Health Net, WellCare warn on Medicaid squeeze

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(Global Markets) - Managed care companies Health Net Inc (HNT.N) and WellCare Health Plans Inc (WCG.N) warned earnings would be under pressure from rising healthcare expenses as state and federal governments cut spending on Medicaid plans.

The companies, which manage and deliver care for government-sponsored and private health insurance schemes, have been struggling with their Medicare and Medicaid plans as governments scale back reimbursements.

Medicaid, for the poor and the disabled, has been an especially sore point for almost all managed care providers due to high costs.

Health Net shares crashed as much as 27 percent on Friday after the company slashed its full-year earnings forecast in anticipation of higher-than-expected costs and Medicaid spending cuts.

Health Net, which operates mostly in the western United States, now expects per-share earnings of $1.45 to $1.55 for the year, down from its earlier forecast of $2.85 to $3.00.

"We identified specific commercial large group accounts that contributed to increased health care costs early enough this year," Health Net CEO Jay Gellert said.

"We are adjusting rates, modifying network configurations, and taking other actions to achieve substantial commercial improvement in 2013."

The company said much of the cut reflected problems at its western region operations and government contracts segments, where it was grappling with inadequate reimbursement rates for seniors and the disabled.

For the combined western region and government contracts segments, Health Net now expects full-year profit of $1.00 to $1.10 per share, down from the earlier estimate of $2.35 to $2.50 per share. Even the new numbers were too high for some.

"It feels like a bit of a stretch to get to the high end of guidance," Cowen and Co analyst Christine Arnold said in a note to clients.

Meanwhile, WellCare said on a post-earnings conference call that it expects Medicaid reimbursement rates to continue to be "challenging."

WellCare posted a better-than-expected quarterly profit on higher premium revenue, and raised its full-year adjusted earnings forecast to between $5.25 and $5.45 per share.

However, even with the new forecast, full-year numbers could miss analysts' average estimate of $5.41 by as much as 16 cents a share.

Shares of Woodland Hills, California-based Health Net were down about 18 percent at $18.68 on Friday on the New York Stock Exchange.

Tampa, Florida-based WellCare's shares were down 9 percent at $56.59 on the New York Stock Exchange.

(Reporting by Balaji Sridharan, Prateek Kumar in Bangalore; Editing by Don Sebastian, Sreejiraj Eluvangal)