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Health Net, Inc. (NYSE:HNT)

2013 Annual Shareholder Meeting

May 23, 2013 1:00 pm ET

Executives

Roger F. Greaves - Chairman

Angelee F. Bouchard - Senior Vice President, General Counsel and Secretary

Jay M. Gellert - Chief Executive Officer, President and Director

Angie McCabe - Vice President of Investor Relations

Roger F. Greaves

Well, good morning, everyone. It's my pleasure to welcome you to the 2013 Annual Meeting of the Stockholders of Health Net, Inc. My name is Roger F. Greaves. I'm Chairman of the Board of Health Net, and I'll act as Chairman of this meeting. And Angelee Bouchard, Senior Vice President, General Counsel and Secretary, will act as Secretary. I've been advised that a quorum is present. It's now just a little past 10:00 a.m. Pacific Time. And in accordance with the notice of the meeting, Health Net's 2013 Annual Meeting of Stockholders is now called to order. If you're attending this meeting in person, please make sure that you signed in.

Before we begin with the formalities of the meeting, I'd like to introduce Jay Gellert, our President and CEO. Jay is also a Director of the company. Also, I'd like to introduce the other members of the company's Board of Directors who are here with me today. Will you please stand as you're introduced, if you're able? Mary Anne Citrino, Ted Craver, Vicki Escarra, Gale Fitzgerald, Pat Foley, Doug Mancino and Bruce Willison. Our Audit Chair, Frederick Yeager, is with us via telephone, Irec [ph].

Biographies and other information about each of our directors, including myself, were included in the proxy statement that was mailed to our stockholders. Representatives from the accounting firm of Deloitte & Touche are also present at our meeting today. Deloitte & Touche has been selected as our independent registered public accounting firm for 2013, and their selection is being submitted to our stockholders for ratification at this meeting.

Now I'm going to turn over the formal business of the annual meeting and vote on the items presented in the proxy statement. After the polls are closed and while the vote is being counted, Mr. Gellert will make some of the brief remarks about the company. At the conclusion of Mr. Gellert's remarks, we'll accept questions, and the voting results will be announced.

So again, I will turn the podium over to Ms. Bouchard, who will carry on with the meeting. Angelee?

Angelee F. Bouchard

Thank you, Roger. As you entered the meeting this morning, you should have received a copy of the agenda and rules of conduct for this meeting. For each of you attending via the Internet, the agenda and rules of conduct are available on our website. We will conduct the meeting in accordance with the agenda and these rules to assure that the meeting proceeds in a fair, orderly and courteous manner. There is time reserved for your questions, and the reverse side of the agenda describes the procedures for the designated Q&A periods of the meeting. If you are attending the meeting in person, please hold your questions until the designated time. And if you're attending the meeting via the Internet, please follow the instructions on our website to submit your questions at the appropriate time.

Now I will briefly review certain procedural matters regarding the organization of the meeting. We commenced mailing of the notice of this meeting and related materials on or about April 8, 2013 to all stockholders of record as of the close of business on March 28, 2013. The affidavit of distribution executed by Broadridge Financial Solutions will be filed with the records of this meeting. The list of stockholders entitled to vote at this meeting has been available for the past 10 days and is available at this meeting for examination by any stockholder.

Aubrey Putt [ph], a representative of Broadridge, has been appointed to act as the inspector of election for today's meeting. Ms. Putt's [ph] oath as the inspector of election will be filed with the records of this meeting. Ms. Putt [ph] has informed us that there are present in person or by proxy at the meeting stockholders holding an aggregate of 73,498,948 shares of common stock, representing 92.65% of the outstanding shares of common stock of the company entitled to vote at the meeting as determined on the record date. Accordingly, I confirm that a quorum is present, and the 2013 annual meeting is duly and properly convened.

The matters to be acted upon at this meeting are the 3 items listed in the company's proxy statement: the election of directors; the ratification of the selection of Deloitte & Touche as the company's independent registered public accounting firm for the year ended December 31, 2013; and the advisory vote on the compensation of the company's named executive officers. The company has not received advanced written notice of any other matters for consideration as required by the company's bylaws, so no other matters will be considered.

It is now 10:04 a.m. The polls for each matter to be voted on at this meeting are now open, and the proposals will now be put to a vote. If you're eligible to vote at this meeting and would like to vote by ballot, please motion for one of our attendants to hand you a ballot. If you already have returned your proxy, submitted a proxy via the Internet or telephone or planned to hand in your proxy today, you do not need a ballot unless you wish to change your vote. Would anyone like a ballot? Okay.

The first item to be considered is the election of 10 Director nominees as described in Item 1 in our proxy statement. If elected, each Director will be elected to a 1-year term or until the 2014 Annual Meeting of Stockholders. The following Directors are standing for election: Ms. Citrino, Ms. Escarra, Ms. Fitzgerald and Mr. Craver, Mr. Foley, Mr. Gellert, Mr. Greaves, Mr. Mancino, Mr. Willison and Mr. Yeager. The company's Board of Directors has recommended that stockholders vote for each of these nominees, and the company has not received written notice of additional nominees in accordance to the procedures set forth in its bylaws. Therefore, no further nominations may be made at this time, and I declare the nominations closed. Are there any questions relating to this item? Okay. Since there are no questions, the discussion is closed.

Item 2 is the ratification of the board's selection of Deloitte & Touche as our independent registered public accounting firm for the fiscal year ending December 31, 2013 as described in Item 2 in our proxy statement. Deloitte & Touche has served in this capacity since June of 1994. The board's -- the company's Board of Directors has recommended that the stockholders vote for this item. Are there any questions relating to this? Okay. Since there's no questions, discussion is closed.

The third item to be voted on is a nonbinding advisory vote to approve the compensation of our named executive officers described in Item 3 in the proxy statement. The company's Board of Directors has recommended that stockholders vote for this item. Are there any questions relating to this item? Okay. Since there are no questions, discussion is closed.

Has everyone had an opportunity to cast his or her ballots? All right. It is now 10:07 a.m. As all stockholders have had an opportunity to vote, I declare the polls closed. The ballots and proxies will be held in the possession of the inspector of election. The inspector of election will now tally the vote.

And at this time, I would like to invite Jay Gellert to the podium to share some remarks regarding the company.

Jay M. Gellert

Thank you, Angelee. And let me make a few brief comments regarding our company. Over the last 3 or 4 years, we've had somewhat of a contrarian thesis regarding where the industry was going. We believe that the industry was going to be increasingly government-driven; that we were really moving from a B2B and B2C emphasis to what we call the B2G emphasis; that the era of fee-for-service unlimited expenditure was going to end and we were going towards a budget-driven model; that there was going to be intense cost-containment pressure and competition based on really hitting price points; and that it was going to be most manifested initially in the individual and small group market because of the Accountable Care Act; and finally, that California was going to be at the forefront of this change, that California was going to lead this change and that if we didn't move in a different direction over the last 3 or 4 years, we would not be prepared for the change that was forthcoming.

To that end, we've repositioned our commercial book. Health Net was originally a large group, full network HMO company, and it's moved to being a efficient network, broad-based company and with the advent of the ACA from individual all the way up to the largest groups. It's a company that has a very strong Medicaid franchise that over the course of the last year, we stabilized with the new agreement in preparation of the dramatic expansion that's forthcoming. We focused on stabilizing the Medicare Advantage and Government Contracts business. We see a unique opportunity in dealing with the dual eligibles. Those are people who are both Medicare- and Medicaid-eligible. They're 16% of the Medicare population, but they represent about 1/3 of the Medicare expenditures and about 40% of the Medicaid expenditures. So they are the entitlement problem in the U.S. And it's not about cutting benefits, it's about reforming that system. And we've intended to do that while retaining strong financial flexibility.

In the last few months, I think we've seen some pretty dramatic affirmation of our strategy. Our Q1 '13 performance was strong. We've received initial data on the duals, and it really follows along the lines of what we were thinking. There's work to be done with CMS, but we see unique opportunities. And Los Angeles County, where we're 1 of 2 plans, will be the premier example nationally of the dual demonstration projects. We won 2 large accounts in the course of the last 30 to 60 days in Arizona Medicaid and in CalPERS.

We are seeing encouraging news from our -- from other renewals as we move into '14, and we're very enthusiastic about the announcements today of the California Exchange. We're enthusiastic about it for 2 reasons. One, it proves that Obamacare will work in California. While the results are still out in other states and while there's a lot of consternation, I don't think anyone would argue when you look at the results of the exchange data that it will make a workable, viable economic system to cover the 8 million people in California or a portion of them who are presently uninsured. For us, it's exciting, too, because in the southern parts of the California Counties, they represent 60% of the population and probably much more of the exchange eligibles that we represent the lowest cost plan in all of those counties. So we'll be the leader in terms of market opportunity or what will be the biggest exchange in the country and clearly the most economic one when you look at the mix that's included in it. So we think that the strategy we embarked on, the moves we've made over the last year are bearing fruit in a pretty obvious way as we enter '13 and as we move to '14 when our whole industry is going to go and be fundamentally different than it is today.

As I mentioned, we set 3 goals as a result of some of the financial difficulties we had last year, and we met them all. We focused on changing our commercial mix to position it for '14, and when you look at the data, it seems to support that. And our Medicare and Government Contracts business remains on target.

We are really excited about the dual demo. We think that California being the largest state and Los Angeles County being by far the largest demonstration of the dual demonstration project provides an enormous opportunity to really fundamentally change health care for the people who most need it, most expensive, most vulnerable, lowest quality. And I believe that the L.A. experience, assuming that the rates could be worked out, and I think we're getting optimistic about that particularly after some of the adjustments we saw in Massachusetts over the last couple of days, that if those rates can be worked out, that if the savings targets of the federal government, state government is set, as long as it's off a real run rate, we feel optimistic we'll meet all of the goals of this demo. And Los Angeles County will be the single best example of the viability of changing the way service is delivered to the people who need it most. And we expect that this program will start in the first quarter of '14. Again, we said from the start that unless the rates can be shown to be -- actually reflect real experience, we can't do it. But if they can, that based on our analysis, based on our discussions with providers, we're very optimistic that we can build the model that will be second to none.

So in summary, we have repositioned our commercial book, partially due to economic necessity but also because we foresaw what is going to come in '14. And I think we're seeing evidences of the soundness of that. California already is the lowest cost Medicaid state in the country. We are the largest provider in the state, and we believe that we've successfully shown that you really can reduce cost and get results. Let me give you 1 example. California has the -- about the sixth lowest infant mortality rate in the country. It has, by far, the lowest of any urban state. It's hard to consider like from out of state. And so you shouldn't really score against them or Utah. And so when you compare us with everybody who really does have social issues, we're the best. And if the nation was at the California level, every year, every day, 21 kids under the age 1 would live rather than die. That's the difference we're making in terms of that, and that's basically built around Medicaid because half the person in the U.S. are Medicaids. We think our Medicare and Government Contracts business remains stable. We think the TRICARE business is strong. We're looking very closely at how we build the economies of scale to strengthen our company because the real area, now that we've made all of these other changes where we're at a competitive disadvantage in terms of G&A to much larger companies, our balance sheet remains solid. We feel very optimistic that moving into '14, that at least in California, the success of the changes that are forthcoming will help us because we've positioned ourselves to be part of the solution, not a doubter. So that's kind of what our history has been over the course of last year and last while.

And I'll turn it back to Roger for questions.

Roger F. Greaves

Thank you, Jay. Very concise. Now if you'd like to ask a question of Jay and you're attending in person, please step up to the microphone at this point in the center of the room and say that you're a stockholder or if you're a representative of a stockholder. If you like to ask a question and you're attending via the Internet, please be sure to submit your question now by following the instructions given to you on the company's website. In addition, please remember that in accordance with the rules of conduct for the meeting, each speaker will be limited to a total of approximately 2 minutes. Are there questions? Questions?

Well, Angelee, there seemed to be no questions, so I'll turn the meeting back over to you and you can report the results of our voting.

Angie McCabe

Thanks, Roger. I have been advised that the inspector of election has completed the preliminary vote count. The inspector of election has recorded that there were sufficient votes in favor of Items 1, 2 and 3. And I hereby declare that all 10 nominees for Director have been reelected. And the selection of Deloitte & Touche for the fiscal year ending December 31, 2013 has been ratified. And the compensation of our named executive officers has been approved on a nonbinding advisory basis. The inspector of election will make a final report that will be included as part of the record of this meeting, and the final voting results will be included on a Form 8-K to be filed with the SEC.

I'll now turn the program back over to Mr. Greaves to close the meeting.

Roger F. Greaves

Thank you, Angelee. I think that's a record. This concludes the formal business of the meeting. I'd like to thank all of you for attending. The meeting is now adjourned. Thank you very much for joining us for the 2013 Annual Meeting of Stockholders of Health Net. We look forward to seeing you again here next year. Good day.

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Source: Health Net's CEO Hosts 2013 Annual Shareholder Meeting (Transcript)

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