1.20 on Wednesday to close at $20.40 on the New York Stock Exchange.

Health Net will benefit if the U.S. economic slowdown continues because it can offer health plans that cost employers less than other types of coverage, Chief Executive Jay Gellert said. A slowdown also would cut health-care labor costs, Gellert said.

“We believe that the changing economic conditions are, if anything, affirmative to our industry and our company,� he told analysts and investors in a conference call.

Health maintenance organizations such as Health Net’s cost 15% to 30% less than preferred provider organizations, or PPOs, in some markets, the company said.

Gellert said Health Net also can raise its co-payments and deductibles if costs rise because they are currently lower than those of its competitors.

Health Net, which changed its name from Foundation Health Systems Inc. in November, said it expects 2001 earnings of $1.55 to $1.58 a share and quarterly earnings growth of 17% to 20% from year-ago periods.

The company said it expects health plan revenue to grow in the low double digits this year on higher premiums and continued growth in enrollment.

It expects modest growth from government contracts and specialty businesses, which include pharmacy, dental, psychiatric and claims-processing services, the company said.

Health Net said premium revenue rose 9.5% for its health plans in the quarter. It expects to increase premiums about 10% this year, the company said, and has raised premiums 19% in Arizona, where costs have risen faster than premiums.

The company said the medical-loss ratio for its health plans--the portion of every premium dollar that pays for medical care--fell to 84% from 84.2% a year ago.

It said administrative costs rose in the quarter, though they fell as a percentage of revenue to 15.8% from 16.4%.

At a Glance

Other Southern California earnings, excluding one-time gains and charges unless noted:

* Manhattan Beach-based footwear retailer Skechers USA Inc. said fourth-quarter net income rose to $9.7 million, or 26 cents a share, compared with $2.9 million, or 8 cents, a year earlier. Sales jumped 72% to $172 million.

* Woodland Hills-based Syncor International Corp., a provider of medical imaging and nuclear pharmacy services, reported fourth-quarter net income of $6.7 million, or 24 cents a share, compared with $4.6 million, or 18 cents a share, a year ago. Revenue rose 27% to $170.6 million.

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Healthy HMO

Shares of Health Net have more than doubled in the last 14 months. The HMO has gained customers by offering employers lower-cost health plans.

Health Net monthly closes and latest on the New York Stock Exchange

Wednesday: $20.40, down $1.20

Source: Bloomberg News