Profit at Health Net dropped significantly in the fourth quarter, the second in which the health insurer suffered from one-time charges.
Health Net's fourth-quarter earnings fell 75%, to $4.9 million last year from $19.8 million in 2013. The company incurred more than $72 million in nonrecurring expenses from its new outsourcing agreement with Cognizant Healthcare Services, contributing to the decline.
Health Net and Cognizant agreed to a seven-year outsourcing deal in November, under which Cognizant will manage Health Net's back-end operations, including information technology services and claims management. Health Net has said the agreement will save $150 million to $200 million annually by 2017.
But combined with the $106 million in one-time costs recorded in the third quarter, Health Net already has booked $178 million in expenses from the deal.
Health Net's net income declined 14% to $145.6 million in the full year. Revenue in 2014, however, increased 27% to $14 billion.
The large influx of revenue came in large part from Health Net adding many new members through the Affordable Care Act exchanges and Medicaid expansion. Health Net closed 2014 with 3.16 million paying members, up 29% from the end of 2013. Health Net primarily operates in California and Arizona, both of which expanded Medicaid under the ACA. Medicaid enrollment represented a little more than half of all Health Net's enrollment, or about 1.68 million people, which was up 50% from 2013.
Health Net's individual enrollment almost tripled from 2013 to 2014, totaling about 332,000 people. The remainder of its enrollees are in commercial and Medicare Advantage plans. The insurer attributed its robust growth to a large number of sign-ups on the California and Arizona insurance exchanges.
But Health Net lost several thousand exchange members from the third quarter to the fourth quarter because California has aggressively re-evaluated eligibility for some members. “Member attrition was higher than expected,” Health Net CEO Jay Gellert said in a statement.
Heading into this year, Health Net is forecasting $17.2 billion of revenue and 3.46 million members, which would be 23% and 9% higher than 2014's figures, respectively.
Health Net's stock is up more than 4% this year, trading at $55.16, up 36 cents a share Tuesday in midday activity. The Woodland Hills, Calif.-based company's stock climbed more than 80% in 2014, the most of any publicly traded insurer.
Follow Bob Herman on Twitter: @MHbherman