Health Net Inc. plunged the most in 20 years after the insurer said 2012 earnings would be lower than forecast after a change in claims processing spurred the company to set aside more money to pay for last year’s bills.
Health Net dropped 25 percent to $27.26 at the close of New York trading, its biggest single-day decline since May 1992. The Woodland Hills, California based company cut its annual earnings projection by more than 25 percent, to $2.35 to $2.50 a share.
A change in regulations covering claims processing led to a delay in medical bills reaching Health Net last year. As a result, the company put aside an additional $67 million in the first quarter and increased its assumptions for medical costs in the rest of the year, Health Net said today in a statement.
“It very well could be a one-time issue and the company can maybe get back off to the races,” Chris Rigg, a Susquehanna Financial Group analyst in New York, said in a telephone interview. “But at this point, there’s a credibility issue. That’s what the market is telling you.”
Health Net reported a first-quarter net loss of $26.6 million, or 32 cents a share, compared with a loss of $108.2 million, or $1.16, a year earlier. Excluding one-time items, profit was 10 cents a share, missing the average estimate of 60 cents from 14 analysts compiled by Bloomberg.
“We were deeply disappointed in the first quarter results,” Chief Executive Officer Jay Gellert told analysts on a conference call. “All of us know that we have to execute consistently through the rest of 2012 to regain your trust.”
Health Net also expects to lose business this year as a result of rival insurers offering “aggressive” discounts, Gellert said. The company now has the processing issues “essentially resolved” and sees claims coming in at a more typical level, he said.
The problems stem from new national standards for electronic processing of medical claims, known as HIPAA 5010, which took effect Jan. 1. The change may have caused more problems for Health Net than other insurers because the company receives claims from companies known as clearinghouses that act like middlemen rather than directly from doctors, Gellert said.
In the future, “we’ll be much tighter about making sure we’ve checked every nook and cranny of what can go wrong,” he said. “It’s a lesson that we had to learn and a very painful one.”
Health Net had previously predicted profit excluding some items of $3.30 to $3.40 a share this year. Analysts had estimated $3.38.
The shares have fallen 17 percent in the past 12 months.