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Health Net Reports Fourth Quarter 2012 GAAP Net Income of $5.1 Million, or $0.06 Per Diluted Share

  Health Net Reports Fourth Quarter 2012 GAAP Net Income of $5.1 Million, or
  $0.06 Per Diluted Share

 Western Region Operations and Government Contracts Segments Produce Combined
        Net Earnings of $0.36 Per Diluted Share in Fourth Quarter 2012

Business Wire

LOS ANGELES -- January 30, 2013

Health Net, Inc. (NYSE: HNT) today announced 2012 fourth quarter GAAP net
income of $5.1 million, or $0.06 per diluted share, compared with GAAP net
income of $60.2 million, or $0.71 per diluted share, for the fourth quarter of
2011.

The 2011 and 2012 financial results included in this release and the attached
financial tables reflect the treatment of the company’s Medicare stand-alone
Part D (Medicare PDP) business that was sold on April 1, 2012 as discontinued
operations.

The fourth quarter 2012 GAAP results include $20.3 million in Corporate/Other
pretax expenses, primarily driven by:

1.approximately $5.0 million related to the early termination of a medical
    management contract and approximately $5.2 million for severance expenses;
    and
2.approximately $7.1 million in litigation-related expenses.

The company also incurred a $13.8 million pretax loss in the company’s
Divested Operations and Services segment, resulting primarily from a lease
impairment related to the company’s divested Northeast business.

The company’s Western Region Operations (Western Region) and Government
Contracts segments produced combined net income of $29.8 million, or $0.36 per
diluted share, in the fourth quarter of 2012 compared with $60.6 million, or
$0.72 per diluted share, in the fourth quarter of 2011.

For the full year 2012, Health Net reported GAAP net income of approximately
$121.2 million, or $1.46 per diluted share, compared with $72.1 million, or
$0.80 per diluted share, for the full year 2011.

The company’s Western Region and Government Contracts segments produced
combined net income of $85.1 million, or $1.02 per diluted share, for the full
year 2012, and approximately $278.7 million, or $3.09 per diluted share, for
the full year 2011.

“While the first half of 2012 presented us with challenges, our performance in
the second half of 2012 demonstrated stability as we continued to prepare for
2013 and 2014,” said Jay Gellert, Health Net’s chief executive officer.

“We are reiterating our 2013 earnings per diluted share guidance of $2.00 to
$2.10,” commented Gellert. “This guidance includes approximately $30 million
of operating expenses in preparation for health care reform implementation but
excludes any costs related to the company’s expected participation in the
state of California’s duals demonstration.”

CONSOLIDATED RESULTS

Health Net’s total revenues increased 4.4 percent in the fourth quarter of
2012 to $2.8billion from $2.7billion in the fourth quarter of 2011.

Health plan services premium revenues increased by 5.3percent in the fourth
quarter of 2012 to $2.6 billion compared with approximately $2.5 billion in
the fourth quarter of 2011.

Health plan services expenses increased by approximately 8.0 percent in the
fourth quarter of 2012 to $2.3billion compared with $2.1billion in the
fourth quarter of 2011.

WESTERN REGION OPERATIONS SEGMENT

Health Plan Membership

Total enrollment in the Western Region at December 31, 2012 was approximately
2.6 million members, a decrease of approximately 1.1 percent from enrollment
at December 31, 2011.

Total enrollment in the company’s California health plans decreased 1.3
percent from December31, 2011 to December 31, 2012.

Western Region commercial enrollment at December 31, 2012 was 1.2 million
members, a 9.7percent decrease compared with enrollment at December 31, 2011.

“Membership in our commercial tailored network products continues to grow. We
ended the year with approximately 432,000 members in our tailored network
products, representing 35 percent of our Western Region commercial
membership,” said Jim Woys, chief operating officer of Health Net. “We believe
these cost-effective products will play a critical role as health care reform
is implemented.”

Enrollment in the company’s Medicare Advantage plans in the Western Region at
December31, 2012 was 234,000 members, an increase of 14.1 percent compared
with December31, 2011.

Medicaid enrollment in California at December 31, 2012 was approximately 1.1
million members, an increase of 75,000 members, or 7.4percent, from December
31, 2011. This increase was due to both enrollment gains in Medicaid
membership and approximately 34,000 new members from the seniors and persons
with disabilities (SPD) population.

Revenues

Total revenues for the Western Region in the fourth quarter of 2012 were
$2.6billion compared with $2.5 billion in the fourth quarter of 2011.

Net investment income for the Western Region was approximately $19.1 million
in the fourth quarter of 2012 compared with $10.0 million in the fourth
quarter of 2011 and approximately $16.4 million in the third quarter of 2012.

Health Plan Services Expenses

Health plan services expenses in the Western Region were $2.3 billion in the
fourth quarter of 2012 compared with approximately $2.2 billion in the fourth
quarter of 2011.

Commercial Premium Yield and Health Care Cost Trends

In the Western Region, commercial premiums per member per month (PMPM)
increased by 4.3percent to approximately $376 in the fourth quarter of 2012
compared with $360 in the fourth quarter of 2011.

Commercial health care costs PMPM in the Western Region increased by 7.5
percent to approximately $328 in the fourth quarter of 2012 compared with
approximately $306 in the fourth quarter of 2011.

Medical Care Ratios (MCR)

The health plan services MCR in the Western Region was 88.1 percent in the
fourth quarter of 2012 compared with 86.3 percent in the fourth quarter of
2011. The full year 2012 Western Region health plan services MCR was 89.1
percent compared with 86.5 percent for the full year 2011.

The Western Region commercial MCR was 87.4 percent in the fourth quarter of
2012 compared with 84.8percent in the fourth quarter of 2011 and 86.7 percent
in the third quarter of 2012. The full year 2012 Western Region commercial MCR
was 88.6 percent compared with 85.3 percent for the full year 2011.

“The commercial MCR increased 70 basis points sequentially in the fourth
quarter of 2012, primarily due to two factors. First, utilization increased
among members in large group accounts that terminated on December 31, 2012.
This was expected as part of the repositioning of the commercial book,” said
Woys. “Also, risk-sharing adjustments with certain providers impacted the
commercial MCR. These risk-sharing factors are a result of better than
expected performance in our tailored network products throughout 2012.”

The Medicare Advantage (MA) MCR in the Western Region was 88.6 percent in the
fourth quarter of 2012 compared with 90.5 percent in the fourth quarter of
2011. The full year 2012 MA MCR in the Western Region was 89.6 percent
compared with 90.3 percent for the full year 2011.

G&A Expense

G&A expense in the Western Region was $235.2 million in the fourth quarter of
2012 compared with $222.1 million in the fourth quarter of 2011. The G&A
expense ratio was 8.9percent in the fourth quarter of 2012 compared with 8.9
percent in the fourth quarter of 2011 and 8.5 percent in the third quarter of
2012.

“The sequential increase in G&A expenses was primarily due to increased
marketing costs, consistent with our expectations,” commented Woys.

GOVERNMENT CONTRACTS SEGMENT

Government Contracts revenues in the fourth quarter of 2012 were $159.6
million compared with $194.6 million in the fourth quarter of 2011.

Government Contracts expenses in the fourth quarter of 2012 were approximately
$136.6 million compared with $155.6 million in the fourth quarter of 2011.

The decrease in revenues and expenses was primarily due to the new Military
and Family Life Counseling contract that was effective in the fourth quarter
of 2012.

BALANCE SHEET

Cash and investments as of December 31, 2012 were approximately $2.2 billion
compared with approximately $1.8 billion as of December 31,2011.

Reserves for claims and other settlements as of December 31, 2012 were $1.0
billion compared with $912.1 million as of December 31, 2011 and $1.0 billion
as of September 30, 2012.

Days claims payable (DCP) for the fourth quarter of 2012 was 40.7 days
compared with 39.0days in the fourth quarter of 2011 and 41.6 days in the
third quarter of 2012.

On an adjusted^1 basis, DCP in the fourth quarter of 2012 was 58.2 days
compared with 54.1 days in the fourth quarter of 2011 and 57.7 days in the
third quarter of 2012.

The company’s debt-to-total capital ratio was 24.3 percent as of December 31,
2012 compared with 26.2percent as of December 31, 2011 and 24.4 percent as of
September 30, 2012.

CASH FLOW FROM OPERATIONS

Operating cash flow was approximately $33.4 million in the fourth quarter of
2012. For the full year 2012, operating cash flow was $32.5 million.

“Operating cash flow in the quarter was greater than net income plus
depreciation and amortization,” said Joseph Capezza, Health Net’s chief
financial officer. “Full year 2012 operating cash flow would have been greater
than net income plus depreciation and amortization if we excluded the impact
of the sale of our Medicare PDP business. The cash benefit of the transaction
is reflected in Cash Flows from Investing Activities on the Statement of Cash
Flows.

“We expect full year 2013 operating cash flow to be at least equal to our
expectations for net income plus depreciation and amortization,” said Capezza.
“Cash at the parent at December 31, 2012 was approximately $106 million.”

DIVESTED OPERATIONS AND SERVICES SEGMENT

The company’s Divested Operations and Services segment includes items related
to the run-out of the Northeast business and transition-related revenues and
expenses related to the Medicare PDP business that was sold on April 1, 2012.
Health Net continues to provide run-out support services for the Northeast
business pursuant to claims servicing agreements in place with
UnitedHealthcare and its affiliates.

SHARE REPURCHASE UPDATE

For the full year 2012, Health Net repurchased approximately 2.1 million
shares of its common stock for approximately $50.0 million at an average price
of $24.05 per share. At December 31, 2012, approximately $350 million of
authorization under the company’s existing $400 million share repurchase
program remained.

2013 GUIDANCE

The following table has specific 2013 guidance metrics. This guidance includes
the impact of approximately $30 million of operating expenses related to the
implementation of health care reform, but excludes any impact from the
company’s expected participation in the state of California’s duals
demonstration.

Metric                                     2013 Guidance
                                                Commercial: -8% to -9%

                                                Medicaid: +4% to +6%
Year-end membership^(a)(c)                
                                                Medicare Advantage: +1% to +2%

                                                Total health plan membership:
                                                -1% to -2%
Consolidated revenues^(b)                  ~$10.7 billion to $11.2
                                                billion
Commercial premium yields PMPM^(a)(c)      ~ +3.6%
Commercial health care costs               ~350 basis points < premium
PMPM^(a)(c)                                     yields PMPM
Selling cost ratio^(a)                          ~2.3% to 2.4%

                                          

G&A expense ratio^(a)                           ~9.0% to 9.4%
Tax rate^(b)                               38.0% to 39.0%
Weighted-average fully                          
diluted shares outstanding                
                                                ~80 million
Earnings per share                         $2.00 to $2.10

(a)  For the company’s Western Region Operations segment
(b)   For the combined Western Region Operations and Government Contracts
      segments
(c)   These estimates are in comparison to reported 2012 amounts.

CONFERENCE CALL

As previously announced, Health Net will discuss the company’s fourth quarter
and year-end 2012 earnings results during a conference call on Wednesday,
January 30, 2013, 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            (855) 859-2056 (Replay – Domestic
toll-free)                              toll-free)
(706) 643-5711 (International)          (404) 537-3406 (Replay –
                                        International)

The access code for the live conference call and replay is 89643769. A replay
of the conference call will be available through February 4, 2013. 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 December31, 2011, Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2012, June 30, 2012, and September30, 2012, and
other reports filed by the company from time to time with the Securities and
Exchange Commission.

ABOUT HEALTH NET

Health Net, Inc. is a publicly traded managed care organization that delivers
managed health care services through health plans and government-sponsored
managed care plans. Its mission is to help people be healthy, secure and
comfortable. Health Net provides and administers health benefits to
approximately 5.4million individuals across the country through group,
individual, Medicare (including the Medicare prescription drug benefit
commonly referred to as “Part D”), Medicaid, Department of Defense, including
TRICARE, and Veterans Affairs programs. Through its subsidiaries, Health Net
also offers behavioral health, substance abuse and employee assistance
programs, managed health care products related to prescription drugs, 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 Health Net’s website at
www.healthnet.com.

CAUTIONARY STATEMENTS

Health Net, Inc. and its representatives may from time to time make written
and oral forward-looking statements within the meaning of the Private
Securities Litigation Reform Act (“PSLRA”) of 1995, including statements in
this and other press releases, in presentations, filings with the Securities
and Exchange Commission (“SEC”), reports to stockholders and in meetings with
investors and analysts. All statements in this press release, other than
statements of historical information provided herein, including the guidance
for future periods and the assumptions underlying such projections, may be
deemed to be forward-looking statements and as such are intended to be covered
by the safe harbor for “forward-looking statements” provided by PSLRA. These
statements are based on management’s analysis, judgment, belief and
expectation only as of the date hereof, and are subject to changes in
circumstances and a number of risks and uncertainties. Without limiting the
foregoing, the guidance as to expected future period results and statements
including the words “believes,” “anticipates,” “plans,” “expects,” “may,”
“should,” “could,” “estimate,” “intend,” “feels,” “will,” “projects” and other
similar expressions are intended to identify forward-looking statements.
Actual results could differ materially from those expressed in, or implied or
projected by the forward-looking information and statements due to, among
other things, health care reform and other increased government participation
in and regulation of health benefits and managed care operations, including
the ultimate impact of the Affordable Care Act, which could materially
adversely affect Health Net’s financial condition, results of operations and
cash flows through, among other things, reduced revenues, new taxes, expanded
liability, and increased costs (including medical, administrative, technology
or other costs), or require changes to the ways in which HealthNet does
business; rising health care costs; continued slow economic growth or a
further decline in the economy; negative prior period claims reserve
developments; trends in medical care ratios; membership declines; unexpected
utilization patterns or unexpectedly severe or widespread illnesses; rate cuts
and other risks and uncertainties affecting Health Net’s Medicare or Medicaid
businesses; Health Net’s ability to successfully participate in the
dual-eligibles pilot programs; litigation costs; regulatory issues with
federal and state agencies including, but not limited to, the California
Department of Managed Health Care, the Centers for Medicare & Medicaid
Services, the Office of Civil Rights of the U.S. Department of Health and
Human Services and state departments of insurance; operational issues; failure
to effectively oversee our third-party vendors; noncompliance by Health Net or
Health Net’s business associates with any privacy laws or any security breach
involving the misappropriation, loss or other unauthorized use or disclosure
of confidential information; liabilities incurred in connection with Health
Net’s divested operations; impairment of Health Net’s goodwill or other
intangible assets; investment portfolio impairment charges; volatility in the
financial markets; 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 Health Net’s
most recent Annual Report on Form 10-K and subsequent Quarterly Reports on
Form 10-Q filed with the SEC, and the other risks discussed in Health Net’s
filings with the SEC. Readers are cautioned not to place undue reliance on
these forward-looking statements. Except as may be required by law, Health Net
undertakes no obligation to address or publicly update any of its guidance,
the assessment of the underlying assumptions or 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, including as a result of subsequent events or adjustments,
if any, arising prior to the filing of the company’s Annual Report on Form
10-K for the year ended December 31, 2012.

^1 See “Disclosures Regarding Non-GAAP Financial Information” 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, 2012     December 31, 2011
                        December   September   December   Increase/    %          Increase/    %
                        31,        30,         31,
                        2012      2012       2011      (Decrease)  Change    (Decrease)  Change
California
    Large Group         696        714         826        (18    )     (2.5  )%   (130    )    (15.7  )%
    Small Group and     313       307        308       6          2.0   %   5          1.6    %
    Individual
    Commercial Risk     1,009      1,021       1,134      (12    )     (1.2  )%   (125    )    (11.0  )%
    Medicare            145        143         125        2            1.4   %    20           16.0   %
    Advantage
    Medi-Cal           1,084     1,069      1,009     15         1.4   %   75         7.4    %
         Total         2,238     2,233      2,268     5          0.2   %   (30     )   (1.3   )%
         California
                                                                                               
Arizona
    Large Group         82         84          77         (2     )     (2.4  )%   5            6.5    %
    Small Group and     59        59         63        0          0.0   %   (4      )   (6.3   )%
    Individual
    Commercial Risk     141       143        140       (2     )    (1.4  )%  1          0.7    %
    Medicare           43        43         41        0          0.0   %   2          4.9    %
    Advantage
         Total         184       186        181       (2     )    (1.1  )%  3          1.7    %
         Arizona
                                                                                               
Oregon
    Large Group         26         30          50         (4     )     (13.3 )%   (24     )    (48.0  )%
    Small Group and     57        58         42        (1     )    (1.7  )%  15         35.7   %
    Individual
    Commercial Risk     83         88          92         (5     )     (5.7  )%   (9      )    (9.8   )%
    Medicare           46        45         39        1          2.2   %   7          17.9   %
    Advantage
         Total Oregon  129       133        131       (4     )    (3.0  )%  (2      )   (1.5   )%
                                                                                               
                                                                               
Total Health Plan
Enrollment
    Large Group         804        828         953        (24    )     (2.9  )%   (149    )    (15.6  )%
    Small Group and     429       424        413       5          1.2   %   16         3.9    %
    Individual
    Commercial Risk     1,233      1,252       1,366      (19    )     (1.5  )%   (133    )    (9.7   )%
    Medicare            234        231         205        3            1.3   %    29           14.1   %
    Advantage
    Medi-Cal/Medicaid   1,084     1,069      1,009     15         1.4   %   75         7.4    %
    Western Region      2,551      2,552       2,580      (1     )     0.0   %    (29     )    (1.1   )%
    Operations
                                                                                               
    Medicare PDP        0          0           382        0            0.0   %    (382    )    (100.0 )%
    (stand-alone)
                                                                                   
Total                 2,551     2,552      2,962     (1     )    0.0   %   (411    )   (13.9  )%
                                                                                               
                                                                                               
TRICARE - North         2,883     2,884      3,004     (1     )    0.0   %   (121    )   (4.0   )%
Contract Eligibles
                                                                                                      
                                                                                                      

                                                                                       
Health Net, Inc.
Enrollment Data - Line
of Business
(In thousands)
                                                        Change from
                                                         September 30, 2012     December 31, 2011
                       December   September   December   Increase/    %          Increase/    %
                       31,        30,         31,
                       2012      2012       2011      (Decrease)  Change    (Decrease)  Change
                                                                                              
Large Group
   California          696        714         826        (18    )     (2.5  )%   (130    )    (15.7  )%
   Arizona             82         84          77         (2     )     (2.4  )%   5            6.5    %
   Oregon              26        30         50        (4     )    (13.3 )%  (24     )   (48.0  )%
                       804       828        953       (24    )    (2.9  )%  (149    )   (15.6  )%
                                                                                              
Small Group and
Individual
   California          313        307         308        6            2.0   %    5            1.6    %
   Arizona             59         59          63         0            0.0   %    (4      )    (6.3   )%
   Oregon              57        58         42        (1     )    (1.7  )%  15         35.7   %
                       429       424        413       5          1.2   %   16         3.9    %
                                                                                              
Commercial Risk
   California          1,009      1,021       1,134      (12    )     (1.2  )%   (125    )    (11.0  )%
   Arizona             141        143         140        (2     )     (1.4  )%   1            0.7    %
   Oregon              83        88         92        (5     )    (5.7  )%  (9      )   (9.8   )%
                       1,233     1,252      1,366     (19    )    (1.5  )%  (133    )   (9.7   )%
                                                                                              
Medicare Advantage
   California          145        143         125        2            1.4   %    20           16.0   %
   Arizona             43         43          41         0            0.0   %    2            4.9    %
   Oregon              46        45         39        1          2.2   %   7          17.9   %
                       234        231         205        3            1.3   %    29           14.1   %
                                                                                              
Medi-Cal/Medicaid
   California          1,084      1,069       1,009      15           1.4   %    75           7.4    %
                                                                                              
                                                                              
Total Health Plan
Enrollment
   Large Group         804        828         953        (24    )     (2.9  )%   (149    )    (15.6  )%
   Small Group and     429       424        413       5          1.2   %   16         3.9    %
   Individual
   Commercial Risk     1,233      1,252       1,366      (19    )     (1.5  )%   (133    )    (9.7   )%
   Medicare            234        231         205        3            1.3   %    29           14.1   %
   Advantage
   Medi-Cal/Medicaid   1,084     1,069      1,009     15         1.4   %   75         7.4    %
   Western Region      2,551      2,552       2,580      (1     )     0.0   %    (29     )    (1.1   )%
   Operations
                                                                                              
   Medicare PDP        0          0           382        0            0.0   %    (382    )    (100.0 )%
   (stand-alone)
                                                                                  
Total                2,551     2,552      2,962     (1     )    0.0   %   (411    )   (13.9  )%
                                                                                              
                                                                                              
TRICARE - North        2,883     2,884      3,004     (1     )    0.0   %   (121    )   (4.0   )%
Contract Eligibles
                                                                                                     
                                                                                                     


Health Net, Inc.
Consolidated Statements of Operations
($ in thousands, except per share data)
                                                                           
                    Quarter Ended   Quarter Ended   Quarter       Year Ended       Year Ended
                                                    Ended
                    December 31,    September 30,   December      December 31,     December 31,
                                                    31,
REVENUES:            2012          2012          2011         2012           2011       
  Health plan
  services          $ 2,631,645     $ 2,578,689     $ 2,498,736     10,450,210     $ 9,878,687
  premiums
  Government          159,604         169,811         194,632       687,025          1,416,619
  contracts
  Net investment      19,078          16,355          10,047        82,434           74,161
  income
  Administrative
  services fees and   1,668           1,854           4,549         17,968           11,523
  other income
  Divested
  operations and     14,803        12,863        -            40,471         34,446     
  services
  revenue
       Total         2,826,798     2,779,572     2,707,964    11,278,108     11,415,436 
       revenues
                                                                                   
EXPENSES:
  Health plan         2,322,282       2,281,388       2,149,873     9,305,784        8,539,754
  services
  Government          135,649         151,815         157,020       603,180          1,237,884
  contracts
  General and         251,483         222,425         230,375       939,940          1,052,458
  administrative
  Selling             64,921          61,053          61,615        245,925          237,562
  Depreciation
  and                 8,424           7,907           7,086         31,146           31,152
  amortization
  Interest            8,325           8,021           8,499         33,220           32,131
  Divested
  operations and      28,644          17,587          29,988        88,617           163,546
  services
  expense
  Adjustment to
  loss on sale of    -             -             7            -              (40,815    )
  Northeast
  subsidiaries
       Total         2,819,728     2,750,196     2,644,463    11,247,812     11,253,672 
       expenses
Income from
continuing            7,070           29,376          63,501        30,296           161,764
operations before
income taxes
Income tax
(benefit)            (228      )    8,898         20,440       5,484          100,708    
provision
Income from
continuing           7,298         20,478        43,061       24,812         61,056     
operations
                                                                                   
Discontinued
operation:
Income (loss) from
discontinued          -               -               17,142        (18,452    )     11,064
operation, net of
tax
(Loss) gain on sale
of discontinued      (2,156    )    (2,450    )    -            114,834        -          
operation, net of
tax
(Loss) gain on
discontinued         (2,156    )    (2,450    )    17,142       96,382         11,064     
operation, net of
tax
                                                                                   
Net income          $ 5,142        $ 18,028       $ 60,203      $ 121,194       $ 72,120     
                                                                                   
Net income per
share-basic:
Income from
continuing          $ 0.09          $ 0.25          $ 0.52        $ 0.30           $ 0.69
operations
(Loss) gain on
discontinued         (0.03     )    (0.03     )    0.21         1.18           0.12       
operation, net of
tax
Net income per      $ 0.06         $ 0.22         $ 0.73        $ 1.48          $ 0.81       
share-basic
                                                                                   
Net income per
share-diluted:
Income from
continuing          $ 0.09          $ 0.25          $ 0.51        $ 0.30           $ 0.68
operations
(Loss) gain on
discontinued         (0.03     )    (0.03     )    0.20         1.16           0.12       
operation, net of
tax
Net income per      $ 0.06         $ 0.22         $ 0.71        $ 1.46          $ 0.80       
share-diluted
                                                                                   
Weighted average
shares
outstanding:
  Basic               81,282          81,607          82,721        82,158           88,524
  Diluted             82,111          82,039          84,247        83,112           89,970
                                                                                                
                                                                                                


Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
                                                          
                              December 31,     September 30,    December 31,
                               2012           2012           2011       
ASSETS
Current Assets
        Cash and cash         $ 340,110        $ 312,579        $ 230,253
        equivalents
        Investments -           1,812,512        1,671,678        1,557,997
        available for sale
        Premiums                364,386          310,804          251,911
        receivable, net
        Amounts receivable
        under government        224,895          206,560          234,740
        contracts
        Other receivables       113,875          244,924          225,004
        Deferred taxes          48,380           40,647           46,659
        Other assets           128,195        151,042        117,876    
Total current assets            3,032,353        2,938,234        2,664,440
Property and equipment, net     183,793          174,932          145,302
Goodwill                        565,886          565,886          605,886
Other intangible assets,        17,271           18,128           20,699
net
Deferred taxes                  16,435           5,737            49,685
Investments-available for       -                -                2,147
sale-noncurrent
Other noncurrent assets        101,743        107,386        119,510    
Total Assets                  $ 3,917,481     $ 3,810,303     $ 3,607,669  
                                                                
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
        Reserves for claims
        and other             $ 1,027,444      $ 1,032,248      $ 912,126
        settlements
        Health care and
        other costs payable     75,649           58,410           88,440
        under government
        contracts
        Unearned premiums       151,052          128,194          176,733
        Accounts payable
        and other              373,428        325,636        240,281    
        liabilities
Total current liabilities       1,627,573        1,544,488        1,417,580
Senior notes payable            399,095          399,044          398,890
Borrowings under revolving      100,000          100,000          112,500
credit facility
Other noncurrent               236,949        220,489        235,553    
liabilities
Total Liabilities              2,363,617      2,264,021      2,164,523  
                                                                
Stockholders' Equity
        Common stock            149              149              147
        Additional paid-in      1,329,000        1,323,150        1,278,037
        capital
        Treasury common         (2,092,625 )     (2,092,459 )     (2,023,129 )
        stock, at cost
        Retained earnings       2,292,653        2,287,511        2,171,459
        Accumulated other
        comprehensive          24,687         27,931         16,632     
        income
Total Stockholders' Equity     1,553,864      1,546,282      1,443,146  
Total Liabilities and         $ 3,917,481     $ 3,810,303     $ 3,607,669  
Stockholders' Equity
                                                                
Debt-to-Total Capital           24.3       %     24.4       %     26.2       %
Ratio
                                                                             
                                                                             


Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
                                                                             
                       Quarter        Quarter        Quarter        Year Ended       Year Ended
                       Ended          Ended          Ended
                       December 31,   September      December 31,   December 31,     December 31,
                                      30,
                        2012         2012         2011         2012           2011       
                                                                                     
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income             $ 5,142        $ 18,028       $ 60,203       $ 121,194        $ 72,120
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
    Amortization and     8,424          7,907          7,086          31,146           31,152
    depreciation
    Share-based
    compensation         5,480          5,346          6,257          28,893           27,602
    expense
    Deferred income      (18,402  )     15,430         22,171         6,481            7,771
    taxes
    Excess tax
    benefits from        (30      )     -              (70      )     (6,089     )     (1,349     )
    share-based
    compensation
    Gain on sale of
    discontinued         2,156          2,450          -              (114,834   )     -
    operation
    Adjustment to loss
    on sale of           -              -              7              -                (40,815    )
    business
    Net realized gain
    on sale on           (7,019   )     (4,272   )     (709     )     (36,680    )     (33,029    )
    investments
    Other changes        8,326          (215     )     10,863         15,158           22,542
Changes in assets and
liabilities:
    Premiums
    receivable and       (30,724  )     (200,559 )     (240,347 )     (204,111   )     65,221
    unearned premiums
    Other current
    assets,              52,622         (25,847  )     16,437         (25,581    )     (54,031    )
    receivables and
    noncurrent assets
    Amounts
    receivable/payable   (8,786   )     23,972         6,301          (5,568     )     32,754
    under government
    contracts
    Reserves for
    claims and other     (4,804   )     21,755         39,089         153,777          (29,898    )
    settlements
    Accounts payable
    and other           20,989       11,238       (47,105  )    68,754         3,340      
    liabilities
Net cash provided by
(used in) operating     33,374       (124,767 )    (119,817 )    32,540         103,380    
activities
                                                                                     
CASH FLOWS FROM
INVESTING ACTIVITIES:
Sales of investments     217,167        117,584        128,299        1,350,003        1,760,336
Maturities of            37,579         28,715         40,941         135,394          189,137
investments
Purchases of             (395,355 )     (272,614 )     (71,782  )     (1,678,582 )     (1,814,431 )
investments
Proceeds from sale of    24             -              -              24               -
property and equipment
Purchases of property    (18,071  )     (17,370  )     (32,124  )     (73,101    )     (64,260    )
and equipment
Net cash received for    -              -              -              248,238          -
sale of businesses
Purchase price
adjustment on sale of    -              -              80,000         -                162,101
Northeast health plans
Sales and purchases of
restricted investments  (558     )    (871     )    (1,009   )    5,466          (10,656    )
and other
Net cash (used in)
provided by investing   (159,214 )    (144,556 )    144,325      (12,558    )    222,227    
activities
                                                                                     
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from exercise
of stock options and     352            -              1,047          16,941           13,356
employee stock
purchases
Repurchases of common    (166     )     (40,536  )     (76,410  )     (69,496    )     (389,850   )
stock
Excess tax benefits
from share-based         30             -              70             6,089            1,349
compensation
Borrowings under         -              10,000         281,000        110,000          978,500
financing arrangements
Repayment of
borrowings under         -              -              (319,712 )     (122,500   )     (872,212   )
financing arrangements
Net (decrease)
increase in checks       23,808         34             (5,901   )     23,842           (46,718    )
outstanding, net of
deposits
Customer funds          129,347      (20,740  )    (50,685  )    124,999        (129,917   )
administered
Net cash provided by
(used in) financing     153,371      (51,242  )    (170,591 )    89,875         (445,492   )
activities
                                                                                     
Net increase
(decrease) in cash and   27,531         (320,565 )     (146,083 )     109,857          (119,885   )
cash equivalents
Cash and cash
equivalents, beginning  312,579      633,144      376,336      230,253        350,138    
of period
Cash and cash
equivalents, end of    $ 340,110     $ 312,579     $ 230,253     $ 340,110       $ 230,253    
period
                                                                                                  
                                                                                                  

                 
Health Net, Inc.
SEGMENT INFORMATION (page 1)
($ in thousands, except per share and PMPM data)
                                                                                                                                                                                                          
The following table presents Health Net's operating segment information.
                                                                                                                                                                                                                             
                   Quarter Ended December 31, 2012                                           Quarter Ended September 30, 2012                                       Quarter Ended December 31, 2011
                                                 Divested                                                                  Divested                                                               Divested
                   Western         Government    Operations    Corporate/                    Western         Government    Operations   Corporate/                  Western         Government    Operations    Corporate/
                   Region                                                                    Region                                                                 Region
                   Operations^1   Contracts^2  and          Other^5,7    Consolidated    Operations^1   Contracts^2  and         Other^5     Consolidated   Operations^1   Contracts^6  and          Other^4,5   Consolidated
                                                 Services^3                                                                Services^3                                                             Services^3
                                                                                                                                                                                                                             
  Health plan
  services         $ 2,631,645                                               $ 2,631,645     $ 2,578,689                                             $  2,578,689   $ 2,498,736                                              $  2,498,736
  premiums
  Government                       $   159,604                                 159,604                       $   169,811                                169,811                         194,632                                 194,632
  contracts
  Net investment     19,078                                                    19,078          16,355                                                   16,355        10,047                                                    10,047
  income
  Administrative
  services fees      1,668                                                     1,668           1,843                         11                         1,854         4,549                                                     4,549
  and other
  income
  Divested
  operations and                             $ 14,803                 14,803                                 $ 12,863                12,863                                 0                      -
  services
  revenue
  Total revenues     2,652,391         159,604     14,803        -             2,826,798       2,596,887         169,811     12,874       -             2,779,572     2,513,332         194,632     -             -             2,707,964
  Health plan        2,317,262                                   5,020         2,322,282       2,281,354                     34                         2,281,388     2,156,223                     (25     )     (6,325 )      2,149,873
  services
  Government                           136,584                   (935    )     135,649                           148,705                  3,110         151,815                         155,580                   1,440         157,020
  contracts
  G&A excluding
  insurance,         220,116                       (304    )     16,236        236,048         201,845                       (332   )     4,115         205,628       201,918                       (450    )     8,231         209,699
  taxes and fees
  Insurance,        15,133                   302                    15,435        16,555                   242                   16,797       20,219                   457        -          20,676
  taxes and fees
  G&A including
  insurance,         235,249                       (2      )     16,236        251,483         218,400                       (90    )     4,115         222,425       222,137                       7             8,231         230,375
  taxes and fees
  Selling            64,921                                                    64,921          61,053                                                   61,053        61,609                        6                           61,615
  Depreciation
  and                8,424                                                     8,424           7,907                                                    7,907         7,086                                                     7,086
  amortization
  Interest           8,325                                                     8,325           8,021                                                    8,021         8,499                                                     8,499
  Divested
  operations and                                   28,644                      28,644                                        17,587                     17,587                                      29,988                      29,988
  services
  expense
  Adjustment to
  loss on sale                                                        -                                                              -                                      7                      7
  of Northeast
  health plans
  Total expenses    2,634,181      136,584   28,642     20,321     2,819,728     2,576,735      148,705   17,531    7,225      2,750,196    2,455,554      155,580   29,983     3,346      2,644,463
  Income (loss)
  from
  operations         18,210            23,020      (13,839 )     (20,321 )     7,070           20,152            21,106      (4,657 )     (7,225 )      29,376        57,778            39,052      (29,983 )     (3,346 )      63,501
  before income
  taxes
  Income tax
  (benefit)         2,142          9,246     (5,615  )   (6,001  )   (228      )    1,640          8,372     (1,946 )   832        8,898        20,417         15,853    (13,125 )   (2,705 )    20,440
  provision
  Income (loss)
  from             $ 16,068      $   13,774   $ (8,224  )  $ (14,320 )  $ 7,298        $ 18,512      $   12,734   $ (2,711 )  $ (8,057 )  $  20,478      $ 37,361      $   23,199   $ (16,858 )  $ (641   )  $  43,061
  continuing
  operations
                                                                                                                                                                                                                             
  Basic earnings
  (loss) per
  share from       $ 0.20          $   0.17      $ (0.10   )   $ (0.18   )   $ 0.09          $ 0.23          $   0.16      $ (0.03  )   $ (0.10  )   $  0.25        $ 0.45          $   0.28      $ (0.20   )   $ (0.01  )   $  0.52
  continuing
  operations
  Diluted
  earnings
  (loss) per       $ 0.19          $   0.17      $ (0.10   )   $ (0.18   )   $ 0.09          $ 0.23          $   0.15      $ (0.03  )   $ (0.10  )   $  0.25        $ 0.44          $   0.28      $ (0.20   )   $ (0.01  )   $  0.51
  share from
  continuing
  operations
                                                                                                                                                                                                                             
  Basic weighted
  average shares     81,282            81,282      81,282        81,282        81,282          81,607            81,607      81,607       81,607        81,607        82,721            82,721      82,721        82,721        82,721
  outstanding
  Diluted
  weighted           82,111            82,111      81,282        81,282        82,111          82,039            82,039      81,607       81,607        82,039        84,247            84,247      82,721        82,721        84,247
  average shares
  outstanding
                                                                                                                                                                                                                             
  Pretax margin      0.69      %                                                               0.78      %                                                            2.3       %
  Commercial         4.3       %                                                               4.7       %                                                            4.7       %
  premium yield
  Commercial       $ 375.65                                                                  $ 376.89                                                               $ 360.12
  premium PMPM
  Commercial
  health care        7.5       %                                                               7.1       %                                                            3.9       %
  cost trend
  Commercial
  health care      $ 328.44                                                                  $ 326.60                                                               $ 305.52
  cost PMPM
  Commercial MCR     87.4      %                                                               86.7      %                                                            84.8      %
  Medicare           88.6      %                                                               90.1      %                                                            90.5      %
  Advantage MCR
  Medicaid MCR       88.9      %                                                               91.6      %                                                            85.5      %
  Health plan        88.1      %                                                               88.5      %                                                            86.3      %
  services MCR
  G&A expense        8.9       %                                                               8.5       %                                                            8.9       %
  ratio
  Selling costs      2.5       %                                                               2.4       %                                                            2.5       %
  ratio
                                                                                                                                                                                                                             

    Includes the operations of the company's commercial, Medicare and Medicaid
1  health plans in California, Arizona, Oregon and Washington, as well as the
    operations of the company's health and life insurance companies, primarily
    in Arizona, California, Oregon and Washington, and the operations of the
    company's behavioral health and pharmaceutical services subsidiaries in
    several states including California, Arizona and Oregon.
    
    Includes administrative services provided under the T-3 Managed Care
2   Support Contract for the TRICARE North Region and other health
    care-related Department of Defense and Veterans Affairs government
    contracts.
    
    Includes items related to the run-out of the Northeast business sold in
3   2009 and/or transition and run-out related expenses related to the
    Medicare PDP business that was sold on April 1, 2012, including lease
    impairment in the fourth quarter 2012 related to the company’s divested
    Northeast business.
    
4   Includes legal expenses and litigation reserve true-ups related to
    previous accruals for lawsuits.
    
5   Includes costs related to the company’s G&A cost reduction efforts and/or
    operations strategy.
    
    Includes administrative services provided under the T-3 Managed Care
6   Support Contract for the TRICARE North Region and other health
    care-related Department of Defense and Veterans Affairs government
    contracts. Also includes amounts related to the operations of
    government-sponsored managed care plans through our prior TRICARE contract
    and amounts related to the completion of the prior TRICARE contract.
    
7   Includes expenses related to the termination of a medical management
    contract, litigation-related expenses and severance.
    
    

                                                                                                                                                        
Health Net, Inc.
SEGMENT INFORMATION (page 2)
($ in thousands, except per share and PMPM data)
                                                                                                                             
The following table presents Health Net's operating segment information.
                                                                                                                                                          
                     Year Ended December 31, 2012                                              Year Ended December 31, 2011
                                                    Divested                                                                 Divested
                     Western Region   Government    Operations    Corporate/                   Western         Government    Operations    Corporate/
                                                                                               Region
                     Operations^1    Contracts^2  and          Other^4,5,6  Consolidated  Operations^1   Contracts^2  and          Other^4,5     Consolidated
                                                    Services^3                                                               Services^3
                                                                                                                                                          
  Health plan
  services           $ 10,450,210                   $ -                         $ 10,450,210   $ 9,876,343                   $ 2,344                      $ 9,878,687
  premiums
  Government                              687,025                                 687,025                        1,416,619                                  1,416,619
  contracts
  Net investment       82,434                                                     82,434         74,092                        69                           74,161
  income
  Administrative
  services fees        17,957                         11                          17,968         11,523                                                     11,523
  and other
  income
  Divested
  operations and                                 40,471                 40,471                                  34,446                  34,446     
  services
  revenue
  Total revenues       10,550,601         687,025     40,482        -             11,278,108     9,961,958       1,416,619     36,859        -              11,415,436
  Health plan          9,306,393                      174           (783    )     9,305,784      8,545,623                     930           (6,799   )     8,539,754
  services
  Government                              597,317                   5,863         603,180                        1,231,388                   6,496          1,237,884
  contracts
  G&A excluding
  insurance,           828,648                        (1,445  )     36,892        864,095        768,314                       559           199,732        968,605
  taxes and fees
  Insurance,          74,494                    1,351                  75,845        82,698                   1,155                   83,853     
  taxes and fees
  G&A including
  insurance,           903,142                        (94     )     36,892        939,940        851,012                       1,714         199,732        1,052,458
  taxes and fees
  Selling              245,925                                                    245,925        237,360                       202                          237,562
  Depreciation
  and                  31,145                         1                           31,146         31,140                        12                           31,152
  amortization
  Interest             33,220                                                     33,220         31,946                        185                          32,131
  Divested
  operations and                                      88,617                      88,617                                       163,546                      163,546
  services
  expense
  Adjustment to
  loss on sale                                                           -                                       (40,815 )                (40,815    )
  of Northeast
  health plans
  Total expenses      10,519,825      597,317   88,698     41,972     11,247,812    9,697,081    1,231,388   125,774    199,429     11,253,672 
  Income (loss)
  from
  operations           30,776             89,708      (48,216 )     (41,972 )     30,296         264,877         185,231       (88,915 )     (199,429 )     161,764
  before income
  taxes
  Income tax
  provision           (355       )     35,699    (18,944 )   (10,916 )   5,484         96,324       75,092      (40,769 )   (29,939  )   100,708    
  (benefit)
  Income (loss)
  from               $ 31,131       $   54,009   $ (29,272 )  $ (31,056 )  $ 24,812       $ 168,553     $ 110,139    $ (48,146 )  $ (169,490 )  $ 61,056     
  continuing
  operations
                                                                                                                                                          
  Basic earnings
  (loss) per
  share from         $ 0.38           $   0.66      $ (0.36   )   $ (0.38   )   $ 0.30         $ 1.90          $ 1.24        $ (0.54   )   $ (1.91    )   $ 0.69
  continuing
  operations
  Diluted
  earnings
  (loss) per         $ 0.37           $   0.65      $ (0.36   )   $ (0.38   )   $ 0.30         $ 1.87          $ 1.22        $ (0.54   )   $ (1.91    )   $ 0.68
  share from
  continuing
  operations
                                                                                                                                                          
  Basic weighted
  average shares       82,158             82,158      82,158        82,158        82,158         88,524          88,524        88,524        88,524         88,524
  outstanding
  Diluted
  weighted             83,112             83,112      82,158        82,158        83,112         89,970          89,970        88,524        88,524         89,970
  average shares
  outstanding
                                                                                                                                                          
  Pretax margin        0.3        %                                                              2.7       %
  Commercial           4.7        %                                                              5.1       %
  premium yield
  Commercial         $ 374.99                                                                  $ 358.04
  premium PMPM
  Commercial
  health care          8.8        %                                                              4.0       %
  cost trend
  Commercial
  health care        $ 332.09                                                                  $ 305.27
  cost PMPM
  Commercial MCR       88.6       %                                                              85.3      %
  Medicare             89.6       %                                                              90.3      %
  Advantage MCR
  Medicaid MCR         89.7       %                                                              85.5      %
  Health plan          89.1       %                                                              86.5      %
  services MCR
  G&A expense          8.6        %                                                              8.6       %
  ratio
  Selling costs        2.4        %                                                             2.4       %
  ratio
                                                                                                                                                          

    Includes the operations of the company's commercial, Medicare and Medicaid
1  health plans in California, Arizona, Oregon and Washington, as well as the
    operations of the company's health and life insurance companies, primarily
    in Arizona, California, Oregon and Washington, and the operations of the
    company's behavioral health and pharmaceutical services subsidiaries in
    several states including California, Arizona and Oregon.
    
    Includes administrative services provided under the T-3 Managed Care
2   Support Contract for the TRICARE North Region and other health
    care-related Department of Defense and Veterans Affairs government
    contracts. Also includes amounts related to the operations of
    government-sponsored managed care plans through our prior TRICARE contract
    and amounts related to the completion of the prior TRICARE contract.
    
    Includes items related to the run-out of the Northeast business sold in
3   2009 and/or transition and run-out related expenses related to the
    Medicare PDP business that was sold on April 1, 2012, including lease
    impairment in the fourth quarter 2012 related to the company’s divested
    Northeast business.
    
4   Includes legal expenses and litigation reserve true-ups related to
    previous accruals for lawsuits.
    
5   Includes costs related to the company’s G&A cost reduction efforts and/or
    operations strategy.
    
6   Includes expenses related to the termination of a medical management
    contract, litigation-related expenses and severance.
    
    


Health Net, Inc.
Disclosures Regarding Non-GAAP Financial Information
($ in millions)
                                                                     
Set forth below is a reconciliation of adjusted days claims payable (DCP), a non-GAAP
financial measure, to the comparable GAAP financial measure, DCP. DCP is calculated by
dividing the amount of reserve for claims and other settlements (claims reserve) by health
plan services cost (health plan costs) during the quarter and multiplying that amount by the
number of days in the quarter. In this press release, management presents an adjusted DCP
metric which subtracts capitation, provider and other claims settlements and Medicare
Advantage-Prescription Drug (MAPD) payables/costs from the claims reserve and health plan
costs. For the fourth quarter and full year 2011, the adjusted DCP also subtracts reserve
for claims and other settlements related to discontinued operations from the claims reserve.

Management believes that adjusted DCP provides useful information to investors because the
adjusted DCP calculation excludes from both claims reserve and health plan costs amounts
related to health care costs for which no or minimal reserves are maintained. In addition,
solely with respect to the fourth quarter and full year 2011, adjusted DCP excludes from
claims reserve the reserves relating to discontinued operations. Therefore, management
believes that adjusted DCP may present a more accurate reflection of DCP than does GAAP DCP,
which includes such amounts. This non-GAAP financial information should be considered in
addition to, not as a substitute for, financial information prepared in accordance with
GAAP.

You are encouraged to evaluate these adjustments and the reasons we consider them
appropriate for supplemental analysis. In evaluating the adjusted amounts, you should be
aware that we have incurred expenses that are the same as or similar to some of the
adjustments in the current presentation and we may incur them again in the future.
                                                                                
Our presentation of the adjusted amounts should not be construed as an inference that our
future results will be unaffected by unusual or nonrecurring items.
                                                                                
                                                                                
                                                                                
                                                                                
Reconciliation of
Days Claims            Q4 2012       Q3 2012       Q4 2011       FY 2012        FY 2011
Payable:
      Reserve for
      Claims and
(1)   Other            $ 1,027.4     $ 1,032.2     $ 912.1       $ 1,027.4      $ 912.1
      Settlements
      - GAAP
      Less: Reserve
      for Claims and
      Other
      Settlements       -           -           (31.7   )    -            (31.7    )
      related to
      discontinued
      operations
      Reserve for
      Claims and
      Other
      Settlements      $ 1,027.4     $ 1,032.2     $ 880.4       $ 1,027.4      $ 880.4
      excluding
      discontinued
      operations
      Less:
      Capitation,
      Provider and
      Other Claim       (100.4  )    (126.3  )    (59.0   )    (100.4   )    (59.0    )
      Settlements,
      and MAPD
      Payables
      Reserve for
      Claims and
(2)   Other            $ 927.0       $ 905.9       $ 821.4       $ 927.0        $ 821.4
      Settlements
      - Adjusted
                                                                                
      Health Plan
(3)   Services         $ 2,322.3     $ 2,281.4     $ 2,149.9     $ 9,305.8      $ 8,539.8
      Cost - GAAP
      Less:
      Capitation,
      Provider and      (856.3  )    (835.9  )    (753.9  )    (3,381.6 )    (3,041.7 )
      Other Claim
      Settlements,
      and MAPD Costs
      Health Plan
(4)   Services         $ 1,466.0     $ 1,445.5     $ 1,396.0     $ 5,924.2      $ 5,498.1
      Cost -
      Adjusted
                                                                                
      Number of
(5)   Days in            92            92            92            366            365
      Period
                                                                                
= (1) / (3) * (5)
Days Claims Payable
on GAAP Basis -          40.7          41.6          39.0          40.4           39.0
(using end of period
reserve amount)
= (2) / (4) * (5)
Days Claims Payable
- Adjusted Basis         58.2          57.7          54.1          57.3           54.5
(using end of period
reserve amount)
                                                                                           
                                                                                           


Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
($ in millions)
                                                        
                                 Health Plan Services
                                 FY 2012      FY 2011        FY 2010
                                                                   
Reserve for claims (a),          $ 720.8         $ 727.5           $ 692.2
beginning of period
Incurred claims related
to:
       Current Year                4,947.5         4,733.0           4,644.2
       Prior Years (c)            32.0        (96.5   )     (70.0   )
Total Incurred (b)                 4,979.5         4,636.5           4,574.2
                                                                   
Paid claims related to:
       Current Year                4,156.6         4,024.4           3,929.3
       Prior Years                740.9       618.8        609.6   
Total Paid (b)                    4,897.5     4,643.2      4,538.9 
                                                                   
                                                                   
Reserve for claims (a),            802.8           720.8             727.5
end of period
Add:
Claims Payable (d)                 91.6            111.0             123.6
Other (e)                          133.0           80.3              90.9
                                                           
                                                                   
Reserves for claims and
other settlements, end of        $ 1,027.4    $ 912.1       $ 942.0   
period
                                                                             

(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.
      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
(c)   the reserve balance held at each period-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.

Contact:

Health Net, Inc.
Investor Contact:
Angie McCabe, 818-676-8692
angie.mccabe@healthnet.com
or
Media Contact:
Brad Kieffer, 818-676-6833
brad.kieffer@healthnet.com

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