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Centene setting aside $300M to recognize adverse performance at Health Net

executives notedon an earnings call that the company has set aside $300 million to recognizeadverse performance related to Health Net's individual commercial businesses inArizona and California.

Higherutilization of substance abuse treatment facilities is causing losses inCalifornia's individual commercial business, while the risk profile of theAffordable Care Act exchange population in Arizona has deteriorated due to"the grandmothering of non-ACA compliant policies," CFO JeffreySchwaneke said on an earnings call. The absence of risk corridor benefit addedto the insurer's woes related to individual exchange business in Arizona.

Centenerecently completed the acquisition of Health Net and initiated "a fairvaluation" of the balance sheet of Health Net. As part of the exercise,Centene recognized "premium deficiency reserves of approximately $300million representing the fair value of underperforming contracts for the periodfrom March 24 through Dec. 31," the CFO said. He also noted unfavorableperformance in the Medicare business in Oregon and Arizona.

Centeneis exiting asubstantial portion of the health exchange business in Arizona in 2017 andseeking higher rates on individual plans in California. The insurer is alsomaking changes to plan design to reduce the substance abuse treatment centercosts in the individual commercial business in California.

Thestock fell 10.24% to $67.55 as of 11:36 a.m. ET.