Health Net
Interview: Health Net---Gellert, Jay---Chief Executive Officer
>> Welcome back. health net fell over 8% today as many managed care companies fell on investor concern the competition may cut into premium rates. earnings for the company’s second quarter were better than expected. the california based company earned 63 cents a share. analysts polled by thompson financial estimate the company would earn 61 cents a share. with more on what to expect from this company and what he sees for the industry ahead, the president and choof executive officer at health net joins us from los angeles. welcome, thanks for joining us.
>>ed afternoon, lane.
>> your industry kind of got hit today, in part on some analysts’ comments here, not only your stock but a number of stocks fell on word from wachovia securities analyst who said at this point the investors are concerned that competition may cut into premium rates for many managed care companies. what’s your sense of that?
>> well, we feel that premiums are going to come down as cost trends come down. we are still talking about double digit premium increases in 2004, and what we expect to be able to show is that we’ll be able to retain margins while making healthcare more affordable. that’s the key to our long-term viability.
>> as you raise those premiums, though, is there an expectation that a lot of employers and individuals will drop out of the various care programs that you provide?
>> well, in fact we’ve had incredibly strong growth in q2. we had 50,000 new members. some other companies were having trouble with their growth. but our company has shown some really strong results, and we see that same visibility well into 2004. so we think that the fact that premium trends are abating a bit is in fact helping our business.
>> now, in your press release you refer to a favorable market situation and increased market share in california and in new york. while others in your business are having a much harder time in those markets, what are you doing differently that’s bringing people on board while others are losing people in those major markets?
>> we’ve always been strong in the large and mid group market. but over the last four years we’ve focused on the small group also. and by building better relationships with brokers and employers and offering a broader range of products we’ve seen really strong growth there. we’ve been able to take our competitive prices and apply them to a whole different segment and seen some very strong growth that we expect to continue into 2004.
>> aren’t these some of the most expensive areas for healthcare as well?
>> well, they are expensive areas for healthcare but the prices support that because in effect people get healthcare in their local markets and have to pay the necessary prices to support the costs that exist there.
>> give me a sense of to what extent are employers pushing back on premium increases and trying to buy cheapers kinds of coverage or shift costs onto employees with co-pays for drugs and doctors’ visits today?
>> employers are looking for plans that have increased co-pays and tiered ko pays, so if people go to less expensive providers they get a benefit. but also people are going back to more managed products. previously people said h.m.o. is dead, managed care is dead. now with these significant cost increases we are seeing a return to these products.
>> we are also seeing a number of smaller operators showing up on television with quick 60-second spots trying to promote their individual type of either a pharmaceutical benefit or dental benefit, other types of things. how do you compete with that or how do you explain the differences between a full service benefit you provide and some of these operators that are trying to give people something for nothing on television?
>> we are not in the 60-second market. we are looking at lasting relationships. as i said, we’ve seen some very powerful growth. think we do it by providing economic products that respond to the needs of the consumers in these very tough markets. our results show that we can do it. furthermore, i think we’ve been able to show we can do it with increasing margins so that the fears i think that were discussed in the market today, we see going away as people continue to see the strength of our results in the sector’s. bear in mind even after today we are up 45% year over year and 20% year to date. so we view this more as just a momentary correction rather than anything substantive about the sector or about our company.
>> you’ve been increasingly a player in the track care program which covers military families. is this a profitable business at this point?
>> it’s a profitable business, it’s a business that we’ve really perfected. and equally importantly i think it’s a really important business because we are serving our military families while they are around the world fighting for the country. so it gives us a real sense of mission as well as a sense of profit in it.
>> would you participate in the medicare drug benefit plan?
>> well, we are excited about the attempts to modernize medicare. we believe that there is a way to keep the existing medicare program and expand choices for seniors. and we look forward to participating in it as long as it’s constructed in a way that allows for fair competition and fair for seniors.
>> sounds like a noncommittal committal.
>> the answer is until the bill is passed you can’t commit to participate nothing anything but we are excitebed the opportunity.
>> jail geller, thank you very much, president and chief executive officer of health net. coming up next we’ll look at bonds and health related stories in the news.
