Health Net Inc. (HNT)

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Health Net, Inc. (HNT)

Citi 2013 Global Healthcare Conference

February 25, 2013 11:05 am ET

Executives

Jay M. Gellert - Chief Executive Officer, President and Director

Analysts

Carl R. McDonald - Citigroup Inc, Research Division

Presentation

Carl R. McDonald - Citigroup Inc, Research Division

Thank you for joining us. We have Jay Gellert, CEO of Health Net, here today. And I guess to start Medicare, of course, the topic of the week.

Question-and-Answer Session

Carl R. McDonald - Citigroup Inc, Research Division

So maybe before we get into the specific details, maybe it is best to just start with sort of how you think the impact might be different for you given the California-focused capitation relative to some of the other plans in the industry?

Jay M. Gellert

Our view is that if there's no change from the 45-day rule that we could retain our present performance with about $30 of either reduced benefits or increased premiums and the pass through of the insurer fees. So since the capitation arrangements we have cushioned us from some of the additional risk that those things would allow us to kind of go forward given our present structure. We think that will hurt members. We think it will hurt members throughout the country. We don't think this is a good thing, but I think that's kind of the way we look at it.

Carl R. McDonald - Citigroup Inc, Research Division

Right. So maybe you could walk through some of the details and in terms of what you think the rate cut will like to you, and then some of the offset...

Jay M. Gellert

Yes.

Carl R. McDonald - Citigroup Inc, Research Division

To get to that sort of limited impact?

Jay M. Gellert

Well, for us, probably about half of the rate cut is mitigated by our existing percent of premium and contract structure. And so that's the most significant effect we have. Some other changes that are already in place for next year is in terms of some provider relationships and some other structural changes that we foresee. So we'll pick up a significant portion of the hit but it will be, I think in many ways, unique to the circumstances under which we operate. We also -- so, and a lot of it, in our view, is that the result that the market will hit other people in probably a more profound way not necessarily in California but we kind of think some of -- for example, the not-for-profit providers may actually have a more profound effect because they have a fixed cost structure like the Kaiser. And so they have a -- even a more direct effect when you have something like this happen than we, because we have percent of premium and other kind of structures with our provider groups.

Carl R. McDonald - Citigroup Inc, Research Division

Let me go back to the first comment you said. So if there's no change you can maintain with $30 in cost shifting to the beneficiaries and then, you said on the -- was that inclusive of industry tax or the industry tax is something else...

Jay M. Gellert

Yes, yes, yes. So we need to offset the industry -- that's push the industry's tax through plus that.

Carl R. McDonald - Citigroup Inc, Research Division

Plus that, okay. And it sounds like you think you can make do with the $30 shift in cost, what's your take in terms of that whole controversy around total beneficiary cost sharing? What's the maximum you think you could push through if you needed to?

Jay M. Gellert

Well, for us, and some -- many of our markets are 0 premium with some significant benefits. There's probably more push-through opportunity before you hit the wall of it not being competitive vis-à-vis fee for service. In the rest of the country though, I think that there's less of that. I also think that the beneficiary detriment is really significant. I think that the -- that there are a lot of people who would be very badly hurt. A lot of people who will have some significant economic stress if they have to -- if they have to compensate for this on the member side. So I think that -- I think we have a way to approach it because there's some unique circumstances, but I don't think that people should believe that this will be a good thing for seniors.

Carl R. McDonald - Citigroup Inc, Research Division

And as you go through the common period with CMS, what are the areas that you're going to be most focused on and where you could potentially get an improvement?

Jay M. Gellert

Well, honest to goodness. I have not focused that much on the specifics of people are. So I guess I'd just -- what I know is more what I read in terms of the specific kind of period, that hasn't really gotten to me yet. I've been more focused on the kind of overall effect on the business as we look to '14 that I articulated there.

Carl R. McDonald - Citigroup Inc, Research Division

Got it. So just to summarize the comments you're saying, nothing changes, you think your margins are fine...

Jay M. Gellert

Well, I think our margins aren't great presently. So we're not unduly dependent on this. Our story is a different kind of story. We're here in the market where there's more capitation. And so, we think that we can find the sustainable way through this, but that it will have consequences on members that are significant.

Carl R. McDonald - Citigroup Inc, Research Division

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