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Health Net (HNT)
Q4 2013 Earnings Call
February 11, 2014 11:00 am ET
Angie McCabe - Vice President of Investor Relations
Jay M. Gellert - Chief Executive Officer, President and Director
David H. Windley - Jefferies LLC, Research Division
Kevin M. Fischbeck - BofA Merrill Lynch, Research Division
Michael A. Newshel - JP Morgan Chase & Co, Research Division
Bo Brandt - Goldman Sachs Group Inc., Research Division
Joshua R. Raskin - Barclays Capital, Research Division
Sarah James - Wedbush Securities Inc., Research Division
Ana Gupte - Leerink Swann LLC, Research Division
Carl R. McDonald - Citigroup Inc, Research Division
Christine Arnold - Cowen and Company, LLC, Research Division
Good morning, everyone, and welcome to this Health Net, Inc. Fourth Quarter and Year End 2013 Conference Call. Today's call is being recorded.
At this time, I would like to turn the call over to Angie McCabe, Vice President of Investor Relations. Please go ahead.
Thank you, Ginger, and thank you all for joining us for a discussion of Health Net's fourth quarter and full year 2013 results.
Previous Statements by HNT
» Health Net Management Discusses Q3 2013 Results - Earnings Call Transcript
» Health Net, Inc. Discusses Q3 2013 Results (Webcast)
» Health Net, Inc. (HNT) Management Discusses Q2 2013 Results - Earnings Call Transcript
In today's call, we will refer to adjusted days claims payable. This adjusted metric is not being presented in accordance with generally accepted accounting principles or GAAP. Please refer to today's press release, which is available on the company's website, for a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure, days claims payable.
I will now turn the call over to Jay Gellert, Health Net CEO.
Jay M. Gellert
Good morning. I want to begin by briefly reviewing our 2013 accomplishments and how, particularly in the fourth quarter, they set us up for 2014 and for 2015, when our new businesses will be fully operational.
As we entered '13, we focused on 3 key issues. One, improving margins in our commercial book of business; two, achieving improved rates and greater stability in our Medicaid business; and three, meeting our financial performance goals in '13 without recording any adverse prior year reserve development.
In addition, we knew we had to make necessary investments to prepare for the exchanges, Medicaid expansion and the duals. I'm happy to report that I believe we've achieved all our goals, driving significant improvement in '13 compared with '12.
Going into '13, we focused a great deal of effort on changes to our commercial book of business. As evidence of our success, the year-over-year commercial MCR improved by 320 basis points, and the gross margin per member per month increased 32.4%. These achievements were the direct result of our tailored network products strategy and disciplined pricing across the board.
The Medicaid MCR in 2013 also improved substantially compared with '12. Most of the improvement is a result of favorable rate actions, the reinstatement of California Medicaid premium taxes and the State Settlement Agreement. Going forward, we received annual rate increases for both the TANF and SPD populations, some of which took effect on October 1, 2013, and others on January 1, 2014.
It's clear from these developments that our State Settlement Agreement is working as intended, strengthening state programs for us and for the state. We recorded no adverse prior year reserve development in '13.
Consistent with our expectations, we ended '13 with approximately $209 million in cash and investments at the parent, and a low 23.5% debt-to-total capital ratio, which provides us with ample capital flexibility as we enter '14.
Finally, our G&A was higher in '13, as expected, driven by the investments we made to prepare for the exchanges, duals and Medicaid expansion, and as we continue to pursue a resolution to the scale issues we've identified.
We made it our top priority, particularly in the fourth quarter, to do what it took to get off to a clean start in '14, and that really paid off. As of yesterday, we enrolled approximately 315,000 new members, ACA related, approximately 165,000 through the exchanges and 150,000 from Medicaid expansion. Approximately 85% of our exchange enrollees who signed for 1/1/14 have paid their premiums, and approximately 70% of enrollees signed for February 1, '14 have already paid.
Medicare enrollment as of 1/1/14 was higher than expected from both new sale and retentions. We expect further growth from the exchanges throughout the first quarter of '14.
Taken together, this represents a strong enrollment start to '14, as we gradually ramp up to an expected 600,000 total new members by year end. Fourth quarter '13 results were affected by these transitions in a number of relatively minor ways.
As you know, California did not extend canceled individual policies. As a result, the commercial MCR in the fourth quarter of '14 (sic) ['13] was 40 basis points higher than the guidance we gave at the end of the third quarter. The higher MCR was due to a higher utilization in noninpatient areas, mostly among members who left us on December 31, '13.
In the fourth quarter, we spent approximately $4 million more than expected to support the onboarding of the better-than-expected exchange Medicaid and Medicare enrollment. The higher fourth quarter G&A was partially offset by a lower tax rate. $6 million of other income reflects the ACA reimbursement adjustment for Medicaid primary care services and related G&A. This was anticipated. This Medicaid adjustment and related G&A will continue throughout 2014.