Health Net Shifts Management as Profit Slows

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Health Net Inc. on Tuesday reported third-quarter net income came in well below expectations in part due to higher medical costs. The health insurer also cut its full-year outlook.

The Woodland Hills health insurer reported net income of $18.5 million (17 cents per share), compared with a net loss of $104 million (-93 cents) a year ago when financials were hurt by charges for legal settlements. This year’s third quarter was affected by charges for severance payments and expenses related to a cost-cutting plan, plus impairments in investment holdings hurt by this year’s stock market turmoil.

Excluding the charges, earnings were 35 cents per share. The average expectation of analysts, who also exclude charges, was 88 cents.

Total health plan enrollment at the end of the quarter was 3.7 million members, down 4,000 people from a year ago. It also was 35,000 members lower than at the end of the second quarter of the year, a deeper drop than usual.

“Our business and the market as a whole have been hit harder by the economy,” Chief Executive Jay Gellert said in a statement. “We are now assuming that these trends will continue into 2009.”

Health Net lowered its full-year earnings forecast, excluding items, to $1.85 to $1.89 per share, down from an earlier $2.85 to $2.95.

The company also announced changes to the duties of its top executives.

Health Net’s board said separately that it directed Gellert to focus on the company’s strategy, while Chief Operating Officer James Woys will assume responsibility for all operational matters. Stephen Lynch, president of the health plan division, plans to retire at the end of February and will report to Woys until then.

“Health Net’s board is very concerned about the company’s recent financial performance,” Chairman Roger Greaves said in a statement. “We believe that by refocusing management resources, we can address our challenges with greater intensity.”

Health Net shares fell $3.25 to $10.21 in morning trading on the New York Stock Exchange.

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