Health Net's profit dropped by half during the second quarter of this year. The Woodland Hills, Calif.-based health insurer continued to register costs tied to an outsourcing contract.
But the quarter overall came in near Wall Street's expectations as the insurer recorded fewer expenses from medical claims. Health Net's focus will now shift more to its pending merger with Centene Corp.
Centene agreed to buy Health Net last month for $6.8 billion. Pending regulatory approval, the new company will have about $37 billion in annual revenue and will open up the West Coast to Centene, which has minimal managed-care exposure there. Health Net operates in Arizona, California, Oregon and Washington state.
Health Net has maintained consistent profitability the past few years, but the past few quarters have brought smaller margins due in large part to one-time charges stemming from its outsourcing contract with Cognizant Healthcare Services. Health Net and Cognizant agreed to a seven-year deal in which Cognizant will manage Health Net's administrative and technology functions.
In the second quarter this year, Health Net absorbed $26.4 million of expenses related to that agreement. The company said the Cognizant deal could save the company up to $200 million by 2017.
Health Net also recorded $73.7 million in income taxes in the second quarter this year, compared with receiving a $22 million income tax rebate from Uncle Sam in the same period a year ago. Consequently, Health Net's profit in the quarter was $58.4 million, down 52% year over year.
Health Net had more than 3.24 million members as of June 30, most of whom are enrolled in California's Medicaid program.
