Health Net Inc. shares plunged Friday after the health insurer slashed its 2012 earnings forecast again and reported second-quarter results that fell far below analyst expectations.
The Woodland Hills, Calif., company said Friday it saw higher-than-expected costs from both commercial health insurance and Medicaid, which is the government-funded program that covers the poor and disabled people. It took a $61 million hit in the quarter because leftover claims mainly from the first quarter came in higher than it expected.
CEO Jay Gellert said in a statement the company is adjusting rates and taking other steps to achieve "substantial" improvement next year in its commercial business.
"We believe that we have identified and are on the path to resolving the issues in the commercial and Medicaid businesses that impacted our second quarter performance," Gellert said.
Even so, the insurer now expects 2012 earnings from its core Western region and government contracts segments to range between $1 and $1.10 per share, down from its previous forecast of $2.35 to $2.50 per share. In May, Health Net had cut that forecast from a previous outlook of $3.30 to $3.40 per share.
Analysts expect, on average, 2012 earnings of $2.30 per share, according to FactSet.
Health Net shares sank 18.6 percent, or $4.23 to $18.47 in late morning trading.
Overall, the insurer earned $124.6 million, or $1.48 per share, in the three months that ended June 30. That compares to a loss of $26.6 million, or 32 cents per share, in last year's quarter. The company's Western region and government contracts produced earnings of 19 cents per share.
Revenue rose less than 1 percent to $2.84 billion, and Health Net recorded a $119.4 million gain in the quarter from the sale of its Medicare prescription drug business to CVS Caremark Corp.
Analysts expected, on average, earnings of 66 cents per share on $2.8 billion in revenue.
Bernstein analyst Ana Gupte said in a research note she expected that Health Net would fall short of earnings expectations, but the miss and the reduced outlook were worse than expected. She also noted that an "onerous regulatory environment" in California, where the company does most of its business, may make it hard to raise prices and turnaround its performance.
Health Net provides commercial health insurance and administers Medicaid and Medicare coverage. It also works with TriCare, which provides health insurance for active and retired military members and their families, and the insurer offers behavioral health, substance abuse and employee assistance programs.