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Health Net Prepares for Obamacare

Oct 23, 2013

Los Angeles Times
Stuart Pfeifer
October 20, 2013

Health Net Inc. sees a big opportunity in Obamacare.

Although some insurers have taken a cautious approach to the Affordable Care Act, the Woodland Hills managed care company is actively seeking to cover thousands of previously uninsured people under the new healthcare system.

Health Net, which focuses on low-cost medical coverage for low- to middle-income households, has joined exchanges in California, Arizona and Oregon. It has added 400 employees and reassigned dozens more workers to handle the anticipated surge of customers.

"We are definitely all in with the Affordable Care Act," said Jay Gellert, the company's chief executive.

Although Gellert said it would be difficult to estimate how many people would sign up with Health Net under Obamacare, he said he wouldn't be surprised if the company adds more than 1 million new customers during the next five years.

"We think there's going to be a very broad and diverse mix of people in California because the costs are so low," Gellert said. "We think California will be a model of how this law will work in a place where everyone's committed to making it work. I'd be more skeptical and nervous if we were in states where there wasn't the level of support."

The latest

Health Net has offered lower-cost, managed healthcare for decades, but the new healthcare law is transforming the way it does business.

The company has been busy trying to handle questions from people seeking to choose insurers through exchanges. It will also probably face a massive increase in claims once the law takes effect in January.

"Our workforce is inspired by what they're doing right now," Gellert said. "People are working harder than they ever have. They're exhausted, but they're exhausted and excited."


By the end of 2012, the company provided coverage for about 5.4 million people in the United States.

That number is poised to grow as Health Net snaps up customers under the new healthcare law.

"California is the proving ground. This is the future. This is going to work," Gellert said.


The company has bet heavily on Obamacare, which brings potentially millions of new customers.

It also comes with some serious questions: What if people don't sign up for coverage? What if the government can't handle the demand? What if Health Net does not have infrastructure in place to deal with a wave of new customers? What if there aren't enough doctors, specialists and hospitals to treat all these new customers?

"I don't think we'll be able to hide if we don't successfully implement the bill," Gellert said. "We've been criticized in the past for a lot of things. This is our opportunity to prove we're prepared to step up and do the right thing."

There are concerns that new enrollees in the exchange might be sicker and costlier to treat than people who are currently insured. The federal healthcare law offers a reinsurance program that helps health plans cover high-cost claims new patients might incur. This reduces some of Health Net's risk.

"We're going to get a significant number of people who will be healthy," Gellert said. "In a state like this, with so many young and healthy people, this law will allow us to do the right thing [and provide coverage for sick people] because there are enough young people to compensate for the older people we are covering."

Analyst views

There's about as much agreement on the value of Health Net's stock as there is on the merits of the new healthcare law.

Seven analysts recommend buying the stock, seven suggest holding it and three say investors should sell. On average, they estimate the stock will be selling for $35.54 a share in 12 months. The stock closed Friday at $30.74.
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