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): February 3, 2010

Health Net, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	1-12718	95-4288333
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS 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))

Section 2- Financial Information

Item 2.02 Results of Operations and Financial Condition.

On February 3, 2010, Health Net, Inc. (the “Company”) issued a press release announcing its earnings for the quarter and year ended December 31, 2009. The press release discloses certain financial information that is considered non-GAAP financial information. The Company believes this non-GAAP financial information provides useful information to both management and investors by excluding certain expenses and other one-time items that are not indicative of our core operating results, and by adjusting for certain items related to timing. Management refers to this financial information to facilitate internal and external comparisons to the Company’s historical operating results and for forecasting purposes. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. Detailed explanations of the non-GAAP financial information contained in the release and reconciliations to the comparable GAAP information are contained in the financial tables attached to the release. As used herein, “GAAP” refers to accounting principles generally accepted in the United States.

The press release is attached hereto as Exhibit 99.1 and hereby incorporated in this Item 2.02 by reference.

Section 9- Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release dated February 3, 2010 announcing results for the quarter and year ended December 31, 2009 for Health Net, Inc.

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.
February 3, 2010	By:	/s/ Angelee F. Bouchard
		Name: Angelee F. Bouchard
		Title: Senior Vice President, General Counsel and Secretary

EX-99.1

Exhibit 99.1

Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 818.676.6000 800.291.6911 www.healthnet.com

Investor Contact	Media Contact
Angie McCabe	Margita Thompson
818.676.8692	818.676.7912
angie.mccabe@healthnet.com	margita.thompson@healthnet.com

HEALTH NET REPORTS ADJUSTED¹ FOURTH QUARTER 2009

NET INCOME OF $72.4 MILLION, OR $0.69 PER DILUTED SHARE

ADJUSTED¹ NET INCOME FOR THE FULL YEAR 2009 WAS $235.1 MILLION,

OR $2.25 PER DILUTED SHARE

LOS ANGELES, February 3, 2010 – Health Net, Inc. (NYSE: HNT) today announced a fourth quarter 2009 net loss of $45.2 million, or $0.43 per share compared with fourth quarter 2008 net income of $35.5 million, or $0.34 per diluted share. Adjusted¹ net income in the fourth quarter of 2009 was $72.4 million, or $0.69 per diluted share, compared with fourth quarter 2008 adjusted¹ net income of $63.1 million, or $0.61 per diluted share.

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

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

2. $15.3 million in cash charges related to the company’s operations strategy and other expenses.

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

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

Fourth Quarter and Full-Year 2009 Key Highlights:

1. The company completed the sale of its Northeast businesses on December 11, 2009, and received $350 million in cash at closing;

2. The company’s pretax margin on an adjusted¹ basis improved 70 basis points to 3.3 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008, and 30 basis points year-over-year;

3. Cost-effective, narrow network commercial products in California grew 14 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008; and

4. The company resumed its share repurchase program in December 2009, and has repurchased more than 2.7 million shares at an average price of $24.74, for a total cost of $67.3 million through January 29, 2010.

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

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

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

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

CONSOLIDATED RESULTS

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

Membership:

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

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

2

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

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

Revenues:

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

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

Medical Care Ratios (MCR):

The health plan services MCR in the fourth quarter of 2009 increased 50 basis points to 85.8 percent from 85.3 percent in the fourth quarter of 2008.

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

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

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

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

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

Commercial Premium Yield and Health Care Cost Trends:

Commercial premium yields per member per month (PMPM) increased by 6.1 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. Total commercial health care costs PMPM increased 8.6 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008.

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

3

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

General & Administrative (G&A) Expenses:

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

Operating Cash Flow:

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

1. The delay of a $45 million payment from the California Department of Health Services for Medi-Cal. The payment was received in January 2010;

2. A $16 million net increase in the Government contracts receivable due to payment timing issues; and

3. $10 million in legal costs and settlements not included in the company’s cash flow guidance.

Balance Sheet Items:

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

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

Days Claims Payable (DCP):

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

On an adjusted² basis, DCP in the fourth quarter of 2009 was 55.7 days compared with 55.4 days in the third quarter of 2009. Adjusted ² DCP was calculated by excluding the Northeast fourth quarter 2009 health plan expenses, provider and other claims settlements and charges, capitation payments and Medicare and Part D expenses from health plan expenses.

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

4

2010 Guidance:

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

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

Conference Call:

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

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

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

5

About Health Net:

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

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

Cautionary Statements:

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

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

#        #        #

[Eight pages of tables follow]

6

Health Net, Inc.

Enrollment Data - By State

(In thousands)

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

Page 7

Health Net, Inc.

Enrollment Data - Line of Business

(In thousands)

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

Page 8

Health Net, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except per share, PMPM and ratio data)

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

Page 9

Health Net, Inc.

Reconciliation of Non-GAAP Financial Measures

Operating Results Excluding Charges

(Amounts in thousands, except per share, PMPM and ratio data)

This table presents the company’s consolidated operations for the periods presented below and the charges recorded in the consolidated statement of operations for such periods. Information for the quarter and year-ended December 31, 2009 also includes the financial impact from the December 11, 2009 sale of our Northeast health plans. Management believes that the presentation of certain financial information in the attached press release, excluding the charges that were recorded and excluding the impact from the divestiture of our Northeast health plans, all of which is non-GAAP financial information, is important to investors as it excludes special items that are not indicative of our core operating results. Non-GAAP financial information presented below should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.

	Quarter Ended December 31, 2008									Year Ended December 31, 2008									Quarter Ended September 30, 2009
	As Reported			Impact of Charge1			Excluding Impact of Charge1 (Non- GAAP)			As Reported			Impact of Charges2			Excluding Impact of Charges2 (Non- GAAP)			As Reported			Impact of Charge3			Excluding Impact of Charge3 (Non- GAAP)
REVENUES:
Health plan services premiums	$	3,082,133					$	3,082,133		$	12,392,006					$	12,392,006		$	3,166,877					$	3,166,877
Government contracts		751,604						751,604			2,835,261						2,835,261			758,507						758,507
Net investment income		24,536						24,536			91,042			(14,642	)		105,684			27,691						27,691
Administrative services fees and other income		11,209						11,209			48,280			(3,400	)		51,680			15,578						15,578
		3,869,482			—			3,869,482			15,366,589			(18,042	)		15,384,631			3,968,653			—			3,968,653
EXPENSES:
Health plan services		2,629,398			(5,700	)		2,635,098			10,762,657			37,496			10,725,161			2,734,984			(571	)		2,735,555
Government contracts		718,893						718,893			2,702,573						2,702,573			716,323						716,323
General and administrative		347,128			53,535			293,593			1,291,059			119,540			1,171,519			319,451			19,495			299,956
Selling		92,314						92,314			360,381						360,381			83,275						83,275
Depreciation and amortization		17,271						17,271			59,878						59,878			12,689						12,689
Interest		10,523						10,523			42,909						42,909			10,264						10,264
Asset impairments		—						—			—						—			170,570			170,570			—
Loss on sale of businesses		—						—			—						—			—						—
		3,815,527			47,835			3,767,692			15,219,457			157,036			15,062,421			4,047,556			189,494			3,858,062
Income (loss) from operations before income taxes		53,955			(47,835	)		101,790			147,132			(175,078	)		322,210			(78,903	)		(189,494	)		110,591
Income tax provision (benefit)		18,420			(20,227	)		38,647			52,129			(70,951	)		123,080			(12,881	)		(53,890	)		41,009
Net income (loss)	$	35,535		$	(27,608	)	$	63,143		$	95,003		$	(104,127	)	$	199,130		$	(66,022	)	$	(135,604	)	$	69,582
Basic earnings (loss) per share	$	0.34					$	0.61		$	0.89					$	1.87		$	(0.64	)				$	0.67
Diluted earnings (loss) per share	$	0.34					$	0.61		$	0.88					$	1.85		$	(0.64	)				$	0.67
Weighted average shares outstanding:
Basic		103,694						103,694			106,532						106,532			103,873						103,873
Diluted		104,063						104,063			107,610						107,610			103,873						104,432
Pretax margin		1.4	%					2.6	%		1.0	%					2.1	%		-2.0	%					2.8	%
Health plan services MCR		85.3	%					85.5	%		86.9	%					86.5	%		86.4	%					86.4	%
Government contracts cost ratio		95.6	%					95.6	%		95.3	%					95.3	%		94.4	%					94.4	%
G&A expense ratio		11.2	%					9.5	%		10.4	%					9.4	%		10.0	%					9.4	%
Selling costs ratio		3.0	%					3.0	%		2.9	%					2.9	%		2.6	%					2.6	%
Effective tax rate		34.1	%					38.0	%		35.4	%					38.2	%		16.3	%					37.1	%

1 Includes a $5.7 million pretax benefit for a litigation reserve true-up included in health plan services expenses and a $53.5 million pretax charge primarily for severance and other expenses related to the company’s operations strategy and included in G&A.

2 Includes a $175.1 million pretax charge in total of which:

(a) $119.6 million was primarily related to severance and other expenses associated with the company’s operations strategy and included in G&A expenses

(b) $37.5 million was included in health plan services expenses for estimated litigation liability and regulatory actions for the company’s rescission practices in Arizona and California and for the execution of the settlement agreement for the McCoy, et al., lawsuits

(c) $14.6 million investment impairment charge taken in the third quarter of 2008 and included in net investment income

(d) $3.4 million pretax charge related to the estimated loss on the sale of the assets of a subsidiary taken in the first quarter of 2008 and included in other income

3 Includes a $0.6 million pretax benefit for a litigation reserve true-up included in health care costs, a $19.5 million pretax charge primarily for IT systems and other expenses related to the company’s operations strategy and included in G&A expenses and a $170.6 million pretax asset impairment charge for goodwill, intangible and IT-related assets related to the sale of our Northeast health plans.

Page 10

Health Net, Inc.

Reconciliation of Non-GAAP Financial Measures

Operating Results Excluding Charges

(Amounts in thousands, except per share, PMPM and ratio data)

	Quarter Ended December 31, 2009												Year Ended December 31, 2009
	As Reported			Impact of Charges4			Divested Operations5			Excluding Impact of Charges and Divestiture4,5 (Non- GAAP)			As Reported			Impact of Charge6			Divested Operations5			Excluding Impact of Charge and Divestiture5,6 (Non- GAAP)
REVENUES:
Health plan services premiums	$	2,981,678					$	5,483		$	2,976,195		$	12,440,589					$	5,483		$	12,435,106
Government contracts		754,766									754,766			3,104,700									3,104,700
Net investment income		33,486						1,126			32,360			105,930						1,126			104,804
Administrative services fees and other income		28,165						15,113			13,052			62,022						15,113			46,909
		3,798,095			—			21,722			3,776,373			15,713,241			—			21,722			15,691,519
EXPENSES:
Health plan services		2,557,149						5,508			2,551,641			10,731,951			(4,805	)		5,508			10,731,248
Government contracts		703,721			3,632						700,089			2,936,090			3,632						2,932,458
General and administrative		359,039			38,723			20,588			299,728			1,365,586			124,799			20,588			1,220,199
Selling		84,068						249			83,819			330,112						249			329,863
Depreciation and amortization		8,605						589			8,016			53,044						589			52,455
Interest		9,538									9,538			40,887									40,887
Asset impairments		4,309			4,309						—			174,879			174,879						—
Loss on sale of businesses		105,931			105,931						—			105,931			105,931						—
		3,832,360			152,595			26,934			3,652,831			15,738,480			404,436			26,934			15,307,110
Income (loss) from operations before income taxes		(34,265	)		(152,595	)		(5,212	)		123,542			(25,239	)		(404,436	)		(5,212	)		384,409
Income tax provision (benefit)		10,892			(38,149	)		(2,059	)		51,100			23,765			(123,533	)		(2,059	)		149,357
Net income (loss)	$	(45,157	)	$	(114,446	)	$	(3,153	)	$	72,442		$	(49,004	)	$	(280,903	)	$	(3,153	)	$	235,052
Basic earnings (loss) per share	$	(0.43	)							$	0.70		$	(0.47	)							$	2.26
Diluted earnings (loss) per share	$	(0.43	)							$	0.69		$	(0.47	)							$	2.25
Weighted average shares outstanding:
Basic		103,902									103,902			103,849									103,849
Diluted		103,902									104,626			103,849									104,412
Pretax margin		-0.9	%								3.3	%		-0.2	%								2.4	%
Health plan services MCR		85.8	%								85.7	%		86.3	%								86.3	%
Government contracts cost ratio		93.2	%								92.8	%		94.6	%								94.5	%
G&A expense ratio		11.9	%								10.0	%		10.9	%								9.8	%
Selling costs ratio		2.8	%								2.8	%		2.7	%								2.7	%
Effective tax rate		-31.8	%								41.4	%		-94.2	%								38.9	%

4 Includes a $3.6 million charge for TRICARE contract procurement costs included in government contracts expenses and a $38.7 million operations strategy charge and Northeast divestiture related expenses, each of which are included in G&A expenses, and an asset impairment and loss on the sale of Northeast health plans recorded in 2009.

5 Represents revenues and expenses related to the run-off of the Northeast health plans divested on December 11, 2009.

6 Includes a $4.8 million pretax benefit for a litigation reserve true-up included in health care costs, $3.6 million charge for TRICARE contract procurement costs included in government contracts expenses, and $124.8 million of operations strategy and Northeast sale related expenses included in G&A expenses, and an asset impairment and loss on the sale of Northeast health plans recorded in 2009.

Page 11

Health Net, Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except ratio data)

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

Page 12

Health Net, Inc.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

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

Page 13

Health Net, Inc.

Notes to Consolidated Financial Statements

Notes:

(a) Management believes that days claims payable (adjusting for divested businesses, capitation, provider and other claim settlements and Medicare Part D), a non-GAAP financial measure, provides useful information to investors because, in excluding those health care costs for which no or minimal reserves are maintained, it is a more accurate reflection of days claims payable calculated from claims-based reserves than is days claims payable, which does not exclude such costs. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. The following table provides a reconciliation of the differences between days claims payable (adjusting for divested businesses, capitation, provider and other claim settlements and Medicare Part D) and days claims payable, the most directly comparable financial measure calculated and presented in accordance with GAAP:

		Q3 2009			Q4 2009			FY 2009
		(Dollars in millions)
	Reserve for Claims and Other Settlements	$	1,195.0		$	951.7		$	951.7
	Less: Reserve for Claims and Other Settlements for Divested Businesses		(243.2	)		—			—
	Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D		(159.2	)		(198.0	)		(198.0	)
	Reserve for Claims and Other Settlements - Adjusted		792.6			753.7			753.7
(1)	Average Reserve for Claims and Other Settlements		1,219.3			1,073.4			1,144.9
(2)	Average Reserve for Claims and Other Settlements - Adjusted		788.1			773.2			808.9
(3)	Health Plan Services Cost		2,735.0			2,557.1			10,732.0
	Less: Health Plan Services Cost for Divested Businesses		(589.9	)		(460.7	)		(2,176.6	)
	Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D		(837.3	)		(818.4	)		(3,438.9	)
(4)	Health Plan Services Cost - Adjusted		1,307.8			1,278.0			5,116.5
(5)	Number of Days in Period		92			92			365
= (1) / (3) * (5) Days Claims Payable			41.0			38.6			38.9
= (2) / (4) * (5) Days Claims Payable - Adjusted			55.4			55.7			57.7

Page 14

Health Net, Inc.

Reconciliation of Reserves for Claims and Other Settlements

(In millions)

	Health Plan Services
	Year 2009			Year 2008			Year 2007
Reserve for claims (a), beginning of period	$	957.1		$	838.7		$	754.2
Incurred claims related to:
Current Year		6,422.8			6,372.2			5,790.7
Prior Years (c)		(80.0	)		(8.3	)		0.6
Total Incurred (b)		6,342.8			6,363.9			5,791.3
Paid claims related to:
Current Year		5,572.2			5,443.2			4,972.3
Prior Years		857.8			802.3			734.5
Total Paid (b)		6,430.0			6,245.5			5,706.8
Less: Divested businesses		(177.7	)		—			—
Reserve for claims (a), end of period		692.2			957.1			838.7
Add:
Claims Payable (d)		165.6			284.8			365.6
Other (e)		93.9			96.2			96.1
Reserves for claims and other settlements, end of period	$	951.7		$	1,338.1		$	1,300.4

(a) Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss adjustment expenses.

(b) Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are not included.

(c) This line represents the change in reserves attributable to the difference between the original estimate of incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been no changes in the approach used to determine the key actuarial assumptions, which are the completion factor and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and generally accepted accounting principles. The majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred services because these are the services for which the fewest claims have been paid. The majority of the adjustments to reserves relate to variables and uncertainties associated with actuarial assumptions. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services. Revised estimates for prior years are determined in each quarter based on the most recent updates of paid claims for prior years.

(d) Includes amount accrued for litigation and regulatory-related expenses.

(e) Includes accrued capitation, shared risk settlements, provider incentives and other reserve items.

Page 15