Health Net Records $296.8 Million in Third Quarter of 2007 Pretax Charges Relating to Class Action Litigation Settlement, Regulatory Matters and Other Litigation Expenses

Included in the results for the third quarter of 2007 is the full effect of $296.8 million pretax, or $216.0 million after-tax, charges incurred as a result of Health Net reaching an agreement in principle to settle three class action lawsuits known as the McCoy, Wachtel and Scharfman lawsuits; the proposed resolution of regulatory issues with the New Jersey Department of Banking and Insurance; and other litigation matters.

The settlement of the three class action lawsuits, the first of which was filed in federal court in New Jersey in December 2001, is subject to the execution of a definitive agreement and court approval. The class action lawsuits relate to certain Health Net out-of-network commercial claims payment practices for the period between 1995 and July 2007. The agreement in principle calls for Health Net to, among other things, implement certain operational changes relating to its payment of out-of-network claims.

The regulatory issues with the New Jersey Department of Banking and Insurance primarily relate to out-of-network claims payment practices. Health Net expects to enter into a consent order with the Department and make restitution relating to these issues in the near future.

The charges include expenses for disbursements to eligible class members, a "Prove-Up" fund to reimburse specific claims, attorneys' fees, regulatory fines and remediations, and costs of resolving litigation unrelated to the class action lawsuits. The charges are accounted for in two parts:

-- $201.5 million is included in third quarter of 2007 health plan services expenses for claims-related matters, class disbursements and remediations; and

-- $95.3 million is included in third quarter of 2007 general and administrative (G&A) expenses related to attorneys' fees, regulatory fines and estimated liability for litigation unrelated to the class action lawsuits.

A table outlining the allocation of the pretax charges in the third quarter of 2007 to the appropriate line items in the third quarter 2007 income statement is attached to this release.

"Given the excellent future opportunities we see in our markets, we decided to act now to put these legal and other matters behind us so that we can move forward without these issues distracting us from the important work ahead," said Jay Gellert, Health Net's chief executive officer.

Share Repurchase Authority Increased

On October 30, 2007, Health Net announced that its board of directors authorized an additional $250 million in share repurchase authority. "We remain committed to share repurchases, and these charges are not expected to inhibit our ability to continue the share repurchase program," stated Gellert.

During the third quarter of 2007, Health Net repurchased 2.6 million shares at an average price of $52.94. Since the company resumed its share repurchase program in November 2006, it has repurchased a total of 9.8 million shares at an average price of $49.05 through October 30, 2007. Including the additional $250 million in newly authorized repurchase authority, Health Net has approximately $346 million in remaining repurchase authority.

Third Quarter Highlights

Excluding the impact of the charges, earnings per diluted share in the third quarter of 2007 would have been $0.99.

Following are key highlights for the third quarter of 2007:

-- Membership in the company's commercial small group and individual segment increased by 83,000 members, or 12.1 percent, compared to the third quarter of 2006;

-- Medicare Advantage membership grew by 42,000 members, or 21.3 percent, compared to the third quarter of 2006;

-- The California Farm Bureau Federation selected Health Net of California as its underwriter for approximately 60,000 members, effective July 1, 2007;

-- Although operating cash flow was negative $131.2 million in the third quarter of 2007, it would have been positive by approximately $200 million had the company received two government payments that were due in September 2007; and

-- The company announced the appointment of Joseph C. Capezza as chief financial officer, effective today.

Membership

Total health plan enrollment as of September 30, 2007 was 3.7 million members, an increase of 67,000 members, or 1.8 percent, compared to September 30, 2006, and an increase of 29,000 members, or nearly 1.0 percent, from June 30, 2007.

Commercial enrollment, including both at-risk and Administrative Services Only (ASO) membership, declined by 28,000 members, or 1.2 percent, to 2.3 million members as of September 30, 2007 compared to September 30, 2006, primarily due to expected attrition in large group and ASO membership.

Sequentially, commercial membership increased by 19,000 members, or almost 1.0 percent, driven primarily by growth of 51,000 members in the small group and individual segment. Year-over-year, small group and individual membership increased by 83,000 members, or 12.1 percent. "We are very pleased that our strong sales momentum continues in the mid-size, small and individual markets," said Gellert. "As an example, for the sixth consecutive quarter, new commercial sales in California exceeded 50,000 members."

Enrollment in the company's Medicare Advantage plans grew by 42,000 members, or 21.3 percent, to 239,000 members during the 12 months ended September 30, 2007. Since June 30, 2007, Medicare Advantage membership grew by 3,000 members, or 1.3 percent. Membership in the company's Medicare Part D plans as of September 30, 2007 was 365,000, an increase of 71,000 members, or 24.1 percent, from September 30, 2006. Medicare Part D membership increased by 17,000 members, or 4.9 percent, since June 30, 2007.

Medicaid enrollment at September 30, 2007 was 829,000 members, a decline of 18,000 members, or 2.1 percent, since September 30, 2006. Since June 30, 2007, Medicaid enrollment decreased by 10,000 members, or 1.2 percent.

Balance Sheet

Cash and investments as of September 30, 2007 were $2.2 billion compared with $2.1 billion as of December 31, 2006.

Reserves for claims and other settlements increased by $264.3 million to $1.3 billion at September 30, 2007 from December 31, 2006. Reserves for claims and other settlements as of September 30, 2007 include $201.5 million of reserves for the charge.

Days claims payable (DCP), including provider and other claim settlements -- including the third quarter charges -- capitation payments and Medicare Part D expenses, decreased by 0.6 days to 41.9 days in the third quarter of 2007 compared to 42.5 days in the third quarter of 2006. DCP increased by 0.2 days compared to the second quarter of 2007.

Excluding provider and other claim settlements, the third quarter charges, capitation payments and Medicare Part D, DCP in the third quarter of 2007 decreased by 0.5 days to 54.7 days compared to the 2006 third quarter and decreased by 0.6 days sequentially (see footnote (a) in the Notes to Condensed Consolidated Financial Statements in the accompanying tables).

The company's debt-to-total capital ratio was 18.5 percent as of September 30, 2007 compared to 21.9 percent as of December 31, 2006 and 20.7 percent on September 30, 2006.

Interest expense decreased by $8.0 million in the third quarter of 2007 compared to the third quarter of 2006, as a result of refinancing activities with lower interest rates since the third quarter of 2006.

Cash Flow

Operating cash flow was negative $131.2 million in the third quarter of 2007. This amount does not include a $275 million payment from the Centers for Medicare & Medicaid Services (CMS) and a $56 million payment from the Department of Health Services (DHS) for California Medicaid that should have been received in September 2007. Health Net received both the CMS and the DHS payments on October 1, 2007.

If Health Net had received all CMS and DHS payments during the third quarter of 2007, operating cash flow would have been approximately $200 million.

Revenues, Health Care Costs and G&A Expenses Including the Charges

Health Net's total revenues increased 11.8 percent in the third quarter of 2007 to $3.6 billion from $3.2 billion in the third quarter of 2006. Health plan services premium revenues increased 11.7 percent to $2.9 billion in the third quarter of 2007 compared to $2.6 billion in the third quarter of 2006.

Health Net's Government contracts revenues increased 14.2 percent in the third quarter of 2007 to $660.4 million from $578.5 million in the third quarter of 2006. The quarter-over-quarter increase was driven by higher revenues and health care costs in 2007 than in the comparable period last year.

Including the $201.5 million health plan services expenses charge, the health plan medical care ratio (MCR) was 89.8 percent in the third quarter of 2007, and the commercial MCR was 93.2 percent.

Including the impact from the health plan services expenses charges, per member per month (PMPM) commercial health care costs increased by 23.5 percent in the third quarter of 2007 compared to the third quarter of 2006.

The Government contracts cost ratio was 92.9 percent in the third quarter of 2007 compared to 93.0 percent in the third quarter of 2006. "Our Federal Services division, which includes our TRICARE and Veterans Affairs businesses as well as the growing participation of MHN in serving our armed forces and their families, had a very solid quarter," said Jim Woys, Health Net's interim chief financial officer and president of the Government and Specialty Services division. "We are proud to be a partner with our customer in providing services that meet the dynamic health care needs of the military family."

Including the $95.3 million in G&A charge-related expenses, total G&A expense was $397.2 million in the third quarter of 2007 compared with $287.5 million in the third quarter of 2006.

Health Net's selling expenses of $91.5 million in the third quarter of 2007 increased by $28.7 million compared to the third quarter of 2006. "Our selling costs ratio in the third quarter of 2007 increased by 70 basis points compared to the third quarter of 2006 as a result of our continued focus on growing the individual, small and mid-size employer segments and strengthening our partnerships with the agents and brokers who sell our products," said Gellert.

Health Care Costs and G&A Expenses Excluding the Charges

Excluding the $201.5 million health plan services expenses charge in the third quarter of 2007:

-- The commercial premium yield on a PMPM basis increased 10.3 percent in the third quarter of 2007 compared to the third quarter of 2006 (health plan premiums were unaffected by the charges). Commercial health care costs would have increased by 9.7 percent on a PMPM basis in the third quarter of 2007 compared to the third quarter of 2006.

-- The health plan MCR would have been 82.9 percent for the third quarter of 2007.

-- The commercial MCR for the third quarter of 2007 would have been 82.7 percent, a 50 basis point improvement compared to the third quarter of 2006 and a 180 basis point improvement compared to the second quarter of 2007.

"We are pleased that the commercial yield and cost comparison, excluding the charges, was positive in the quarter. This demonstrates the benefits of our strategic focus on changing the mix of our commercial book, with greater emphasis on individual, small group and mid-market," Gellert noted.

Excluding the impact of the $95.3 million G&A expense charge, G&A expenses would have been $301.9 million in the third quarter of 2007, resulting in a G&A expense ratio of 10.3 percent.

"Despite higher marketing expenses for open enrollment in both the commercial and Medicare lines of business, the G&A expense ratio, excluding the charge, improved slightly compared to the third quarter of 2006 due to our continued focus on expense management," said Gellert.

"We expect the G&A expense ratio in the fourth quarter of 2007 to increase slightly from the 2007 third quarter expense ratio which is consistent with typical seasonal patterns," he added.

Outlook

Health Net expects earnings per diluted share of $1.10 in the fourth quarter of 2007 based on expected diluted weighted average shares outstanding of 114 million.

Conference Call

As previously announced, Health Net will discuss the company's third quarter results during a conference call scheduled on Thursday, November 1, 2007, at approximately 11:00 a.m. Eastern time. To listen to the call, please dial 800.811.0667, code 6401338. A live webcast and replay of the conference call also will be available at www.healthnet.com. The conference call webcast is open to all interested parties. A replay of the conference call will be available from November 1, 2007 through November 6, 2007, by dialing 888.203.1112, code 6401338. Anyone listening to the company's conference call will be presumed to have read Health Net's Annual Report on Form 10-K for the year ended December 31, 2006, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007, and other reports filed by the company from time to time with the Securities and Exchange Commission.

About Health Net

Health Net, Inc. is among the nation's largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company's health plans and government contracts subsidiaries provide health benefits to approximately 6.7 million individuals across the country through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net's behavioral health subsidiary, MHN, provides mental health benefits to approximately 7.0 million individuals in all 50 states. The company's subsidiaries also offer managed health care products related to prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs.

For more information on Health Net, Inc., please visit the company's Web site at www.healthnet.com.

Cautionary Statements

Health Net, Inc. and its representatives may from time to time make written and oral forward-looking statements, including statements contained in news releases, in Health Net's filings with the Securities and Exchange Commission, in the company's reports to shareholders and in meetings with investors and analysts, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking statements. These statements are based on management's analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "may," "should," "could," "estimate," "intend" and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, rising health care costs, negative prior period claims reserve developments, trends in medical care ratios, issues relating to provider contracts, litigation costs, regulatory fines, operational issues, health care reform and general business conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this release.

Health Net, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share, PMPM and ratio data)

Quarter Ended
-----------------------------------
September September
30, June 30, 30,
REVENUES: 2006 2007 2007
----------- ----------- -----------
Health plan services premiums $2,622,065 $2,811,186 $2,930,151
Government contracts 578,514 613,865 660,394
Net investment income 33,198 27,884 29,298
Administrative services fees and
other income 13,648 11,243 12,085
----------- ----------- -----------
Total revenues 3,247,425 3,464,178 3,631,928
----------- ----------- -----------

EXPENSES:
Health plan services 2,174,191 2,381,279 2,631,211
Government contracts 538,215 570,518 613,345
General and administrative 287,463 270,003 397,168
Selling 62,783 76,842 91,524
Depreciation 5,622 6,969 7,956
Amortization 1,092 2,044 4,782
Interest 15,411 7,824 7,401
----------- ----------- -----------
3,084,777 3,315,479 3,753,387
Debt refinancing 70,095 - -
----------- ----------- -----------
3,154,872 3,315,479 3,753,387
Income from operations before
income taxes 92,553 148,699 (121,459)
Income tax provision (benefit) 1,651 56,669 (17,614)
----------- ----------- -----------
Net income $ 90,902 $ 92,030 $ (103,845)
=========== =========== ===========

Basic earnings per share $ 0.78 $ 0.82 $ (0.93)

Diluted earnings per share $ 0.76 $ 0.80 $ (0.93)


Weighted average shares
outstanding:
Basic 115,867 112,122 111,111
Diluted 118,830 114,808 111,111

Pretax margin
(Income from operations before
income taxes / Total revenues) 2.9% 4.3% -3.3%
Health plan services MCR 82.9% 84.7% 89.8%
Government contracts cost ratio 93.0% 92.9% 92.9%
G&A expense ratio
(G&A / (HP serv prem + admin
serv fees and other income)) 10.9% 9.6% 13.5%
Selling costs ratio (Selling costs
/ HP serv prem) 2.4% 2.7% 3.1%
Days claims payable (a) 42.5 41.7 41.9
Days claims payable - adjusted (a) 55.2 55.3 54.7
Effective tax rate 1.8% 38.1% 14.5%
Health plan services premiums PMPM $ 244.49 $ 260.18 $ 267.64
Health plan services costs PMPM $ 202.73 $ 220.39 $ 240.33
Health Net, Inc.
Consolidated Statement of Operations
(Amounts in thousands, except per share and ratio data)

Note: This table presents the company's consolidated operations
for the quarter ended September 30, 2007 and the charges
recorded in the consolidated statement of operations for
the quarter ended September 30, 2007. Management believes
that the presentation of certain financial information,
excluding the charges that were recorded in the third
quarter of 2007, which is non-GAAP financial information
provides useful information to investors as it excludes
items that are not indicative of our core operating
results for the period. This non-GAAP financial
information should be considered in addition to, not as a
substitute for, financial information prepared in
accordance with GAAP.



Impact of Excluding Impact of
Selected Costs Selected Costs
As Reported Recorded in the Recorded in the
Quarter Ended Quarter Ended Quarter
September 30, September 30, Ended September 30,
2007 2007 2007
-------------- --------------- -------------------
REVENUES:
Health plan
services
premiums $2,930,151 $2,930,151
Government
contracts 660,394 660,394
Net investment
income 29,298 29,298
Administrative
services fees
and other
income 12,085 12,085
-------------- --------------- -------------------
Total
revenues 3,631,928 3,631,928
-------------- --------------- -------------------
EXPENSES:
Health plan
services 2,631,211 $ 201,449 2,429,762
Government
contracts 613,345 613,345
General and
administrative 397,168 95,308 301,860
Selling 91,524 91,524
Depreciation 7,956 7,956
Amortization 4,782 4,782
Interest 7,401 7,401
-------------- --------------- -------------------
3,753,387 296,757 3,456,630

Income from
operations before
income taxes (121,459) (296,757) 175,298
Income tax benefit (17,614)(a) (80,777) 63,163
-------------- --------------- -------------------
Net income $ (103,845) $(215,980) $ 112,135
============== =============== ===================

Basic earnings per
share $ (0.93) $ (1.94) $ 1.01
Diluted earnings per
share $ (0.93) $ (1.92) $ 0.99

Weighted average
shares outstanding:
Basic 111,111 111,111
Diluted 111,111 113,519

Pretax margin -3.3% -8.2% 4.8%
Health plan services
MCR 89.8% 6.9% 82.9%
Government contracts
cost ratio 92.9% 0.0% 92.9%
G&A expense ratio 13.5% 3.2% 10.3%
Selling costs ratio 3.1% 0.0% 3.1%
Effective tax rate 14.5% -21.5% 36.0%

Note
-----------
(a) Includes $26.2 million of tax asset write-off related to the
third quarter 2007 charges.

Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)

December 31, September 30,
2006 2007
------------ -------------
ASSETS
Current Assets
Cash and cash equivalents $ 704,806 $ 698,889
Investments - available for sale 1,416,038 1,472,717
Premiums receivable, net 177,625 299,705
Amounts receivable under government
contracts 199,569 174,647
Incurred but not reported (IBNR) health
care costs receivable under TRICARE North
contract 272,961 295,241
Other receivables 230,865 100,528
Deferred taxes 54,702 148,990
Other assets 161,280 203,928
------------ -------------
Total current assets 3,217,846 3,394,645
Property and equipment, net 151,184 170,353
Goodwill, net 751,949 751,949
Other intangible assets, net 42,835 114,424
Deferred taxes 33,137 45,223
Other noncurrent assets 100,071 143,639
------------ -------------
Total Assets $4,297,022 $ 4,620,233
============ =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Reserves for claims and other settlements $1,048,796 $ 1,313,104
Health care and other costs payable under
government contracts 52,384 52,472
IBNR health care costs payable under
TRICARE North contract 272,961 295,241
Unearned premiums 164,099 187,958
Bridge loan 200,000 -
Accounts payable and other liabilities 371,263 400,878
------------ -------------
Total current liabilities 2,109,503 2,249,653
Senior notes payable - 398,020
Revolver payable and other financing
arrangement 300,000 -
Other noncurrent liabilities 108,554 213,376
------------ -------------
Total Liabilities 2,518,057 2,861,049
------------ -------------

Stockholders' Equity
Common stock and additional paid-in
capital 1,028,018 1,141,432
Treasury common stock, at cost (891,294) (1,104,904)
Retained earnings 1,653,478 1,732,170
Accumulated other comprehensive loss (11,237) (9,514)
------------ -------------
Total Stockholders' Equity 1,778,965 1,759,184
------------ -------------
Total Liabilities and Stockholders' Equity $4,297,022 $ 4,620,233
============ =============

Debt-to-Total Capital Ratio 21.9% 18.5%

Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)

Quarter Ended
--------------------------------
September September
30, June 30, 30,
2006 2007 2007
---------- ---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 90,902 $ 92,030 $(103,845)
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Amortization and depreciation 6,714 9,013 12,738
Debt refinancing charge 70,095 -
Share-based compensation expense 5,191 6,529 6,072
Other changes 3,685 (3,067) 120
Changes in assets and liabilities,
net of the effects of
dispositions/acquisitions:
Premiums receivable and unearned
premiums (218,766) 40,925 (320,490)
Other receivables, deferred taxes
and other assets 46,574 89,397 (66,147)
Amounts receivable/payable under
government contracts (22,617) (27,299) 53,431
Reserves for claims and other
settlements 59,991 (13,492) 228,643
Accounts payable and other
liabilities (107,593) (58,380) 58,310
---------- ---------- ----------
Net cash (used in) provided by
operating activities (65,824) 135,656 (131,168)
---------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments 47,397 86,689 94,682
Maturities of investments 29,683 46,730 41,493
Purchases of investments (71,344) (190,873) (173,198)
Proceeds from sale of property and
equipment 4,242 12,878 -
Purchases of property and equipment (20,420) (13,394) (14,485)
Cash paid for acquisition of assets
and businesses (405) (10,497) -
Sales and purchases of restricted
investments and other 523,336 (35,592) 9,991
---------- ---------- ----------
Net cash provided (used in) by
investing activities 512,489 (104,059) (41,517)
---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options and employee stock purchases 15,136 11,949 27,496
Repurchases of common stock - (13,891) (135,384)
Excess tax benefits from share-based
compensation 2,688 3,789 3,312
Borrowings under financing
arrangements - 393,535 -
Repayment of senior notes and debt
refinancing costs (465,045) - -
Repayment of borrowings under
financing arrangements - (400,000) -
---------- ---------- ----------
Net cash used in financing activities (447,221) (4,618) (104,576)
---------- ---------- ----------

Net (decrease) increase in cash and
cash equivalents (556) 26,979 (277,261)
Cash and cash equivalents, beginning
of period 825,925 949,171 976,150
---------- ---------- ----------
Cash and cash equivalents, end of
period $ 825,369 $ 976,150 $ 698,889
========== ========== ==========

Health Net, Inc.
Notes to Condensed Consolidated Financial Statements

Notes:


(a) Management believes that days claims payable (excluding
capitation, provider and other claim settlements and Medicare Part
D), a non-GAAP financial measure, provides useful information to
investors because, in excluding those health care costs for which no
or minimal reserves are maintained, it is a more accurate reflection
of days claims payable calculated from claims-based reserves than is
days claims payable, which does not exclude such costs. This non-GAAP
financial information should be considered in addition to, not as a
substitute for, financial information prepared in accordance with
GAAP. The following table provides a reconciliation of the
differences between days claims payable (excluding capitation,
provider and other claim settlements and Medicare Part D) and days
claims payable, the most directly comparable financial measure
calculated and presented in accordance with GAAP:

Q3 2006 Q2 2007 Q3 2007
--------- --------- ---------
(Dollars in millions)

Reserve for Claims and Other Settlements $1,035.4 $1,084.5 $1,313.1
Less: Capitation Payable, Provider
and Other Claim Settlements and
Medicare Part D (100.5) (98.8) (290.7)
--------- --------- ---------
Adjusted Reserve for Claims and Other
Settlements 934.9 985.7 1,022.4

(1) Average Reserve for Claims and Other
Settlements 1,005.4 1,091.2 1,198.8

(2) Average Adjusted Reserve for Claims
and Other Settlements 900.0 991.2 1,004.0

(3) Health Plan Services Cost 2,174.2 2,381.3 2,631.2
Less: Capitation Payable, Provider
and Other Claim Settlements and
Medicare Part D (674.1) (751.5) (942.0)
--------- --------- ---------
(4) Adjusted Health Plan Services Cost 1,500.1 1,629.8 1,689.2

(5) Number of Days in Period 92 91 92

= (1) / (3) x (5) Days Claims Payable 42.5 41.7 41.9
= (2) / (4) x (5) Days Claims Payable
(Excl. Capitation, Provider Settlements
and Medicare Part D) 55.2 55.3 54.7

Health Net, Inc.
Enrollment Data - By State
(In thousands)

Change from
-------------------------------------
June 30, 2007 Sept 30, 2006
------------------ ------------------
Sept June Sept
30, 30, 30, Increase/ % Increase/ %
2007 2007 2006 (Decrease) Change (Decrease) Change
----- ----- ----- ---------- ------- ---------- -------
California
Large Group 992 1,013 1,053 (21) (2.1)% (61) (5.8)%
Small Group
and
Individual 477 425 419 52 12.2% 58 13.8%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 1,469 1,438 1,472 31 2.2% (3) (0.2)%
ASO 5 5 6 0 0.0% (1) (16.7)%
----- ----- ----- ---------- ------- ---------- -------
Total
Commercial 1,474 1,443 1,478 31 2.1% (4) (0.3)%
Medicare
Advantage 112 112 104 0 0.0% 8 7.7%
Medi-Cal 698 708 717 (10) (1.4)% (19) (2.6)%
----- ----- ----- ---------- ------- ---------- -------
Total
California 2,284 2,263 2,299 21 0.9% (15) (0.7)%
----- ----- ----- ---------- ------- ---------- -------

Connecticut
Large Group 138 142 155 (4) (2.8)% (17) (11.0)%
Small Group
and
Individual 26 27 30 (1) (3.7)% (4) (13.3)%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 164 169 185 (5) (3.0)% (21) (11.4)%
ASO 54 58 68 (4) (6.9)% (14) (20.6)%
----- ----- ----- ---------- ------- ---------- -------
Total
Commercial 218 227 253 (9) (4.0)% (35) (13.8)%
Medicare
Advantage 44 43 33 1 2.3% 11 33.3%
Medicaid 87 85 83 2 2.4% 4 4.8%
----- ----- ----- ---------- ------- ---------- -------
Total
Connecticut 349 355 369 (6) (1.7)% (20) (5.4)%
----- ----- ----- ---------- ------- ---------- -------

New York
Large Group 114 116 121 (2) (1.7)% (7) (5.8)%
Small Group
and
Individual 117 117 96 0 0.0% 21 21.9%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 231 233 217 (2) (0.9)% 14 6.5%
ASO 13 15 17 (2) (13.3)% (4) (23.5)%
----- ----- ----- ---------- ------- ---------- -------
Total
Commercial 244 248 234 (4) (1.6)% 10 4.3%
Medicare
Advantage 9 9 7 0 0.0% 2 28.6%
----- ----- ----- ---------- ------- ---------- -------
Total New
York 253 257 241 (4) (1.6)% 12 5.0%
----- ----- ----- ---------- ------- ---------- -------

New Jersey
Large Group 30 32 44 (2) (6.3)% (14) (31.8)%
Small Group
and
Individual 60 62 57 (2) (3.2)% 3 5.3%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 90 94 101 (4) (4.3)% (11) (10.9)%
ASO 18 18 19 0 0.0% (1) (5.3)%
----- ----- ----- ---------- ------- ---------- -------
Total
Commercial 108 112 120 (4) (3.6)% (12) (10.0)%
Medicaid 44 46 47 (2) (4.3)% (3) (6.4)%
----- ----- ----- ---------- ------- ---------- -------
Total New
Jersey 152 158 167 (6) (3.8)% (15) (9.0)%
----- ----- ----- ---------- ------- ---------- -------

Arizona
Large Group 81 80 72 1 1.3% 9 12.5%
Small Group
and
Individual 55 53 48 2 3.8% 7 14.6%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 136 133 120 3 2.3% 16 13.3%
Medicare
Advantage 49 48 34 1 2.1% 15 44.1%
----- ----- ----- ---------- ------- ---------- -------
Total
Arizona 185 181 154 4 2.2% 31 20.1%
----- ----- ----- ---------- ------- ---------- -------

Oregon
Large Group 98 96 99 2 2.1% (1) (1.0)%
Small Group
and
Individual 35 35 37 0 0.0% (2) (5.4)%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 133 131 136 2 1.5% (3) (2.2)%
Medicare
Advantage 21 20 19 1 5.0% 2 10.5%
----- ----- ----- ---------- ------- ---------- -------
Total Oregon 154 151 155 3 2.0% (1) (0.6)%
----- ----- ----- ---------- ------- ---------- -------

Other States
Medicare
Advantage 4 4 0 0 0.0% 4
----- ----- ----- ---------- ------- ---------- -------

Medicare PDP
(stand-alone) 365 348 294 17 4.9% 71 24.1%
----- ----- ----- ---------- ------- ---------- -------


----------------------------------------------------------------------
Total Health
Plan
Enrollment
Large Group 1,453 1,479 1,544 (26) (1.8)% (91) (5.9)%
Small Group
and
Individual 770 719 687 51 7.1% 83 12.1%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 2,223 2,198 2,231 25 1.1% (8) (0.4)%
ASO 90 96 110 (6) (6.3)% (20) (18.2)%
----- ----- ----- ---------- ------- ---------- -------
Total
Commercial 2,313 2,294 2,341 19 0.8% (28) (1.2)%
Medicare
Advantage 239 236 197 3 1.3% 42 21.3%
Medicare PDP
(stand-
alone) 365 348 294 17 4.9% 71 24.1%
Medi-
Cal/Medicaid 829 839 847 (10) (1.2)% (18) (2.1)%
----- ----- ----- ---------- ------- ---------- -------
Total Health
Plans 3,746 3,717 3,679 29 0.8% 67 1.8%
----------------------------------------------------------------------


TRICARE -
North
Contract
Eligibles 2,913 2,913 2,944 0 0.0% (31) (1.1)%
----------------------------------------------------------------------

Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)

Change from
-------------------------------------
June 30, 2007 Sept 30, 2006
------------------ ------------------
Sept June Sept
30, 30, 30, Increase/ % Increase/ %
2007 2007 2006 (Decrease) Change (Decrease) Change
----- ----- ----- ---------- ------- ---------- -------

Large Group
California 992 1,013 1,053 (21) (2.1)% (61) (5.8)%
Connecticut 138 142 155 (4) (2.8)% (17) (11.0)%
New York 114 116 121 (2) (1.7)% (7) (5.8)%
New Jersey 30 32 44 (2) (6.3)% (14) (31.8)%
Arizona 81 80 72 1 1.3% 9 12.5%
Oregon 98 96 99 2 2.1% (1) (1.0)%
----- ----- ----- ---------- ------- ---------- -------
1,453 1,479 1,544 (26) (1.8)% (91) (5.9)%
----- ----- ----- ---------- ------- ---------- -------

Small Group
and
Individual
California 477 425 419 52 12.2% 58 13.8%
Connecticut 26 27 30 (1) (3.7)% (4) (13.3)%
New York 117 117 96 0 0.0% 21 21.9%
New Jersey 60 62 57 (2) (3.2)% 3 5.3%
Arizona 55 53 48 2 3.8% 7 14.6%
Oregon 35 35 37 0 0.0% (2) (5.4)%
----- ----- ----- ---------- ------- ---------- -------
770 719 687 51 7.1% 83 12.1%
----- ----- ----- ---------- ------- ---------- -------

Commercial
Risk
California 1,469 1,438 1,472 31 2.2% (3) (0.2)%
Connecticut 164 169 185 (5) (3.0)% (21) (11.4)%
New York 231 233 217 (2) (0.9)% 14 6.5%
New Jersey 90 94 101 (4) (4.3)% (11) (10.9)%
Arizona 136 133 120 3 2.3% 16 13.3%
Oregon 133 131 136 2 1.5% (3) (2.2)%
----- ----- ----- ---------- ------- ---------- -------
2,223 2,198 2,231 25 1.1% (8) (0.4)%
----- ----- ----- ---------- ------- ---------- -------

ASO
California 5 5 6 0 0.0% (1) (16.7)%
Connecticut 54 58 68 (4) (6.9)% (14) (20.6)%
New York 13 15 17 (2) (13.3)% (4) (23.5)%
New Jersey 18 18 19 0 0.0% (1) (5.3)%
----- ----- ----- ---------- ------- ---------- -------
90 96 110 (6) (6.3)% (20) (18.2)%

Total
Commercial
California 1,474 1,443 1,478 31 2.1% (4) (0.3)%
Connecticut 218 227 253 (9) (4.0)% (35) (13.8)%
New York 244 248 234 (4) (1.6)% 10 4.3%
New Jersey 108 112 120 (4) (3.6)% (12) (10.0)%
Arizona 136 133 120 3 2.3% 16 13.3%
Oregon 133 131 136 2 1.5% (3) (2.2)%
----- ----- ----- ---------- ------- ---------- -------
2,313 2,294 2,341 19 0.8% (28) (1.2)%

Medicare
Advantage
California 112 112 104 0 0.0% 8 7.7%
Connecticut 44 43 33 1 2.3% 11 33.3%
New York 9 9 7 0 0.0% 2 28.6%
Arizona 49 48 34 1 2.1% 15 44.1%
Oregon 21 20 19 1 5.0% 2 10.5%
Other States 4 4 0 0 0.0% 4
----- ----- ----- ---------- ------- ---------- -------
239 236 197 3 1.3% 42 21.3%

Medi-
Cal/Medicaid
California 698 708 717 (10) (1.4)% (19) (2.6)%
Connecticut 87 85 83 2 2.4% 4 4.8%
New Jersey 44 46 47 (2) (4.3)% (3) (6.4)%
----- ----- ----- ---------- ------- ---------- -------
829 839 847 (10) (1.2)% (18) (2.1)%

Medicare PDP
(stand-alone) 365 348 294 17 4.9% 71 24.1%
----- ----- ----- ---------- ------- ---------- -------


----------------------------------------------------------------------
Total Health
Plan
Enrollment
Large Group 1,453 1,479 1,544 (26) (1.8)% (91) (5.9)%
Small Group
and
Individual 770 719 687 51 7.1% 83 12.1%
----- ----- ----- ---------- ------- ---------- -------
Commercial
Risk 2,223 2,198 2,231 25 1.1% (8) (0.4)%
ASO 90 96 110 (6) (6.3)% (20) (18.2)%
----- ----- ----- ---------- ------- ---------- -------
Total
Commercial 2,313 2,294 2,341 19 0.8% (28) (1.2)%
Medicare
Advantage 239 236 197 3 1.3% 42 21.3%
Medicare PDP
(stand-
alone) 365 348 294 17 4.9% 71 24.1%
Medi-
Cal/Medicaid 829 839 847 (10) (1.2)% (18) (2.1)%
----- ----- ----- ---------- ------- ---------- -------
Total
Health
Plans 3,746 3,717 3,679 29 0.8% 67 1.8%
----------------------------------------------------------------------


TRICARE -
North
Contract
Eligibles 2,913 2,913 2,944 0 0.0% (31) (1.1)%
----------------------------------------------------------------------

Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In millions)

Health Plan Services
----------------------------
YTD
9/2007 Year 2006 Year 2005
-------- --------- ---------

Reserve for claims (a), beginning of
period $ 754.2 $ 768.7 $ 794.6

Incurred claims related to:
Current Year 4,310.7 5,222.0 5,130.4
Prior Years (c) 3.3 (77.3) (114.5)
-------- --------- ---------
Total Incurred (b) 4,314.0 5,144.7 5,015.9

Paid claims related to:
Current Year 3,507.9 4,485.7 4,401.3
Prior Years 718.3 673.5 640.5
-------- --------- ---------
Total Paid (b) 4,226.2 5,159.2 5,041.8

Reserve for claims (a), end of period 842.0 754.2 768.7
Add:
Claims Payable (d) 376.2 203.9 177.2
Other (e) 94.9 90.7 94.3
-------- --------- ---------

Reserves for claims and other
settlements, end of period $1,313.1 $1,048.8 $1,040.2
======== ========= =========

(a) Consists of incurred but not reported claims and received but
unprocessed claims and reserves for loss adjustment expenses.

(b) Includes medical claims only. Capitation, pharmacy and other
payments including provider settlements are not included.

(c) This line represents the change in reserves attributable to the
difference between the original estimate of incurred claims for prior
years and the revised estimate. In developing the revised estimate,
there have been no changes in the approach used to determine the key
actuarial assumptions, which are the completion factor and medical
cost trend. Claims liabilities are estimated under actuarial
standards of practice and generally accepted accounting principles.
The majority of the reserve balance held at each quarter-end is
associated with the most recent months' incurred services because
these are the services for which the fewest claims have been paid.
The majority of the adjustments to reserves relate to variables and
uncertainties associated with actuarial assumptions. The degree of
uncertainty in the estimates of incurred claims is greater for the
most recent months' incurred services. Revised estimates for prior
years are determined in each quarter based on the most recent updates
of paid claims for prior years.

(d) Includes amount accrued for litigation and regulatory-related
expenses.

(e) Includes accrued capitation, shared risk settlements, provider
incentives and other reserve items.