Health Net Health Plan of Oregon, Inc., a health plan subsidiary of Health Net, Inc. (HNT) has re-entered the Medicare Supplement market in Oregon.

Health Net of Oregon has established a new portfolio and will offer five important Medicare Supplement (known as Medigap) plans in all 36 counties in Oregon.

Generally, health plans can offer up to 10 Medigap policies, with standardized benefits set by National Association of Insurance Commissioners. However, even with standardized benefits, Health Net will compete on price and on the quality of service to its members and brokers.

Medicare Supplement plans are a great alternative for individuals who don’t choose Medicare Advantage plans due to locale or lifestyle.

Health Net of Oregon offers seniors an array of Medicare Supplement plans that can help pay for the many out-of-pocket medical expenses not covered by original Medicare, such as deductibles and coinsurance. This will also help to pay for the coverage gaps.

Earnings Report Review

The company reported a first-quarter loss of $108.2 million or a loss per share of $1.16 compared to a net income of $16.1 million or 16 cents in the prior-year quarter.

The reported quarter included a $177.2 million pretax or $157.9 million after tax, charge related to the AmCareco litigation and $11.0 million in pretax expenses related to the company’s administrative cost reduction efforts.

However, Health Net’s Western Region Operations and Government Contracts segments produced combined net earnings of $57.4 million or 61 cents in the reported quarter as opposed to $47.9 million or 47 cents in the prior-year quarter.

The improved results were supported by strong commercial and Government Contracts performance, which led to a strong buyback of shares from January 1 through April 29. Further, the sale of the Northeast business to UnitedHealth Group Inc. (UNH) has encouraged the company to concentrate on its core western markets.

Health Net reported a 3.2% year-over-year hike in total revenues to $3.53 billion in the first quarter, exceeding the Zacks Consensus Estimate of $3.36 billion.

Health Net’s health plan services premium revenues also increased by 3.4% in the reported quarter to $2.6 billion.

Total expenses surged to $3.62 billion as against $3.25 billion in the prior-year quarter, while investment income increased to $23.8 million from $15.2 million in the prior-year quarter.

(Read our full coverage on this earnings report: Health Net Beats Top Line)

Earnings Estimate Revisions- Overview

Estimates have showed significant movement for Health Net since the earnings release, on the expectation of strong cash flows. It seems that the medical cost trends also moderated during the reported quarter, owing to continued pricing discipline and underwriting discipline. The earnings estimate details are deeply delved into below.

Agreement of Analysts

Over the last 30 days, 8 out of the 16 analysts covering the stock have increased their estimates for the second quarter of 2011, while only 2 have revised the same downward. Likewise, in the third quarter, 5 out of the 15 analysts have raised their estimates with two analysts showing a downward trend.

In the fiscal year 2011, 9 out of the 12 analysts lifted their estimates, with none of the analysts showing a falling trend. On the other hand, 2012 estimates witnessed an upward bias from 8 out of 16 analysts, with only one moving in the opposite direction.

The jump in the 2011 and 2012 estimates is primarily due to strong earnings supported by strong commercial and Government Contracts performance, which also led to a strong buyback of shares. The decline was due to higher than expected expenses and charges related to the AmCareco litigation and costs related to the company’s administrative cost reduction efforts.

Magnitude of Estimate Revisions

For the second and the third quarters of 2011, the estimates increased by a penny over the past 30 days, while the estimates in fiscal year 2011 climbed from $2.85 to $2.98 and estimates for fiscal year 2012 surged from $3.15 to $3.22 over the same period.

The upward trend shows the hike in the company’s revenues led by strong health plan services premiums and increased investment income.

Our Recommendation

We believe that with the Medicare Supplement policies, Health Net can now provide additional coverage options to Medicare beneficiaries in all Oregon counties as a way to help cover unexpected costs from Medicare’s deductibles and coinsurances. Further, the Medicare beneficiaries can choose any Medicare Supplement plan at any point of time.

Health Net Health Plan of Oregon serves approximately 130,000 members in Oregon and Washington and contracts with approximately 31,000 physicians and other medical professionals and 143 hospitals.

 
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