Health Net Reports Adjusted1 Fourth Quarter 2009 Net Income of $72.4 Million, or $0.69 Per Diluted Share

Health Net, Inc. (NYSE: HNT) today announced a fourth quarter 2009 net loss of $45.2 million, or $0.43 per share compared with fourth quarter 2008 net income of $35.5 million, or $0.34 per diluted share. Adjusted¹ net income in the fourth quarter of 2009 was $72.4 million, or $0.69 per diluted share, compared with fourth quarter 2008 adjusted¹ net income of $63.1 million, or $0.61 per diluted share.

The fourth quarter 2009 results include the effect of two pretax charges:

1. $137.3 million in charges related to the Northeast businesses – $105.9 million for the loss on the sale of the Northeast businesses and $4.3 million in impairments on assets held for sale, both of which are noncash charges, as well as $27.0 million in cash charges, primarily for legal and regulatory costs, and fees and severance related to the Northeast sale; and
2. $15.3 million in cash charges related to the company’s operations strategy and other expenses.

For the full year 2009, Health Net reported a net loss of $49.0 million, or $0.47 per share compared with full year 2008 net income of $95.0 million, or $0.88 per diluted share. Adjusted¹ net income for the full year 2009 was $235.1 million, or $2.25 per diluted share compared with adjusted¹ net income for the full year 2008 of $199.1 million, or $1.85 per diluted share.

Fourth Quarter and Full-Year 2009 Key Highlights:

1. The company completed the sale of its Northeast businesses on December 11, 2009, and received $350 million in cash at closing;
2. The company’s pretax margin on an adjusted¹ basis improved 70 basis points to 3.3 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008, and 30 basis points year-over-year;
3. Cost-effective, narrow network commercial products in California grew 14 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008; and
4. The company resumed its share repurchase program in December 2009, and has repurchased more than 2.7 million shares at an average price of $24.74, for a total cost of $67.3 million through January 29, 2010.

"We are pleased with our fourth quarter and full-year 2009 results,” said Jay Gellert, president and chief executive officer of Health Net, Inc. "We completed our strategic review and closed the sale of the Northeast businesses. Also, as expected, our Medicare Advantage and Part D businesses returned to a solid level of performance after a difficult 2008.”

"We believe we are well-positioned to attract customers seeking value in these challenging economic times with our low-cost, narrow network products. We continue to believe that we can achieve our 2010 full-year earnings guidance,” continued Gellert.

"We are very pleased with our operating performance in 2009, especially in light of a challenging environment,” said James Woys, Health Net’s chief operating officer. "For example, commercial health care costs in the fourth quarter were adversely affected by higher utilization related to both the H1N1 flu and COBRA. Excluding these two effects, the commercial medical care ratio in the Western health plans improved both quarter-over-quarter and year-over-year.”

"Our balance sheet is solid, and the cash we received at the close of the Northeast sale gave us ample resources to resume our share repurchase program in December,” said Joseph Capezza, Health Net’s chief financial officer.

CONSOLIDATED RESULTS

Due to the sale of Health Net’s Northeast businesses on December 11, 2009, the company’s consolidated results exclude the results of Northeast businesses after that date through December 31, 2009.

Membership: Total health plan enrollment in the company’s Western health plans was 3.0 million at December 31, 2009 compared with 3.1 million at December 31, 2008 and 3.0 million at September 30, 2009. The year-over-year decrease in membership is primarily due to higher unemployment as a result of economic pressures.

Total commercial risk enrollment at December 31, 2009 declined by 34,000 members, or 2.3 percent, from September 30, 2009. The Western region health plans produced commercial risk new sales of 35,000 members in the fourth quarter, with more than 9,400 of these new members in California’s low-cost, narrow network products.

Enrollment in the company’s Medicare Advantage plans at December 31, 2009 increased 2.3 percent to 227,000 members from December 31, 2008. Membership in the company’s Medicare Part D plans decreased by 5.5 percent to 460,000 members at December 31, 2009 compared with December 31, 2008.

Medi-Cal enrollment on December 31, 2009 was 857,000 members, an increase of 92,000 members, or 12.0 percent, from December 31, 2008. Sequentially, Medi-Cal membership increased 1.9 percent, or 16,000 members, from September 30, 2009. Both the year-over-year and the sequential increases were the result of the economic downturn that caused the Medicaid-eligible population to increase.

Revenues: Health Net’s total revenues in the fourth quarter of 2009 were $3.8 billion. Total revenues in the fourth quarter of 2008 were $3.9 billion. Health plan services revenues were $3.0 billion in the fourth quarter of 2009 and $3.1 billion in the fourth quarter of 2008.

Government contracts revenues were $754.8 million in the fourth quarter of 2009 compared with $751.6 million in the fourth quarter of 2008.

Medical Care Ratios (MCR): The health plan services MCR in the fourth quarter of 2009 increased 50 basis points to 85.8 percent from 85.3 percent in the fourth quarter of 2008.

The full-year 2009 health plan services MCR was 86.3 percent compared to 86.9 percent for the full year 2008.

The commercial MCR was 86.2 percent in the fourth quarter of 2009 compared with 84.1 percent in the fourth quarter of 2008. The majority of the MCR deterioration was due to higher than expected health care costs in the company’s Northeast businesses.

The commercial MCR in the company’s Western health plans was 86.4 percent in the fourth quarter of 2009 compared with 85.6 percent in the fourth quarter of 2008. For the full year of 2009, the Western health plan commercial MCR was 86.8 percent, while in 2008 it was 86.7 percent. The H1N1 flu and COBRA-related utilization impacted the Western health plan commercial MCR by 95 basis points in the fourth quarter of 2009 and by 55 basis points for the full year 2009.

Health Net’s Medicare Advantage and Part D plans continued to perform consistent with the company’s expectations in the fourth quarter of 2009 and for the full year of 2009.

The Government contracts ratio in the fourth quarter of 2009 was 93.2 percent compared with 95.6 percent in the fourth quarter of 2008 and 94.4 percent in the third quarter of 2009. The Government contracts ratio for the full year of 2009 was 94.6 percent compared with 95.3 percent for the full year of 2008. The improvement in the Government contracts ratio was due to an increase in volume in the company’s Military and Family Life Consultant (MFLC) contract and moderating health care cost trends.

Commercial Premium Yield and Health Care Cost Trends: Commercial premium yields per member per month (PMPM) increased by 6.1 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. Total commercial health care costs PMPM increased 8.6 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008.

For the full year 2009, commercial premium yields PMPM increased 7.6 percent. Including the impact of $4.8 million in favorable litigation reserve true-ups recorded in the second and third quarters of 2009, health care costs PMPM increased 7.8 percent. Excluding the impact of the favorable litigation reserve true-up, commercial health care costs PMPM increased by 8.4 percent.

The commercial premium yield PMPM for the Western health plans increased 8.5 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. Commercial health care costs PMPM for the Western health plans increased 9.5 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. For the full year 2009, commercial premium yields PMPM in the Western health plans increased 9.2 percent while commercial health care costs PMPM increased 9.4 percent in the Western health plans and included the negative impact of H1N1 and COBRA-related utilization.

General & Administrative (G&A) Expenses: G&A expense was $359.0 million in the fourth quarter of 2009 compared with $347.1 million in the fourth quarter of 2008 and $319.5 million in the third quarter of 2009. On an adjusted¹ basis, G&A expense was $299.7 million in the fourth quarter of 2009 compared with $293.6 million in the fourth quarter of 2008 and $300.0 million in the third quarter of 2009.

Operating Cash Flow: Operating cash flow was $153.2 million in the fourth quarter of 2009. For the full year 2009, operating cash flow was $247.5 million. The full year amount was less than the company expected due to the following items:

1. The delay of a $45 million payment from the California Department of Health Services for Medi-Cal. The payment was received in January 2010;
2. A $16 million net increase in the Government contracts receivable due to payment timing issues; and
3. $10 million in legal costs and settlements not included in the company’s cash flow guidance.

Balance Sheet Items: Due to the sale of the Northeast businesses, the 2009 balance sheet amounts exclude the Northeast. Cash and investments at December 31, 2009 were approximately $2.1 billion compared with $1.8 billion at September 30, 2009 and $2.2 billion at December 31, 2008. Reserves for claims and other settlements as of December 31, 2009 were $951.7 million compared with $951.8 million at September 30, 2009 and $1.3 billion at December 31, 2008.

The company’s debt-to-total capital ratio was 26.2 percent on December 31, 2009 compared with 25.8 percent on September 30, 2009 and 27.9 percent on December 31, 2008.

Days Claims Payable (DCP): DCP for the fourth quarter of 2009 was 38.6 days compared with 41.0 days in the third quarter of 2009. On a reported basis, days claims payable was calculated using year-end reserves that exclude the Northeast businesses compared to health plan expenses that include expenses related to the Northeast businesses through December 11, 2009. Excluding the fourth quarter Northeast health plan expenses, DCP would have been higher by 1.0 day sequentially.

On an adjusted² basis, DCP in the fourth quarter of 2009 was 55.7 days compared with 55.4 days in the third quarter of 2009. Adjusted² DCP was calculated by excluding the Northeast fourth quarter 2009 health plan expenses, provider and other claims settlements and charges, capitation payments and Medicare and Part D expenses from health plan expenses.

2010 Guidance:

					METRIC				2010 GUIDANCE
					Year-end membership				Health Plan enrollment vs. 2009: flat
					Consolidated revenues				$13.0 billion to $13.5 billion
					Investment income				~ $62 million to $68 million
					Tax rate(a)				~ 39%
					Weighted-average diluted shares outstanding				103 million to 104 million (previously 104 million to 105 million)
					GAAP EPS Non-GAAP EPS(a)				$1.92 to $2.02 (previously $1.90 to $2.00) $2.32 to $2.42 (previously $2.30 to $2.40)

					(a) Excludes approximately $69 million in pretax charges, of which approximately $53 million are related to the wind-down of the company’s Northeast businesses and approximately $16 million are related to the company’s operations strategy. Health Net currently expects these charges to impact general & administrative expenses.

Conference Call: As previously announced, Health Net will discuss the company’s fourth quarter and year-end 2009 results during a conference call on Wednesday, February 3, 2010, beginning at approximately 11:00 a.m. Eastern time. The conference call should be accessed at least 15 minutes prior to its start with the following numbers:

					866.393.1637 (Domestic)						800.642.1687 (Replay – Domestic)
					706.643.5711 (International)						706.645.9291 (Replay – International)

An access code is required for both the live conference call and the replay. The access code is 46847009. A replay of the conference call will be available through 12:00 a.m. Eastern time on February 8, 2010. A live webcast and replay of the conference call also will be available at www.healthnet.com under "Investor Relations.” The conference call webcast is open to all interested parties. Anyone listening to the company’s conference call will be presumed to have read Health Net’s Annual Report on Form 10-K for the year ended December 31, 2008, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009, and other reports filed by the company from time to time with the Securities and Exchange Commission.

About Health Net: Health Net, Inc. is among the nation’s largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company’s health plans and government contracts subsidiaries provide health benefits to approximately 6.1 million individuals across the country through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net’s behavioral health subsidiary, MHN, provides mental health benefits to approximately 6.5 million individuals in all 50 states. The company’s subsidiaries also offer managed health care products related to prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs.

For more information on Health Net, Inc., please visit the company’s Web site at www.healthnet.com.

Cautionary Statements: All statements in this press release, other than statements of historical information provided herein, may be deemed to be forward-looking statements and as such are subject to a number of risks and uncertainties. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, statements including the words "believes,” "anticipates,” "plans,” "expects,” "may,” "should,” "could,” "estimate,” "intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, costs, fees and expenses related to the post-closing administrative services to be provided under the administrative services agreements entered into in connection with the sale of our Northeast business; potential termination of the administrative services agreements by the service recipients should we breach such agreements or fail to perform all or a material part of the services required thereunder; any liabilities of the Northeast business that were incurred prior to the closing of its sale as well as those liabilities incurred through the winding-up and running-out period of the Northeast business; potential termination of our TRICARE North operations; rising health care costs; a continued decline in the economy; negative prior period claims reserve developments; investment portfolio impairment charges; volatility in the financial markets; trends in medical care ratios; unexpected utilization patterns or unexpectedly severe or widespread illnesses; membership declines; rate cuts affecting our Medicare or Medicaid businesses; litigation costs; regulatory issues; operational issues; health care reform; and general business and market conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the "Risk Factors” section included within the company’s most recent Annual Report on Form 10-K, subsequent quarterly reports on Form 10-Q, and the risks discussed in the company’s other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.

The financial information presented in this press release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the company’s Form 10-K for the year ended December 31, 2009.

¹ Adjusted numbers are non-GAAP financial measures. Detailed explanations of the non-GAAP financial measures referred to in the press release and reconciliations to the comparable GAAP measures are included in the attached financial tables.

² See footnote (a) in the Notes to Consolidated Financial Statements in the financial schedules attached to this press release for a reconciliation of this information to the comparable GAAP financial measure.

Health Net, Inc.
Enrollment Data - By State
(In thousands)
										Change from
										September 30, 2009				December 31, 2008
				Dec 31,		Sept 30,		Dec 31,		Increase/		%		Increase/		%
				2009		2009		2008		(Decrease)		Change		(Decrease)		Change
California
	Large Group			870		888		938		(18	)	(2.0	)%	(68	)	(7.2	)%
	Small Group and Individual			357		365		414		(8	)	(2.2	)%	(57	)	(13.8	)%
	Commercial Risk			1,227		1,253		1,352		(26	)	(2.1	)%	(125	)	(9.2	)%
	ASO			5		5		5		0		0.0	%	0		0.0	%
	Total Commercial			1,232		1,258		1,357		(26	)	(2.1	)%	(125	)	(9.2	)%
	Medicare Advantage			137		136		133		1		0.7	%	4		3.0	%
	Medi-Cal			857		841		765		16		1.9	%	92		12.0	%
		Total California		2,226		2,235		2,255		(9	)	(0.4	)%	(29	)	(1.3	)%
Arizona
	Large Group			59		59		77		0		0.0	%	(18	)	(23.4	)%
	Small Group and Individual			37		38		46		(1	)	(2.6	)%	(9	)	(19.6	)%
	Commercial Risk			96		97		123		(1	)	(1.0	)%	(27	)	(22.0	)%
	Medicare Advantage			65		65		67		0		0.0	%	(2	)	(3.0	)%
		Total Arizona		161		162		190		(1	)	(0.6	)%	(29	)	(15.3	)%
Oregon
	Large Group			72		78		93		(6	)	(7.7	)%	(21	)	(22.6	)%
	Small Group and Individual			46		47		40		(1	)	(2.1	)%	6		15.0	%
	Commercial Risk			118		125		133		(7	)	(5.6	)%	(15	)	(11.3	)%
	Medicare Advantage			25		24		22		1		4.2	%	3		13.6	%
		Total Oregon		143		149		155		(6	)	(4.0	)%	(12	)	(7.7	)%
Total Health Plan Enrollment
	Large Group			1,001		1,025		1,108		(24	)	(2.3	)%	(107	)	(9.7	)%
	Small Group and Individual			440		450		500		(10	)	(2.2	)%	(60	)	(12.0	)%
	Commercial Risk			1,441		1,475		1,608		(34	)	(2.3	)%	(167	)	(10.4	)%
	ASO			5		5		5		0		0.0	%	0		0.0	%
	Total Commercial			1,446		1,480		1,613		(34	)	(2.3	)%	(167	)	(10.4	)%
	Medicare Advantage			227		225		222		2		0.9	%	5		2.3	%
	Medicare PDP (stand-alone)			460		453		487		7		1.5	%	(27	)	(5.5	)%
	Medi-Cal/Medicaid			857		841		765		16		1.9	%	92		12.0	%
				2,990		2,999		3,087		(9	)	(0.3	)%	(97	)	(3.1	)%
	All Other States			28		599		633		(571	)	(95.3	)%	(605	)	(95.6	)%
				3,018		3,598		3,720		(580	)	(16.1	)%	(702	)	(18.9	)%
TRICARE - North Contract Eligibles				3,067		3,040		3,004		27		0.9	%	63		2.1	%

Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
									Change from
									September 30, 2009				December 31, 2008
				Dec 31,	Sept 30,		Dec 31,		Increase/		%		Increase/		%
				2009	2009		2008		(Decrease)		Change		(Decrease)		Change
Large Group
	California			870	888		938		(18	)	(2.0	)%	(68	)	(7.2	)%
	Arizona			59	59		77		0		0.0	%	(18	)	(23.4	)%
	Oregon			72	78		93		(6	)	(7.7	)%	(21	)	(22.6	)%
				1,001	1,025		1,108		(24	)	(2.3	)%	(107	)	(9.7	)%
Small Group and Individual
	California			357	365		414		(8	)	(2.2	)%	(57	)	(13.8	)%
	Arizona			37	38		46		(1	)	(2.6	)%	(9	)	(19.6	)%
	Oregon			46	47		40		(1	)	(2.1	)%	6		15.0	%
				440	450		500		(10	)	(2.2	)%	(60	)	(12.0	)%
Commercial Risk
	California			1,227	1,253		1,352		(26	)	(2.1	)%	(125	)	(9.2	)%
	Arizona			96	97		123		(1	)	(1.0	)%	(27	)	(22.0	)%
	Oregon			118	125		133		(7	)	(5.6	)%	(15	)	(11.3	)%
				1,441	1,475		1,608		(34	)	(2.3	)%	(167	)	(10.4	)%
ASO				5	5		5		0		0.0	%	0		0.0	%
Total Commercial
	California			1,232	1,258		1,357		(26	)	(2.1	)%	(125	)	(9.2	)%
	Arizona			96	97		123		(1	)	(1.0	)%	(27	)	(22.0	)%
	Oregon			118	125		133		(7	)	(5.6	)%	(15	)	(11.3	)%
				1,446	1,480		1,613		(34	)	(2.3	)%	(167	)	(10.4	)%
Medicare Advantage
	California			137	136		133		1		0.7	%	4		3.0	%
	Arizona			65	65		67		0		0.0	%	(2	)	(3.0	)%
	Oregon			25	24		22		1		4.2	%	3		13.6	%
				227	225		222		2		0.9	%	5		2.3	%
Medi-Cal/Medicaid
	California			857	841		765		16		1.9	%	92		12.0	%
Total Health Plan Enrollment
	Large Group			1,001	1,025		1,108		(24	)	(2.3	)%	(107	)	(9.7	)%
	Small Group and Individual			440	450		500		(10	)	(2.2	)%	(60	)	(12.0	)%
	Commercial Risk			1,441	1,475		1,608		(34	)	(2.3	)%	(167	)	(10.4	)%
	ASO			5	5		5		0		0.0	%	0		0.0	%
	Total Commercial			1,446	1,480		1,613		(34	)	(2.3	)%	(167	)	(10.4	)%
	Medicare Advantage			227	225		222		2		0.9	%	5		2.3	%
	Medicare PDP (stand-alone)			460	453		487		7		1.5	%	(27	)	(5.5	)%
	Medi-Cal/Medicaid			857	841		765		16		1.9	%	92		12.0	%
				2,990	2,999		3,087		(9	)	(0.3	)%	(97	)	(3.1	)%
		All Other States		28	599		633		(571	)	(95.3	)%	(605	)	(95.6	)%
				3,018	3,598		3,720		(580	)	(16.1	)%	(702	)	(18.9	)%
TRICARE - North Contract Eligibles				3,067	3,040		3,004		27		0.9	%	63		2.1	%

Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share, PMPM and ratio data)
						Quarter Ended				Year Ended				Quarter Ended				Quarter Ended				Year Ended
						December 31,				December 31,				September 30,				December 31,				December 31,
REVENUES:							2008				2008				2009				2009				2009
	Health plan services premiums					$	3,082,133				12,392,006			$	3,166,877			$	2,981,678			$	12,440,589
	Government contracts						751,604				2,835,261				758,507				754,766				3,104,700
	Net investment income						24,536				91,042				27,691				33,486				105,930
	Administrative services fees and other income						11,209				48,280				15,578				28,165				62,022
							3,869,482				15,366,589				3,968,653				3,798,095				15,713,241
EXPENSES:
	Health plan services						2,629,398				10,762,657				2,734,984				2,557,149				10,731,951
	Government contracts						718,893				2,702,573				716,323				703,721				2,936,090
	General and administrative						347,128				1,291,059				319,451				359,039				1,365,586
	Selling						92,314				360,381				83,275				84,068				330,112
	Depreciation and amortization						17,271				59,878				12,689				8,605				53,044
	Interest						10,523				42,909				10,264				9,538				40,887
	Asset impairments						-				-				170,570				4,309				174,879
	Loss on sale of businesses						-				-				-				105,931				105,931
							3,815,527				15,219,457				4,047,556				3,832,360				15,738,480
Income (loss) from operations before income taxes							53,955				147,132				(78,903	)			(34,265	)			(25,239	)
Income tax provision (benefit)							18,420				52,129				(12,881	)			10,892				23,765
Net income (loss)						$	35,535			$	95,003			$	(66,022	)		$	(45,157	)		$	(49,004	)
Basic earnings (loss) per share						$	0.34			$	0.89			$	(0.64	)		$	(0.43	)		$	(0.47	)
Diluted earnings (loss) per share						$	0.34			$	0.88			$	(0.64	)		$	(0.43	)		$	(0.47	)
Weighted average shares outstanding:
	Basic						103,694				106,532				103,873				103,902				103,849
	Diluted						104,063				107,610				103,873				103,902				103,849
Pretax margin							1.4	%			1.0	%			-2.0	%			-0.9	%			-0.2	%
Health plan services MCR							85.3	%			86.9	%			86.4	%			85.8	%			86.3	%
Government contracts cost ratio							95.6	%			95.3	%			94.4	%			93.2	%			94.6	%
G&A expense ratio							11.2	%			10.4	%			10.0	%			11.9	%			10.9	%
Selling costs ratio							3.0	%			2.9	%			2.6	%			2.8	%			2.7	%
Days claims payable (a)							47.0				44.9				41.0				38.6				38.9
Days claims payable - adjusted (a)							59.9				56.5				55.4				55.7				57.7
Effective tax rate							34.1	%			35.4	%			16.3	%			-31.8	%			-94.2	%
Health plan services premiums PMPM						$	279.47			$	277.79			$	296.16			$	289.15			$	294.12
Health plan services costs PMPM						$	238.42			$	241.27			$	255.77			$	247.90			$	253.71

Health Net, Inc.
Reconciliation of Non-GAAP Financial Measures
Operating Results Excluding Charges
(Amounts in thousands, except per share, PMPM and ratio data)
			This table presents the company's consolidated operations for the periods presented below and the charges recorded in the consolidated statement of operations for such periods. Information for the quarter and year-ended December 31, 2009 also includes the financial impact from the December 11, 2009 sale of our Northeast health plans. Management believes that the presentation of certain financial information in the attached press release, excluding the charges that were recorded and excluding the impact from the divestiture of our Northeast health plans, all of which is non-GAAP financial information, is important to investors as it excludes special items that are not indicative of our core operating results. Non-GAAP financial information presented below should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.
						Quarter Ended December 31, 2008												Year Ended December 31, 2008											Quarter Ended September 30, 2009												Quarter Ended December 31, 2009															Year Ended December 31, 2009
																																																				Excluding Impact of Charges and Divestiture4,5 (Non-GAAP)																Excluding Impact of Charge and Divestiture5,6 (Non-GAAP)
														Excluding Impact of Charge1 (Non-GAAP)												Excluding Impact of Charges2 (Non-GAAP)											Excluding Impact of Charge3 (Non-GAAP)
										Impact of Charge1												Impact of Charges2											Impact of Charge3												Impact of Charges4			Divested Operations5													Impact of Charge6			Divested Operations5
						As Reported												As Reported											As Reported												As Reported																As Reported
REVENUES:
	Health plan services premiums					$	3,082,133							$	3,082,133			$	12,392,006							$	12,392,006		$	3,166,877							$	3,166,877			$	2,981,678						$	5,483			$	2,976,195				$	12,440,589						$	5,483			$	12,435,106
	Government contracts						751,604								751,604				2,835,261								2,835,261			758,507								758,507				754,766											754,766					3,104,700											3,104,700
	Net investment income						24,536								24,536				91,042				(14,642	)			105,684			27,691								27,691				33,486							1,126				32,360					105,930							1,126				104,804
	Administrative services fees and other income						11,209								11,209				48,280				(3,400	)			51,680			15,578								15,578				28,165							15,113				13,052					62,022							15,113				46,909
							3,869,482				-				3,869,482				15,366,589				(18,042	)			15,384,631			3,968,653				-				3,968,653				3,798,095				-			21,722				3,776,373					15,713,241				-			21,722				15,691,519
EXPENSES:
	Health plan services						2,629,398				(5,700	)			2,635,098				10,762,657				37,496				10,725,161			2,734,984				(571	)			2,735,555				2,557,149							5,508				2,551,641					10,731,951				(4,805	)		5,508				10,731,248
	Government contracts						718,893								718,893				2,702,573								2,702,573			716,323								716,323				703,721				3,632							700,089					2,936,090				3,632							2,932,458
	General and administrative						347,128				53,535				293,593				1,291,059				119,540				1,171,519			319,451				19,495				299,956				359,039				38,723			20,588				299,728					1,365,586				124,799			20,588				1,220,199
	Selling						92,314								92,314				360,381								360,381			83,275								83,275				84,068							249				83,819					330,112							249				329,863
	Depreciation and amortization						17,271								17,271				59,878								59,878			12,689								12,689				8,605							589				8,016					53,044							589				52,455
	Interest						10,523								10,523				42,909								42,909			10,264								10,264				9,538											9,538					40,887											40,887
	Asset impairments						-								-				-								-			170,570				170,570				-				4,309				4,309							-					174,879				174,879							-
	Loss on sale of businesses						-								-				-								-			-								-				105,931				105,931							-					105,931				105,931							-
							3,815,527				47,835				3,767,692				15,219,457				157,036				15,062,421			4,047,556				189,494				3,858,062				3,832,360				152,595			26,934				3,652,831					15,738,480				404,436			26,934				15,307,110
Income (loss) from operations before income taxes							53,955				(47,835	)			101,790				147,132				(175,078	)			322,210			(78,903	)			(189,494	)			110,591				(34,265	)			(152,595	)		(5,212	)			123,542					(25,239	)			(404,436	)		(5,212	)			384,409
Income tax provision (benefit)							18,420				(20,227	)			38,647				52,129				(70,951	)			123,080			(12,881	)			(53,890	)			41,009				10,892				(38,149	)		(2,059	)			51,100					23,765				(123,533	)		(2,059	)			149,357
Net income (loss)						$	35,535			$	(27,608	)		$	63,143			$	95,003			$	(104,127	)		$	199,130		$	(66,022	)		$	(135,604	)		$	69,582			$	(45,157	)		$	(114,446	)	$	(3,153	)		$	72,442				$	(49,004	)		$	(280,903	)	$	(3,153	)		$	235,052
Basic earnings (loss) per share						$	0.34							$	0.61			$	0.89							$	1.87		$	(0.64	)						$	0.67			$	(0.43	)									$	0.70				$	(0.47	)									$	2.26
Diluted earnings (loss) per share						$	0.34							$	0.61			$	0.88							$	1.85		$	(0.64	)						$	0.67			$	(0.43	)									$	0.69				$	(0.47	)									$	2.25
Weighted average shares outstanding:
	Basic						103,694								103,694				106,532								106,532			103,873								103,873				103,902											103,902					103,849											103,849
	Diluted						104,063								104,063				107,610								107,610			103,873								104,432				103,902											104,626					103,849											104,412
Pretax margin							1.4	%							2.6	%			1.0	%							2.1	%		-2.0	%							2.8	%			-0.9	%										3.3	%				-0.2	%										2.4	%
Health plan services MCR							85.3	%							85.5	%			86.9	%							86.5	%		86.4	%							86.4	%			85.8	%										85.7	%				86.3	%										86.3	%
Government contracts cost ratio							95.6	%							95.6	%			95.3	%							95.3	%		94.4	%							94.4	%			93.2	%										92.8	%				94.6	%										94.5	%
G&A expense ratio							11.2	%							9.5	%			10.4	%							9.4	%		10.0	%							9.4	%			11.9	%										10.0	%				10.9	%										9.8	%
Selling costs ratio							3.0	%							3.0	%			2.9	%							2.9	%		2.6	%							2.6	%			2.8	%										2.8	%				2.7	%										2.7	%
Effective tax rate							34.1	%							38.0	%			35.4	%							38.2	%		16.3	%							37.1	%			-31.8	%										41.4	%				-94.2	%										38.9	%
1		Includes a $5.7 million pretax benefit for a litigation reserve true-up included in health plan services expenses and a $53.5 million pretax charge primarily for severance and other expenses related to the company's operations strategy and included in G&A.
2		Includes a $175.1 million pretax charge in total of which:
		(a) $119.6 million was primarily related to severance and other expenses associated with the company's operations strategy and included in G&A expenses
		(b) $37.5 million was included in health plan services expenses for estimated litigation liability and regulatory actions for the company's rescission practices in Arizona and California and for the execution of the settlement agreement for the McCoy, et al., lawsuits
		(c) $14.6 million investment impairment charge taken in the third quarter of 2008 and included in net investment income
		(d) $3.4 million pretax charge related to the estimated loss on the sale of the assets of a subsidiary taken in the first quarter of 2008 and included in other income
3		Includes a $0.6 million pretax benefit for a litigation reserve true-up included in health care costs, a $19.5 million pretax charge primarily for IT systems and other expenses related to the company's operations strategy and included in G&A expenses and a $170.6 million pretax asset impairment charge for goodwill, intangible and IT-related assets related to the sale of our Northeast health plans.
4		Includes a $3.6 million charge for TRICARE contract procurement costs included in government contracts expenses and a $38.7 million operations strategy charge and Northeast divestiture related expenses, each of which are included in G&A expenses, and an asset impairment and loss on the sale of Northeast health plans recorded in 2009.
5		Represents revenues and expenses related to the run-off of the Northeast health plans divested on December 11, 2009.
6		Includes a $4.8 million pretax benefit for a litigation reserve true-up included in health care costs, $3.6 million charge for TRICARE contract procurement costs included in government contracts expenses, and $124.8 million of operations strategy and Northeast sale related expenses included in G&A expenses, and an asset impairment and loss on the sale of Northeast health plans recorded in 2009.

Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
						December 31,		September 30,			December 31,
						2008			2009			2009
ASSETS
Current Assets
	Cash and cash equivalents				$	668,201		$	463,311		$	682,803
	Investments - available for sale					1,504,658			1,309,864			1,376,142
	Premiums receivable, net					307,529			307,488			288,719
	Amounts receivable under government contracts					241,269			224,495			270,810
	Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract
						302,022			323,207			281,140
	Other receivables					254,026			183,258			111,608
	Deferred taxes					87,712			101,043			46,527
	Assets held for sale					-			848,601			-
	Other assets					179,649			195,799			187,086
Total current assets						3,545,066			3,957,066			3,244,835
Property and equipment, net						202,356			136,819			131,480
Goodwill, net						751,949			611,886			611,886
Other intangible assets, net						91,289			29,478			28,108
Deferred taxes						81,771			44,119			89,479
Investments - available for sale- noncurrent						-			11,435			20,870
Other noncurrent assets						143,919			103,093			155,993
Total Assets					$	4,816,350		$	4,893,896		$	4,282,651
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
	Reserves for claims and other settlements				$	1,338,149		$	951,778		$	951,655
	Health care and other costs payable under government contracts					69,876			61,037			90,815
	IBNR health care costs payable under TRICARE North contract					302,022			323,207			281,140
	Unearned premiums					180,548			124,828			135,772
	Borrowings under amortizing financing facility					27,335			119,915			104,007
	Liabilities held for sale					-			355,530			-
	Accounts payable and other liabilities					294,840			529,740			366,125
Total current liabilities						2,212,770			2,466,035			1,929,514
Senior notes payable						398,276			398,429			398,480
Borrowings under amortizing financing facility						103,992			-			-
Borrowings under revolving credit facility						150,000			100,000			100,000
Other noncurrent liabilities						199,186			154,087			158,874
Total Liabilities						3,064,224			3,118,551			2,586,868
Stockholders' Equity
	Common stock					144			144			154
	Additional paid-in capital					1,182,067			1,184,761			1,190,203
	Treasury common stock, at cost					(1,367,319	)		(1,368,854	)		(1,389,722	)
	Retained earnings					1,944,100			1,940,253			1,895,096
	Accumulated other comprehensive (loss) income					(6,866	)		19,041			52
Total Stockholders' Equity						1,752,126			1,775,345			1,695,783
Total Liabilities and Stockholders' Equity					$	4,816,350		$	4,893,896		$	4,282,651
Debt-to-Total Capital Ratio						27.9	%		25.8	%		26.2	%

Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
					Fourth Quarter				Third Quarter				Fourth Quarter
					Ended				Ended				Ended
					December 31,				September 30,				December 31,
					2008				2009				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)					$	35,535			$	(66,022	)		$	(45,157	)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Amortization and depreciation						17,271				12,689				8,605
Share-based compensation						1,294				(5,025	)			4,914
Deferred income taxes						(11,942	)			(45,976	)			52,629
Excess tax benefits from share-based compensation						-				-				(23	)
Loss on sale of business						-				-				105,931
Asset and investment impairment charges						27,895				170,570				4,309
Other changes						(671	)			(5,362	)			(11,688	)
Changes in assets and liabilities, net of the effects of dispositions:
Premiums receivable and unearned premiums						(29,008	)			48,341				27,352
Other current assets, receivables and noncurrent assets						(110,750	)			(30,470	)			90,372
Amounts receivable/payable under government contracts						7,166				39,123				(16,537	)
Reserves for claims and other settlements						(10,532	)			(48,570	)			(19,533	)
Accounts payable and other liabilities						20,164				85,055				(48,002	)
Net cash (used in) provided by operating activities						(53,578	)			154,353				153,172
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments						514,047				465,732				680,676
Maturities of investments						62,117				37,355				48,194
Purchases of investments						(218,258	)			(520,733	)			(689,740	)
Proceeds from sale of property and equipment						-				12				-
Purchases of property and equipment						(12,911	)			(8,018	)			(7,461	)
Net cash impact from sale of businesses						-				-				(173,422	)
Sales and purchases of restricted investments and other						4,220				6,558				(924	)
Net cash provided by (used in) investing activities						349,215				(19,094	)			(142,677	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock purchases						-				485				869
Repurchases of common stock						(17	)			(29	)			(12,615	)
Excess tax benefits from share-based compensation						-				-				23
Borrowings under financing arrangements						175,000				-				55,000
Repayment of borrowings under financing arrangements						(142,540	)			-				(72,540	)
Net cash provided by (used in) financing activities						32,443				456				(29,263	)
Net increase (decrease) in cash and cash equivalents						328,080				135,715				(18,768	)
Net change in cash and cash equivalents classified as assets held for sale						-				(238,260	)			238,260
Cash and cash equivalents, beginning of period						340,121				565,856				463,311
Cash and cash equivalents, end of period					$	668,201			$	463,311			$	682,803

Health Net, Inc.
Notes to Consolidated Financial Statements
Notes:
(a)	Management believes that days claims payable (adjusting for divested businesses, capitation, provider and other claim settlements and Medicare Part D), a non-GAAP financial measure, provides useful information to investors because, in excluding those health care costs for which no or minimal reserves are maintained, it is a more accurate reflection of days claims payable calculated from claims-based reserves than is days claims payable, which does not exclude such costs. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. The following table provides a reconciliation of the differences between days claims payable (adjusting for divested businesses, capitation, provider and other claim settlements and Medicare Part D) and days claims payable, the most directly comparable financial measure calculated and presented in accordance with GAAP:
										Q3 2009				Q4 2009				FY 2009
														(Dollars in millions)
				Reserve for Claims and Other Settlements						$	1,195.0			$	951.7			$	951.7
				Less: Reserve for Claims and Other Settlements for Divested Businesses							(243.2	)			-				-
				Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D							(159.2	)			(198.0	)			(198.0	)
				Reserve for Claims and Other Settlements - Adjusted							792.6				753.7				753.7
	(1	)		Average Reserve for Claims and Other Settlements							1,219.3				1,073.4				1,144.9
	(2	)		Average Reserve for Claims and Other Settlements - Adjusted							788.1				773.2				808.9
	(3	)		Health Plan Services Cost							2,735.0				2,557.1				10,732.0
				Less: Health Plan Services Cost for Divested Businesses							(589.9	)			(460.7	)			(2,176.6	)
				Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D							(837.3	)			(818.4	)			(3,438.9	)
	(4	)		Health Plan Services Cost - Adjusted							1,307.8				1,278.0				5,116.5
	(5	)		Number of Days in Period							92				92				365
	= (1) / (3) * (5) Days Claims Payable										41.0				38.6				38.9
	= (2) / (4) * (5) Days Claims Payable - Adjusted										55.4				55.7				57.7

Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In millions)
		Health Plan Services
		Year 2009				Year 2008				Year 2007
Reserve for claims (a), beginning of period		$	957.1			$	838.7			$	754.2
Incurred claims related to:
Current Year			6,422.8				6,372.2				5,790.7
Prior Years (c)			(80.0	)			(8.3	)			0.6
Total Incurred (b)			6,342.8				6,363.9				5,791.3
Paid claims related to:
Current Year			5,572.2				5,443.2				4,972.3
Prior Years			857.8				802.3				734.5
Total Paid (b)			6,430.0				6,245.5				5,706.8
Less: Divested businesses			(177.7	)			-				-
Reserve for claims (a), end of period			692.2				957.1				838.7
Add:
Claims Payable (d)			165.6				284.8				365.6
Other (e)			93.9				96.2				96.1
Reserves for claims and other settlements, end of period		$	951.7			$	1,338.1			$	1,300.4
(a) Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss adjustment expenses.
(b) Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are not included.
(c) This line represents the change in reserves attributable to the difference between the original estimate of incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been no changes in the approach used to determine the key actuarial assumptions, which are the completion factor and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and generally accepted accounting principles. The majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred services because these are the services for which the fewest claims have been paid. The majority of the adjustments to reserves relate to variables and uncertainties associated with actuarial assumptions. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services. Revised estimates for prior years are determined in each quarter based on the most recent updates of paid claims for prior years.
(d) Includes amount accrued for litigation and regulatory-related expenses.
(e) Includes accrued capitation, shared risk settlements, provider incentives and other reserve items.