Health Net Reports 37% Profit Increase

Health Net Inc., one of California’s largest health insurers, reported Monday a 37% increase in first-quarter profit, fueled in part by lower-than-expected medical costs and a boost in revenue from a military health program.

The Woodland Hills-based company said net income rose to $68.2 million, or 57 cents a share, from $49.8 million, or 40 cents, a year earlier.

The results encouraged Health Net executives to raise their profit projections to $2.56 to $2.60 a share for the year, above its previous forecast of $2.48 to $2.52.

Analysts had been predicting profit of $2.51 a share for Health Net in 2003.

Revenue increased by 10% in the latest quarter to $2.7 billion, up from $2.5 billion a year earlier.

Despite the growth, Health Net “did not see as much upside for the first quarter ... as many other managed-care companies did,” wrote William McKeever, an analyst with UBS Warburg in New York, after the company’s earnings conference call.

One of Health Net’s most important contracts involves health plans it sells to the U.S. armed forces through the Pentagon’s Tricare program.

When reservists are called up for active duty their dependents can sign up for Tricare, the federal government’s health insurance program for military families. Because of the war in Iraq there was a call-up of reservists, which increased Health Net’s Tricare enrollment.

Health Net also benefited because some military dependents no longer were able to get their medical care on bases because military doctors and nurses were called to duty in the Persian Gulf.

When that happened, military dependents received more expensive, off-base private care through doctors who have contracts with Health Net, and the company has a built-in profit margin for that care.

As a result, Health Net’s Tricare revenue rose 29% in the first quarter to $435.6 million.

“Tricare is a strong business for the company,” said Scott Fidel, an analyst with J.P. Morgan in New York.

“We are going to see increased Tricare activity because of increased defense spending and manpower needs,” he said.

Health Net provides medical care to 5.3 million patients through various programs in 15 states.

Health Net shares rose $1.02 to $27.50 on the New York Stock Exchange.