8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): November 18, 2008

Health Net, Inc.

(Exact name of registrant as specified in its charter)

Delaware	1-12718	95-4288333
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
21650 Oxnard Street, Woodland Hills, California		91367
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (818) 676-6000

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01. Regulation FD Disclosure.

On November 18, 2008, members of the management team of Health Net, Inc. (the “Company”) will be meeting with investors and analysts in connection with the Company’s annual investor conference. During this meeting, the Company intends to address its prospects and historical performance, provide additional detail regarding its earnings guidance for 2009, reaffirm its earnings guidance for the full year of 2008, and discuss the recent management reorganization, all as announced in a press release and conference call on November 4, 2008. A copy of the Company’s third quarter 2008 earnings press release was attached as Exhibit 99.1 to the Form 8-K furnished by the Company to the Securities and Exchange Commission (the “SEC”) on November 4, 2008. As previously announced, the Company will have a live audio webcast of its presentation at the meeting at 8:00 a.m. (Eastern Time) on November 18, 2008 from the “Investor Relations–Presentations and Webcasts” section of its website at www.healthnet.com. A replay of the Company’s presentation will be available on the Company’s website, and the Company’s slides for the presentation are attached to this Current Report on Form 8-K as Exhibit 99.1.

The information in this Item 7.01 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any Company filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

CAUTIONARY STATEMENT: Certain statements made in this report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, including but not limited to the guidance for future periods included herein and the assumptions underlying such projections, may be deemed to be forward-looking statements. 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, the guidance as to expected future period results and 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, rising health care costs, negative prior period claims reserve developments, additional investment portfolio impairment charges, changes in the economy, 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 business, issues relating to provider contracts, 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 and Quarterly Reports on Form 10-Q filed with the SEC and the risks discussed in the Company’s other periodic filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly revise its guidance, the assessment of the underlying assumptions or any of its forward-looking statements to reflect events or circumstances that arise after the date of this report.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1 Health Net, Inc. Presentation Slides for Annual Investor Conference, dated November 18, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Health Net, Inc.
November 18, 2008	By:	/s/ Linda V. Tiano
		Name: Linda V. Tiano Title: Senior Vice President, General Counsel and Secretary

EX-99.1

Health Net, Inc.

Health Net, Inc.

Investor Conference

Investor Conference

November 18, 2008

Exhibit 99.1

2

Cautionary Statement

All statements in this presentation, other than statements of historical information

provided herein, including but not limited to the guidance for future periods included

herein and the assumptions underlying such projections, 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, the guidance as to expected future period results and

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, rising health care costs, negative prior period claims reserve developments,

additional investment portfolio impairment charges, changes in the economy, 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 business, issues relating to provider contracts, 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 and subsequent quarterly reports on Form 10-Q filed with the SEC.

Audience members are cautioned not to place undue reliance on these forward-looking

statements. The company undertakes no obligation to publicly revise its guidance, the

assessment of the underlying assumptions or any of its forward-looking statements to

reflect events or circumstances that arise after the date of these presentations.

3

Non-GAAP Measures

These presentations include quarterly and full-year income statement

measurements that are not calculated and presented in accordance

with

Generally Accepted Accounting Principles. Audience participants should

refer to the reconciliation table available in the company’s third quarter

2008 earnings press release, available on the company’s Web site at

www.healthnet.com, which reconciles certain non-GAAP financial

information to GAAP financial information.

These presentations also include underlying health care cost trend

metrics that reflect the impact of prior period incurred development

which has been included in the appropriate incurred period.

Management believes that the non-GAAP financial information discussed

in these presentations is useful as it provides the audience a basis to

better understand the company’s results by excluding items that are not

indicative of our core operating results for the periods presented. In

addition, the company believes that the underlying health care cost

metrics provide the audience with a more accurate assessment of these

trends which the company uses to appropriately price its products.

4

Registration & Continental Breakfast

7.30 a.m.

8.00 –

8.30 a.m.

Introduction & Strategic Review

Angie McCabe, Vice President, Investor Relations

Jay Gellert, President & Chief Executive Officer

8.30 –

10.00 a.m.

Review of Operations & Operations Strategy Update

Jim Woys, Chief Operating Officer

Federal Services / MHN

Steve Tough, President, Health Plans and Government Programs

Medicare Programs

Scott Kelly, Chief Government Programs Officer

California Market

Steve Sell, President, Health Net of California

10.00 –

10.30 a.m.

Financial Review

Joseph Capezza, Chief Financial Officer

10.30 –

11.00 a.m.

Q&A Panel

11.00 a.m.

Closing Remarks

Jay Gellert, President & Chief Executive Officer

Agenda

Health Net, Inc.

Health Net, Inc.

Investor Conference

Investor Conference

Strategic Review

Strategic Review

Jay Gellert

President and Chief Executive Officer

November 18, 2008

7

Strategic Review

Strategic Review

•

Basic assets are solid

–

TRICARE/MHN

–

California/Oregon

•

2008 performance was impaired by:

–

Medicare

–

Arizona

–

Northeast

•

The 2009 bid addresses the Medicare issues

•

While our other operations have critical mass,

there is a scale problem in:

–

Arizona

–

Northeast

•

The balance sheet is strong

8

HNT Business Unit Profile

HNT Business Unit Profile

High

High

Revenue represented by size of circle

Pretax Margin

CA/OR

SPD

HNFS/MHN

NE

AZ

9

Northeast and Arizona:

Northeast and Arizona:

Scale Issues

Scale Issues

•

2009 combined revenues expected to be between $3.7 billion to

$3.8 billion

•

Combined year-end 2008 membership of:

–

580,000 Commercial members

–

131,000 Medicare members

–

46,000 Medicaid members

•

Operate G&A at approximately 12 percent of premium.          

With scale, the marginal G&A of these businesses should be

approximately 7 percent of premium

•

Health care unit costs are higher than the median for the

competition by an average of at least 5 percent

•

Projected to operate on a breakeven basis in 2009 due to

Medicare improvements

•

Approximately $500 million of excess cash in these entities to

meet regulatory requirements

10

TRICARE/MHN, California/Northwest

TRICARE/MHN, California/Northwest

and Senior Products

and Senior Products

•

Combined revenues expected to be approximately

$12 billion in 2009

•

These operations have approximately:

–

1.5 million commercial members

–

165,000 MA members

–

760,000 Medicaid members

–

500,000 PD members

–

2.9 million TRICARE eligibles

–

5 million EAP members

•

Health

plan

G&A

is

expected

to

be

approximately

8.7%

in

2009

•

Health plan and HNFS health care costs are competitive

•

Expected to generate approximately $400 million of pretax

income in 2009

11

Our Direction

Our Direction

•

Address Arizona/Northeast issues

•

Achieve 2009 plan

•

Maintain and improve balance sheet

•

Continue to review strategy

Introduction to the

Introduction to the

Operations Organization

Operations Organization

Jim Woys

Executive Vice President

and Chief Operating Officer

November 18, 2008

13

•

Reorganized, energized and ready-to-go

•

Most successful managers in the company

•

Know markets and customers

•

Focused on California, Oregon

and Federal Services

•

Release

potential

of

HNT’s

opportunities

for

near-

and

long-term improvement

A New Management Team

14

Immediate Focus

Grow Profitably

Actively manage the trend

Improve

operational performance

15

Profitable Growth

Profitable Growth

•

Unified sales, market,

product approach

•

Appropriate pricing structure

•

Clear, targeted growth in

identified markets and segments

•

Margin expansion and

profitable growth

Key Strategy

Key Strategy

Attack and defend where clear value proposition exists

Key Commercial Markets

Key Commercial Markets

California, Oregon

Key Lines of Business

Key Lines of Business

Commercial, Medicare, Medicaid, TRICARE, MHN

Expected Results

Expected Results

Actions Taken

Actions Taken

16

Managing Trend

Managing Trend

•

Results-oriented structure

•

Geographical review of hospital

and provider contracts

•

Care management programs

•

Predictable health care costs

Key Strategy

Key Strategy

Predictability and proactive management

Key Management Tactics

Key Management Tactics

•

Unit cost –

multi-year agreements,

administrative ease, billed charges

•

Utilization –

predictive modeling, high intensity care

management, appropriate hospitalization, analytics

and reporting

Expected Results

Expected Results

Actions Taken

Actions Taken

17

Operational Excellence

Operational Excellence

•

Consolidated operation

management, analytics

and reporting

•

Reduced variation

•

Outsourcing transactional jobs

•

Driving electronic channel making

it easy to do business with HNT

•

Better Service –

less cost

Key Strategy

Key Strategy

Great at the basics

Key Management Tactics

Key Management Tactics

Consolidate and centralize

Predictable, stable core operations

Performance driven

Expected Results

Expected Results

Actions Taken

Actions Taken

18

Near-Term Goals

Improve shareholder value

Increase value of franchise

Deliver profitable results

19

The Operations Team

•

Steven Tough

President, Health Plans and Government Programs

–

Steven Sell

President, Health Net of California

–

Scott Kelly

Chief Government Programs Officer

•

John Sivori

President, Regional Health Plans and Pharmacy

•

Dr. Jonathan Scheff

Chief Medical Officer

•

Scott Law

Chief Network Management Officer

•

Kathleen Richard

Customer Experience Officer

•

Duncan Rose

Chief Information Officer

2008 -

2008 -

2009

2009

Operational Performance

Operational Performance

Jim Woys

Executive Vice President

and Chief Operating Officer

November 18, 2008

21

2008 and 2009 Guidance

2008 and 2009 Guidance

2008

2009

Membership

Commercial Risk

-8 to -9%

-3 to -5%

Medicaid

+6 to 7%

+2 to +3%

Medicare Advantage (incl

PFFS)

+20 to 25%

-1 to -2%

PDP

+40 to 45%

-15 to -20%

Commercial Yields

~ 8.3%

~ 9 to 9.5%

Commercial HCC Trends

~ 10.9%

~ 40 to 60 bps < yield

G&A Expense Ratio

~ 9.5%

~ 9.6 to 9.8%

22

Understanding the Underlying Trend

Understanding the Underlying Trend

Conducted in-depth analyses of:

Conducted in-depth analyses of:

•

Underlying trends for all markets and all segments

for 2007, 2008 and expected 2009

•

Actual trends based on incurred dates after

adjusting for all prior period changes

•

Prior pricing actions and product and benefit designs

•

Current pricing actions for 2009

•

Current network contract status and effect of recent

and current contract negotiations on 2009 unit costs

•

Utilization management practices including current

and prospective initiatives

23

Guidance vs. Underlying Trend

Guidance vs. Underlying Trend

2008

2009

Guidance

10.9%

8.6% -

8.9%

Effect Guardian

(2.7%)

Revised

8.2%

Effect of Prior Period

(1.4%)

.5%

Net Underlying Trend

6.8%

9.1% -

9.4%

24

2008 and 2009 Commercial

2008 and 2009 Commercial

Health Care Cost Trends

Health Care Cost Trends

Underlying health care cost trend after adjusting for prior period development and effect of Guardian transaction

(1)

(1)

Commercial

'07 -

'08

'08 -

'09

Yield

8.3%

9.0% -

9.5%

Health Care Cost

Physician

Physician -

Claims

2.4%

4.4%

Physician -

Capitation

5.5%

7.4%

Physician Total

4.0%

6.2%

Hospital

Hospital -

Inpatient

10.1%

9.5%

Hospital -

Outpatient

8.5%

10.5%

Hospital -

Capitation

3.9%

12.0%

Hospital Total

9.0%

11.1%

Pharmacy

6.3%

4.2%

Other

7.3%

15.0%

Total

6.8%

9.1%

% Change

25

2008 Commercial Unit Cost

2008 Commercial Unit Cost

and Utilization Metrics

and Utilization Metrics

Underlying operational health care cost metrics after adjusting for prior period development

(1)

(1)

Unit Cost & Utilization

Q1

Q2

Q3

Hospital

Inpatient

Days/1,000

5.0%

4.1%

10.7%

Admits/1,000

1.3%

2.2%

6.6%

ALOS

3.6%

1.8%

3.8%

Cost/Day

-6.3%

-5.5%

8.3%

Outpatient Surgery

Cases/1,000

-0.4%

2.7%

5.9%

Cost/Case

7.1%

10.6%

7.2%

ER

Cases/1,000

0.1%

-1.8%

1.3%

Cost/Case

9.6%

13.9%

10.5%

% Change (year-over-year)

2008

26

Underlying Medicare Trend

Underlying Medicare Trend

2008

2009

Expected

6.4%

4.5%

Effect of Prior Period

.2%

(.1)%

Net Underlying Trend

6.6%

4.4%

Note: Metrics exclude Medicare Part D

27

2007 to 2009 Medicare

2007 to 2009 Medicare

Health Care Costs

Health Care Costs

Underlying health care cost trend after adjusting for prior period development and effect of Guardian transaction

(1)

(1)

Medicare Advanatage

'07 -

'08

'08 -

'09

Yield

2.6%

6.0%

Health

Care

Cost

Physician

Physician -

Claims

13.6%

14.1%

Physician -

Capitation

-2.1%

-6.1%

Physician Total

5.0%

3.7%

Hospital

Hospital -

Inpatient

15.4%

6.8%

Hospital -

Outpatient

3.6%

11.2%

Hospital -

Capitation

-15.7%

-12.2%

Hospital Total

6.4%

4.6%

Pharmacy

10.0%

5.3%

Other

35.3%

8.7%

Total

6.6%

4.4%

% Change

28

2008 Medicare Unit Cost

2008 Medicare Unit Cost

and Utilization

and Utilization

Underlying operational health care cost metrics after adjusting for prior period development; excludes Private Fee-for-Service

(1)

(1)

Medicare Advantage

Unit Cost & Utilization

Q1

Q2

Q3

Hospital

Inpatient

Days/1,000

5.0%

4.1%

10.7%

Admits/1,000

1.3%

2.2%

6.6%

ALOS

3.6%

1.8%

3.8%

Cost/Day

-6.3%

-5.5%

-4.3%

SNF

Days/1,000

-0.4%

1.0%

5.7%

Admits/1,000

0.8%

2.6%

-0.7%

ALOS

-1.2%

-1.5%

0.5%

Cost/Day

-9.1%

-0.4%

-5.2%

Outpatient Surgery

Cases/1,000

4.4%

4.1%

2.6%

Cost/Case

-4.9%

-3.5%

-2.5%

ER

Cases/1,000

3.8%

7.2%

5.5%

Cost/Case

-12.9%

-7.4%

-5.4%

2008

Commercial

Commercial

30

2009 Underlying Health Care Cost Trend:

2009 Underlying Health Care Cost Trend:

HNCA –

HNCA –

Commercial

Commercial

Hospital trends reflect conversion of two hospitals from capitated to noncapitated arrangements

Underlying health care cost trend after adjusting for prior period development

(1)

(2)

(1)

(2)

'07 -

'08

'08 -

'09

Yield

6.5%

9.1%

Health Care Cost

Physician

Physician -

Claims

6.1%

5.3%

Physician -

Capitation

5.0%

7.2%

Physician Total

5.3%

6.8%

Hospital

Hospital -

Inpatient

12.9%

10.3%

Hospital -

Outpatient

9.9%

12.4%

Hospital -

Capitation

1.8%

9.8%

Hospital Total

10.5%

11.0%

Pharmacy

6.5%

3.4%

Other

-11.7%

11.2%

Total

7.8%

8.8%

% Change

31

2008 Financial Performance:

2008 Financial Performance:

HNCA –

HNCA –

Commercial

Commercial

Based on membership in noncapitated hospital arrangements (approximately 82% of total membership)

Underlying operational health care cost metrics after adjusting for prior period development

(1)

(2)

(1)

(2)

Unit Cost & Utilization

Q1

Q2

Q3

Hospital

Inpatient

Days/1,000

7.2%

1.0%

3.1%

Admits/1,000

-0.1%

-2.4%

0.6%

ALOS

7.3%

3.5%

2.5%

Cost/Day

6.2%

3.1%

5.5%

Outpatient Surgery

Cases/1,000

1.1%

4.0%

5.0%

Cost/Case

4.3%

9.4%

5.1%

ER

Cases/1,000

-1.2%

-1.5%

1.1%

Cost/Case

7.7%

11.7%

5.3%

% Change (year-over-year)

2008

32

2008 Performance:

2008 Performance:

HNCA –

HNCA –

Commercial

Commercial

•

Pressure on premium yields due to

competitive environment

•

Higher health care costs

–

Flu season

–

Late development impacting unit

cost assumptions

•

Two groups converted from dual to

shared risk

•

Cancelled hospital contracts

–

Savings from cost containment activities

less than expected

33

2009 Expectations:

2009 Expectations:

HNCA –

HNCA –

Commercial

Commercial

•

Focused, clear and simple plan

block-and-tackle

•

82% book is priced at a yield of 9.1%

–

99% of Special Accounts (1/3 membership) under contract

–

Assumes 1% higher rating compared to 2008 and a lower

impact from mix changes (geography, network, and account)

•

Baseline data for pricing is known

–

Professional:   74%

–

Institutional:   57%

–

Other:            62%

•

Conservative expectations on utilization improvement

Percent under contract

34

2009 Health Care Cost Trend Expectations:

2009 Health Care Cost Trend Expectations:

Oregon -

Oregon -

Commercial

Commercial

Underlying health care cost trend after adjusting for prior period development

(1)

(1)

'07 -

'08

'08 -

'09

Yield

5.7%

7.9%

Health Care Cost

Physician

Physician -

Claims

7.3%

6.6%

Physician -

Capitation

0.0%

0.0%

Physician Total

7.3%

6.6%

Hospital

Hospital -

Inpatient

14.3%

4.5%

Hospital -

Outpatient

3.8%

2.9%

Hospital -

Capitation

0.0%

0.0%

Hospital Total

8.9%

3.7%

Pharmacy

11.6%

4.9%

Other

9.4%

8.9%

Total

8.7%

5.1%

% Change

35

2009 Health Care Cost Trend Expectations:

2009 Health Care Cost Trend Expectations:

Northeast -

Northeast -

Commercial

Commercial

Underlying health care cost trend after adjusting for prior period development and effect of Guardian transaction

(1)

(1)

'07 -

'08

'08 -

'09

Yield

6.7%

5.3%

Health Care Cost

Physician

Physician -

Claims

2.3%

4.0%

Physician -

Capitation

3.2%

9.0%

Physician Total

2.5%

4.8%

Hospital

Hospital -

Inpatient

0.0%

6.3%

Hospital -

Outpatient

6.4%

6.8%

Hospital -

Capitation

56.7%

155.1%

Hospital Total

3.3%

7.5%

Pharmacy

7.6%

5.2%

Other

52.5%

19.6%

Total

5.0%

6.5%

% Change

36

2009 Health Care Cost Trend Expectations:

2009 Health Care Cost Trend Expectations:

Arizona -

Arizona -

Commercial

Commercial

Underlying health care cost trend after adjusting for prior period development

(1)

(1)

'07 -

'08

'08 -

'09

Yield

4.7%

8.0%

Health Care Cost

Physician

Physician -

Claims

9.7%

4.3%

Physician -

Capitation

11.4%

11.1%

Physician Total

9.7%

4.5%

Hospital

Hospital -

Inpatient

6.8%

14.9%

Hospital -

Outpatient

13.2%

9.6%

Hospital

-

Capitation

9.8%

4.9%

Hospital Total

9.3%

12.6%

Pharmacy

12.0%

9.8%

Other

13.3%

26.9%

Total

9.9%

9.4%

% Change

37

2008 Performance:

2008 Performance:

Oregon, Northeast, Arizona –

Oregon, Northeast, Arizona –

Commercial

Commercial

•

Oregon

–

Continued solid performance

–

Membership = generally flat

•

Emerging strength in small group market (4Q08)

–

Revenue

•

Lower than necessary yield in mid-size and large groups

–

Health care costs

•

Higher than normal frequency of high cost cases

•

Northeast

–

Pricing discipline resulted in commercial membership losses

•

Lapsed less profitable large group business

–

Maintained competitive MCR’s

–

G&A level impacted pricing competitiveness

•

Arizona

–

Higher than expected commercial catastrophic claims and case-mix negatively

impacting 2008 run-rate

–

Overall care intensity driving higher than expected unit cost trends across all products

and segments

–

Increased physician trends driven solely by higher utilization and coding intensity

across all products and segments

–

Solid

Medicare

Advantage

growth,

but

lower

than

expected

margins

due

to

the

higher

than expected health care cost trends

38

2009 Expectations:

2009 Expectations:

Oregon, Northeast, Arizona

Oregon, Northeast, Arizona

•

Oregon

–

Continued positive performance

–

Expect some health care cost recovery by assuming normal frequency of

high cost cases

–

Positive yield on mid-size and large group business due to the pricing

corrections occurring in the market

•

Northeast

–

Stabilizing commercial membership losses

•

Implementing targeted pricing actions to improve risk selection and

stimulate middle market growth

–

Addressing expense levels to improve competitiveness

–

NJ small group margin deterioration due to minimum loss ratio regulatory

requirement of 80%

•

Arizona

–

Commercial book will be repositioned by 12/31/09

–

Pricing discipline will slow growth but improve performance

–

Provider unit cost trends expected to be single digit and the network is

expected to continue to grow

–

Continued medical management discipline seeking upside cost mitigation

opportunities with a focus on improving patient care

Medicare

Medicare

40

2009 Underlying Health Care Cost Trends:

2009 Underlying Health Care Cost Trends:

Medicare

Medicare

Underlying health care cost trend after adjusting for prior period development

(1)

(1)

Medicare Advantage

'07 -

'08

'08 -

'09

Yield

2.7%

6.2%

Health Care Cost

Physician

Physician -

Claims

13.6%

14.1%

Physician -

Capitation

-2.1%

-6.1%

Physician Total

5.0%

3.7%

Hospital

Hospital -

Inpatient

15.4%

6.8%

Hospital -

Outpatient

3.6%

11.2%

Hospital -

Capitation

-15.7%

-12.2%

Hospital Total

6.4%

4.6%

Pharmacy

10.0%

5.3%

Other

35.3%

8.7%

Total

6.6%

4.4%

% Change

41

Medicare: What Happened in 2008?

Medicare: What Happened in 2008?

•

Benefit leader in 2008

•

Experienced substantial growth across MAPD

•

Early 2008 experience led to margin deterioration

–

Rich benefits and low member out-of-pocket costs

–

Higher utilization than planned

–

Lower RAF scores than industry

Revenue

HCC

GM

Member Months

MCR (bps)

Total MA

29.5%

34.4%

-3.9%

26.1%

-331

PMPM change

2.6%

6.6%

-23.8%

2007-2008

42

•

Priced 2009 bids to address MCR concerns across

all products

–

Factored for higher-than-expected HCC in 2008

•

Adjusted premiums and benefit design (specialist

co-pay, hospital co-pay) to improve gross margin –

will result in membership deterioration in some plans

•

Contracted industry leading risk adjustment services

•

Targeted Medicare medical management practices

Revenue

HCC

GM

Member Months

MCR (bps)

Total MA

7.4%

5.6%

24.8%

1.1%

154

PMPM change

6.0%

4.4%

23.5%

2009 Expectations: Medicare

2009 Expectations: Medicare

2008-2009

Federal Services / MHN

Federal Services / MHN

Steve Tough

President, Health Plans and

Government Programs

November 18, 2008

44

2009 and Beyond

2009 and Beyond

•

Relationships with our customers are very strong

•

Service and financial performance has been excellent

•

TRICARE, Military & Family Life Consultants (MFLC)

and EAP programs remain solid cornerstones

•

Base of operations provides a sound foundation for  

the future

•

2009 and beyond plan is geared for growth through

diversification

•

Consolidated MHN and HNFS leadership into a

combined management structure

•

Focused on using a common infrastructure and gaining

efficiencies across both organizations

45

Current TRICARE Contract

Current TRICARE Contract

•

Excellent performance—meeting or exceeding all contract

requirements and benchmarks

•

Top-to-bottom relationship with customer is solid

•

Financial results

–

Expect to reach $2.6 billion in total contract revenue in

2008 (8.5% increase over 2007)

–

Expect to achieve 95% government contract ratio for

the full year 2008

–

On track to achieve the health care cost target for

Option Period 5

46

Current TRICARE Contract

Current TRICARE Contract

•

Confident of ability to deliver on 2009 plan

–

On track to meet Option Period 5 performance targets

–

Current TRICARE business model continues through

April 2010

–

Engaged in Option Period 6 discussions

–

Based on previous experience, we expect an increase in

revenue consistent with the increase in health care costs

–

Expect Government Contract Ratio to be in the

95.0% to 95.5% range

47

TRICARE Contract

TRICARE Contract

Re-Procurement Overview

Re-Procurement Overview

•

Proposal delivered at end of June 2008

–

Terms are valid for 270 days (through March 27, 2009)

•

Statement of work is nearly the same as current

TRICARE contract

•

Period of Performance, as currently stated in the RFP

–

Transition from June 1, 2009 to March 31, 2010

–

First Option Period (of five) from April 1, 2010 to

March 31, 2011

•

Well-positioned for award

–

Low-risk, best value solution

–

Strong past performance

–

High stakeholder satisfaction

48

TRICARE Contract

TRICARE Contract

Re-Procurement Overview

Re-Procurement Overview

•

Three factors in evaluating the proposals

–

Technical approach

–

Past performance

–

Price/cost

•

Extension of current contract

–

Re-procurement terms extended the period of

performance for the current contract through

March 31, 2010 

–

Government has the authority to extend for two

additional 6-month periods

•

What will happen?

49

•

Customer remains our number one priority

•

TRICARE program continues to run extremely well

–

Ongoing partnership with the Government on innovative solutions

for military beneficiaries

–

Continued high satisfaction with the TRICARE benefit and

Health Net as a contractor

Recently achieved the highest satisfaction levels among all

stakeholders since the beginning of the contract and the

highest overall satisfaction level to-date in the award fee

process

98% satisfaction among military treatment

facility commanders

Exceptional beneficiary satisfaction (using multiple

measures) –

more than a 90% satisfaction rate

Not a single contractual deficiency during the entire term

of the contract

•

Metric performance and satisfaction are the primary basis on

which past performance is evaluated

Solid TRICARE Performance

Solid TRICARE Performance

50

MFLC: A Department of Defense Program

MFLC: A Department of Defense Program

•

Short-term, situational non-medical counseling services

and outreach

•

Assists service members and their families through the

challenges of military life

•

5-year, $300 million contract awarded to MHN effective

April 1, 2007

–

Started as an MHN pilot program in 2004

–

Task order driven

•

More than 500 consultants at 186 locations worldwide seeing

over 300,000 people per month

•

Substantial year-over-year revenue growth:

$50 million in 2007, on target for $100 million in 2008 and 

budgeting $140 million in 2009

•

Confident in achieving 2009 revenue:

–

Demand for base non-medical counseling services is increasing

–

Personal financial counseling added to scope of contract

51

Opportunities

Opportunities

•

International

–

Dubai Health Authority

–

Evolving opportunities in the Middle East

•

Department of Defense

–

TRICARE Overseas

–

MFLC expansion

–

TRICARE/Medicare Pilot

–

National Guard and Reserve health care service support

Single team focused on opportunities and

leveraging the infrastructure:

52

Opportunities

Opportunities

•

Department of Veterans Affairs

–

Regional programs –

civilian network and

clinic support

–

Mental/behavioral health surge capacity

–

VetAdvisor

expansion (includes TBI and

PTSD screening)

•

Other government and commercial entities

–

Targeted commercial market segments (public

employers, labor & trust, student health)

–

Targeted Medicare and Medicaid opportunities

–

“CalPERS-like”

scenarios

–

Growing need to support veterans and wounded, ill

and injured service members with TBI and PTSD

Health Net, Inc.

Health Net, Inc.

Investor Conference

Investor Conference

Medicare Programs

Medicare Programs

Scott Kelly

Chief Government Programs Officer

November 18, 2008

55

Medicare Advantage Market

Medicare Advantage Market

•

Broad array of products: HMO/HMO-POS, SNP, PFFS,

PPO, RPPO, PDP

•

Highly regulated and very competitive across

product lines

–

Market continues to grow

HNT accounted for greater than 35% of

industry growth in its markets

–

Regulatory challenges

Marketing limitations

Commission regulations

–

Competitive pricing in the market

56

Medicare Market View

Medicare Market View

Oregon

CCPs/PFFS/PDP

California

CCPs/PDP

PFFS/MedSup

Washington

PDP/PFFS

Arizona

CCPs/PDP

New Mexico

PDP/PFFS

Texas

PDP/PFFS

Connecticut

CCPs/PDP

PFFS

New York

PDP/PFFS

Hawaii

PDP/PFFS

CCPs & PDP

(may incl. PFFS)

PFFS & PDP

Note: PDP is offered in all 50 states

Massachusetts

PDP/PFFS

Virginia

PDP/ PFFS

North Carolina

PDP/ PFFS

Georgia

PDP/ PFFS

CCPs = Coordinated Care Plans

PFFS = Private Fee-for-Service

PDP = Prescription Drug Plan

57

Medicare Advantage Positioning

Medicare Advantage Positioning

•

Health Net is now the seventh largest MA plan nationally

–

Limited core market footprint

HNT led growth in its core markets

–

Limited PFFS engagement nationally

•

Health Net grew by 25% nationally

–

Predominance of growth in network-based products (HMO/PPO)

Rank

Plan

Dec '07

Oct '08

% Share

Growth

% Growth

1

UnitedHealth Group, Inc.

1,430,280

1,524,600

15.6%

94,320

6.6%

2

Humana Inc.

1,188,862

1,371,646

14.0%

182,784

15.4%

3

Kaiser Foundation Health Plan, Inc.

823,189

837,367

8.6%

14,178

1.7%

4

WellPoint, Inc.

369,638

461,882

4.7%

92,244

25.0%

5

Coventry Health Care Inc.

282,824

376,827

3.8%

94,003

33.2%

6

Aetna Inc.

190,431

362,317

3.7%

171,886

90.3%

7

Health Net, Inc.

232,284

290,033

3.0%

57,749

24.9%

8

Blue Cross Blue Shield of Michigan

190,659

278,932

2.8%

88,273

46.3%

9

Highmark Inc.

233,477

266,390

2.7%

32,913

14.1%

10

Universal American Corporation

232,696

242,777

2.5%

10,081

4.3%

Top 10 Total

5,174,340

6,012,771

61.4%

838,431

16.2%

Total Market

8,468,465

9,791,401

100.0%

1,322,936

15.6%

Source: CMS Enrollment data

58

Medicare Part D Positioning

Medicare Part D Positioning

•

Health Net ranks eighth nationally among PDP plans

•

Health Net grew by 45% in 2008

•

Adjusted bids to address MCR concerns, resulting in 2009 projected

membership deterioration of approximately 98,000 members

–

Expected 2009 MCR improvement: 290 to 300 basis points

–

Expected 2009 gross margin improvement: $5 million to $7 million

Rank

Plan

Dec '07

Oct '08

%Share

Growth

%Growth

1

UnitedHealth Group, Inc.

4,891,231

4,095,869

23.5%

-795,362

-16.3%

2

Humana Inc.

3,458,903

3,094,310

17.7%

-364,593

-10.5%

3

Universal American Corporation

1,643,593

1,835,402

10.5%

191,809

11.7%

4

WellPoint, Inc.

1,229,432

1,394,592

8.0%

165,160

13.4%

5

WellCare Health Plans, Inc.

982,559

989,145

5.7%

6,586

0.7%

6

Coventry Health Care Inc.

722,046

912,261

5.2%

190,215

26.3%

7

CVS Caremark Corporation

361,484

561,486

3.2%

200,002

55.3%

8

Health Net, Inc.

368,121

534,671

3.1%

166,550

45.2%

9

Longs Drug Stores Corporation

249,433

464,188

2.7%

214,755

86.1%

10

Medco Health Solutions, Inc.

314,833

423,718

2.4%

108,885

34.6%

Top 10 Total

14,221,635

14,305,642

82.0%

84,007

0.6%

Market Total

17,239,108

17,438,708

100.0%

199,600

1.2%

Source: CMS Enrollment data

59

2008 Performance

2008 Performance

•

Benefit leader in 2008

•

Experienced substantial growth across MAPD

•

Early 2008 experience led to margin deterioration

–

Rich benefits and low member out-of-pocket costs

–

Higher utilization than planned

–

Lower RAF scores than industry

2007 - 2008 (Percent Change)

Revenue

HCC

GM

Member

MCR

(pmpm)

(pmpm)

(pmpm)

Months

(bps)

Total MA

>2%

>6%

~(24%)

~26%

~(330)

60

2009 Membership Projections

2009 Membership Projections

(in thousands)

2008

Expectations

2009

Guidance

% Change

California

132

121

Oregon

23

26

Arizona

67

61

Northeast

58

62

Expansion States

16

21

Total Medicare Advantage

295

290

-1 to -2 %

Health Net

Medicare Advantage Enrollment

61

2009 Expectations

2009 Expectations

•

Priced 2009 bids to address MCR concerns across

all products

–

Factored for higher than expected HCC in 2008

•

Adjusted premiums and benefit design (specialist

co-pay, hospital co-pay) to improve gross margin –

will cause membership deterioration in some plans

•

Contracted industry-leading risk adjustment services

•

Targeted Medicare medical management practices

2008 - 2009 (Percent Change)

Revenue

HCC

GM

Member

MCR

(pmpm)

(pmpm)

(pmpm)

Months

(bps)

Total MA

>6%

>4%

>23%

~1%

>150

62

Opportunities

Opportunities

•

Revenue enhancement through RAF score improvement

–

Continuation of industry-proven RAF initiatives

in all markets

–

Supplement RAF activity with network

management support

–

Data collection efforts expanded to pull directly from

source systems

•

Ensures complete retrieval of all diagnosis codes

impacting 2008 and 2009 revenue

–

Expansion of chart audits to include 100% of members

every other year

•

Execute on member retention strategy

–

Market differentiators such as Healthy Heart program

California Market

California Market

Steve Sell

President

Health Net of California

November 18, 2008

64

California Market Dynamics

California Market Dynamics

•

Largest state in U.S. with 37 million people

•

Membership concentrated around high

population density areas

•

Highest managed care penetration in the U.S.

•

Slowing economy

>50,000 Members

20,000-49,999 Members

10,000-19,999 Members

5,000-9,999 Members

1,000-4,999 Members

500-999 Members

<499 Members

Health Net Membership

As of September 30, 2008

65

Market Positioning

Market Positioning

Why Buy A Health Net Product?

•

$7 billion health plan with

2.2 million members

•

Dominant network HMO

•

Strong network and provider

partnerships

•

Targeted geographies

•

Diversified product portfolio

Source: Health Leaders, January 2008 (includes ASO)

66

Action Plan

Action Plan

•

Focus on the basics

–

Sales and account management

–

Product and marketing

–

Underwriting discipline; population and account level

•

Build on strengths and key differentiators

–

Competitive HMO offering

–

HMO Portfolio (EOA, Silver, Salud, Optimizer)

–

Responsive and high touch service

–

Strong provider network and medical management

•

Play to our “sweet spot”

–

Targeted geographies

–

Segments within the segments

67

Focus on Sub-Segments

Focus on Sub-Segments

Segments/

Sub-Segments

2008

Revenue

Membership

(12/08

Projected)

Membership

(12/09

Forecast)

B/(W)

Total Commercial

$5.0   B

1,355 K

(54,000)

Large

–SPA

–L&T

–Mid

$3.5   B

1.7   B

0.3   B

1.5   B

908 K

448 K

74 K

386 K

(36,000)

(27,000)

0               

(9,000)

Small/Individual

–Small

–Individual

$1.4   B

1.1   B

0.3   B

413 K

313 K

100 K

(16,000)

0

(16,000)

68

Action Plan

Action Plan

Market Segment

Health Net –

Sweet Spot

SPA/L&T

Focus:

Large CA-centric employers and unions

Need:

–

High-touch account management and service

–

Price-competitive HMO as slice offering

–

Low-cost offering without cost-shift

Mid-Market

Focus:

Public Entities (Municipalities, Schools, etc.)

Need:

–

Local touch with flexibility

–

Predictable rate increases

Small Groups

Focus:

Targeted Geographies and Brokers

Need:

–Solid standard product portfolio = “The wheel”

–Strong broker services

–Stable and predictable

Individual

Under strategic review

69

Challenges

Challenges

•

Convert difficult economic environment into an

opportunity by providing low-cost, profitable options to

individuals and groups

•

Focus on value proposition to offset pricing pressure

•

Improve

PPO product –

cost structure and servicing for

2010 and beyond

•

Price according to cost trends

70

Opportunities

Opportunities

•

Well-positioned in California for 2009

–

Strong HMO presence (11% market share)

–

Over 30 years of history in California

–

Provides a low cost option in a strained economy

•

Provide differentiated value compared to competition

–

One of two dominant local HMO options

(excluding Kaiser)

–

Local presence enables strong account management

–

Strong managed care capabilities through network

partnerships and “whole-person health”

71

Opportunities

Opportunities

•

Focus for 2009

–

Targeted growth in high value geographical markets

–

Offer low-cost options (without unaffordable cost shift)

–

Pursue local opportunities in small, mid-

and large

group markets

–

Demonstrated value proposition and strengthened

account services

Health Net, Inc.

Health Net, Inc.

Investor Conference

Investor Conference

Operations Strategy

Operations Strategy

Update

Update

Jim Woys

Executive Vice President

and Chief Operating Officer

November 18, 2008

74

Overview

Overview

Significant progress was made in 2008 in the following

activities as part of our operations strategy:

Performance Improvements

Performance Improvements

System Consolidation

System Consolidation

Application, Infrastructure,

Business Process Outsourcing

Application, Infrastructure,

Business Process Outsourcing

75

Achieving Operational Excellence

Achieving Operational Excellence

2007 to 2008

Recognize Opportunity

2008 to 2009

Year of Investment

2009 to 2011

Harvesting Benefits

•

Multiple systems

•

Manual processes

and workarounds

•

System

consolidation

planning

•

Sequencing of highest

benefit projects

•

Aging and inefficient

systems and technology

•

Application and

infrastructure

outsourcing

•

Best-in-class

outsourcing partners to

extend capabilities

•

High cost locations

and functions

•

Consolidation of

processes,

management,

footprint

•

Reduced headcount

•

Business process

outsourcing

•

Strategic sourcing

•

Multiple data warehouses

•

Inconsistent operational

metrics

•

Redundant analytical

functions

•

Consolidating

operations

•

Consistent metrics

and analytics

•

Performance-focused

operations

76

•

Improve service delivery while reducing costs

•

Economically replace aging technology

•

Outsource commoditized IT services

•

Improve quality and reliability of IT

development work products

•

Eliminate redundancies and variation and

increase performance

•

Improve customer service capabilities

•

Launch new electronic tools

•

Consolidate performance metrics

Capability Improvements

Capability Improvements

77

Sustainable Results

Sustainable Results

2008

2009

2010

2011

(in thousands except for percentages)

Guidance

Guidance

Expected

Expected

Total Member Months  (excl. PDP)

38,231

36,889

37,488

38,314

Total G&A*

1,088,614

$ 

1,113,718

$ 

1,127,526

$ 

1,118,698

$ 

G&A % change (year-over-year)

-1.1%

2.3%

1.2%

-0.8%

Effect of Operations Strategy and G&A Management

Change from  3.5% inflation

expectations and adjusted for

membership changes

(54,733)

(29,488)

(36,064)

(42,484)

Cumulative impact

(54,733)

(84,221)

(120,285)

(162,769)

Adjusted G&A Expense Ratio

9.2%

9.1%

8.4%

7.7%

*Excludes MIP, stock-based compensation, Medicare Part D-related G&A expense, and regulatory and operations strategy-related charges

78

Cost Structure Repositioning

Cost Structure Repositioning

Operations Strategy Improvements

(In Millions)

•

Outsourcing accounts for approximately 50% of the overall improvement

•

Performance improvements are result of centralized and consolidated

operations, uniform metrics, use of electronic channel and decreased

use of outside services; leads to increased service levels

79

Restructuring Charge/Savings

Restructuring Charge/Savings

Operations Strategy Impact

(In Millions)

Restructuring charges include severance, retention, relocation, performance bonus,

consulting, and data center relocation

Break Even Year

80

Guidance vs. Actuals

Guidance vs. Actuals

Actual / Expectation

Guidance

2007

2008

2009

11.0%

10.2%

10.0%

9.5%

9.6%

G&A Exceeds Guidance

G&A Exceeds Guidance

Financial Review

Financial Review

Joseph C. Capezza

Executive Vice President

and Chief Financial Officer

November 18, 2008

82

Agenda

Agenda

•

2008 Results and Guidance

•

2009 Expectations

83

2008 Performance

2008 Performance

•

Commercial premium yields above original guidance

•

Lower commercial membership

•

Medicaid, Medicare Advantage and PDP membership grew

significantly during the year

•

Due to higher cost trends, primarily hospital unit cost and

utilization, year-over-year deterioration in MCR across all

lines of business

•

Strong G&A expense management

•

Negative cash flow due to legal and operations strategy charges

•

Strong, conservative balance sheet and investment portfolio

84

2008 Balance Sheet Metrics

2008 Balance Sheet Metrics

As of September 30, 2008

Cash and investment holdings

$2.2 Billion

Strong Liquidity Ratios:

–

Cash ratio

0.98

–

Current ratio

1.56

Debt-to-capital ratio

27.6%

85

Investment Portfolio Highlights

Investment Portfolio Highlights

Market Value

$1.8 Billion

–

Net unrealized losses

$43 Million

Market value yield-to-maturity

5.3%

Average coupon

5.1%

Average duration

3.9 years

Average rating

AA+

Subprime risk

-0-

As of September 30, 2008

86

Agenda

Agenda

•

2008 Results and Guidance

•

2009 Expectations

87

2009 Earnings Guidance

2009 Earnings Guidance

Year-end Membership

•

Commercial Risk  -3 to -5%

•

Medicaid  +2 to +3%

•

Medicare Advantage  -1 to -2%

•

PDP  -15 to –20%

Consolidated Revenues

$15.5 to $16 billion

Commercial Premium Yields

~ 9 to 9.5%

Commercial Health Care Cost Trends

~ 40 to 60 bps < yield

Selling Cost Ratio

~ 2.9%

Gov’t Contract Ratio

~ 95.0 to 95.5%

G&A Expense Ratio

~ 9.6 to 9.8%

Tax Rate

~ 38.5 to 38.7%

Shares Outstanding

104 –

105 million

EPS*

$2.25 to $2.40

* 2009 guidance excludes expected operations strategy-related charges of $70 million to $80 million

88

Key Drivers of 2009 EPS Improvement

Key Drivers of 2009 EPS Improvement

* *2009 guidance excludes expected operations strategy-related charges of $70 million to $80 million

* Excludes nine months YTD 2008 litigation-related charges of $59 million, operations strategy-related charges of $53 million, investment

impairment of $15 million and expected 4Q08 operations strategy-related charges of $30 million to $35 million

EPS

EPS

Guidance

Midpoint

2008 Guidance*

$1.85-$1.89

1.87

$     

Medicare MCR/membership

0.55

$     

Commercial MCR/membership

0.25

$     

Gov't & Specialty Services

0.07

$     

Lower Weighted Average Share Count

0.03

$     

SG&A/D&A

(0.25)

$    

Medicaid Rate Reductions

(0.11)

$    

Investment Income

(0.09)

$    

Other P&L Items

0.00

$     

2009 Guidance**

$2.25-$2.40

2.32

$     

89

Cash Position at the Parent Company

Cash Position at the Parent Company

($ Millions)

Actual cash at Parent (9/30/08)

$140

Expected cash at Parent (12/31/08)

$210

2009 Annual cash needs

Interest expense

40

Debt repayment

35

Other

10

Total

($85)

Average dividends from subsidiaries

$100

Expected cash at Parent (12/31/09)

$225

Cash at Parent as % of cash needs (12/31/08)

(12/31/09)

2.5

2.6

90

2009 Cash & Investments Guidance

2009 Cash & Investments Guidance

•

Operating cash flow approximately 115% of net income

or $275 million to $295 million

•

Capital expenditures of approximately $50 million to 

$55 million

•

No share repurchases

•

Maintain strong capital position with a total RBC of

approximately 350%

•

Solid balance sheet, keeping debt-to-total capitalization

under 30%

•

Financial flexibility and liquidity

91

Summary

Summary

•

Visibility to 2009 earnings growth

•

Focus on margin improvement

•

Executing on G&A expense management

•

Investment portfolio and balance sheet strong