Health Net Reports Second Quarter 2008 Earnings of $0.71 Per Diluted Share

Included in the results for the second quarter of 2008 is the full effect of a $13.0 million pretax charge relating to the company's operations strategy that is designed to reduce general and administrative (G&A) expenses.

Adjusted(1) earnings per diluted share were $0.74 in the second quarter of 2008.

Second Quarter 2008 Highlights

1. Commercial per member per month (PMPM) premium yields increased by 9.0 percent compared to the second quarter of 2007 while commercial health care costs increased by 8.6 percent compared to the second quarter of 2007. Commercial risk membership in the second quarter declined by 57,000 members, or 2.6 percent, to 2.1 million members from the second quarter of 2007, primarily as a result of a further weakening in the economy since the first quarter of 2008 and the company's continued focus on pricing discipline. Sequentially, commercial risk membership declined by 39,000 members, or 1.8 percent, from the first quarter of 2008. 2. The commercial medical care ratio (MCR) of 84.2 percent improved 30 basis points compared to the second quarter of 2007. 3. The health plan MCR increased by 60 basis points to 85.3 percent compared to the second quarter of 2007 due to higher utilization by new Medicare members added in 2008. 4. The adjusted(1) G&A ratio was 9.1 percent and improved 50 basis points compared to the second quarter of 2007 as a result of the company's focus on expense management. 5. Investment income decreased by approximately $7.0 million compared to the second quarter of 2007 and by $14 million compared to the first quarter of 2008. The decrease was primarily due to the change in fair value of a swap contract related to the financing facility that the company secured in late 2007 as well as lower interest rates during the second quarter of 2008. 6. Days claims payable increased by 6.1 days compared to the second quarter of 2007 and by 3.2 days compared to the first quarter of 2008. When adjusted for capitation, provider settlements, and Medicare Part D costs, days in claims payable increased by 0.7 days compared to the second quarter of 2007 and by 3.1 days compared to the first quarter of 2008.(2)

Revised Full-Year 2008 Guidance

The company also announced that it is reducing full-year 2008 guidance to a range of $1.97 to $2.03 per diluted share, which includes charges taken in the first half of 2008 and the remaining $60 million to $70 million in pretax operations strategy charges the company expects to take in the third and fourth quarters.

Excluding these charges, the company currently expects to earn between $2.85 and $2.95 per diluted share in 2008. Previous 2008 guidance was $3.45 to $3.55 per diluted share, excluding the impact of any charges. The revised full-year 2008 guidance is driven by the following factors that are expected to impact the company in the second half of 2008:

1. Lower than expected commercial membership as a result of commercial pricing discipline, coupled with a further weakening in the economy, is expected to have an impact of $15 million to $20 million. 2. An anticipated increase in Medicare health care costs of approximately $37 million due to higher utilization by new Medicare members added in 2008 and reduced Medicare revenue of approximately $8 million as a result of lower per member reimbursement. 3. Higher than anticipated commercial health care costs of approximately $17 million. 4. Higher than expected G&A costs of $6 million and lower than expected investment income of $4 million.

"We believe in the strength of our diversified business portfolio, especially in light of the current economic and regulatory environments. However, based on factors that emerged during the second quarter that will impact the second half of 2008, we are lowering our full-year 2008 outlook," said Jay Gellert, president and chief executive officer of Health Net.

"First, our focus on maintaining our pricing discipline combined with a further weakening in the economy is causing us to lower our enrollment expectations for the full year," continued Gellert. "Despite this, we continue to expect to achieve our goal of driving premium revenue increases in the second half of 2008.

"Also, it is now apparent that Medicare health care costs are running higher than previous expectations. We believe we addressed these issues in our 2009 bid, submitted in early June. As a result, we expect improvements in our Medicare performance across both the Medicare Advantage and Part D businesses in 2009," said Gellert.

"Although health care costs were relatively stable in the second quarter, we currently expect commercial health care costs to run modestly higher in the second half of 2008," continued Gellert. "We believe we will maintain a positive spread in commercial premium yields versus health care costs through the balance of 2008."

The revised full-year 2008 earnings per diluted share estimates are based on a projected weighted average share count for the full year of 2008 of approximately 105.5 to 107 million, unchanged from prior guidance. Health Net did not repurchase any shares in the second quarter of 2008. The company has $203 million in remaining purchase authority.

A table at the end of this press release outlines the revised full year 2008 guidance.

Third Quarter 2008 Guidance

Including the impact of operations strategy charge, the company expects to earn between $0.68 and $0.71 per diluted share in the third quarter of 2008. Excluding the charges, the company expects to earn between $0.89 and $0.91 per diluted share in the third quarter of 2008.

Revenues and Health Care Costs

Health Net's total revenues increased 10.9 percent in the second quarter of 2008 to $3.8 billion from $3.5 billion in the second quarter of 2007. Health plan services premium revenues increased 10.8 percent to $3.1 billion in the second quarter of 2008 compared to $2.8 billion in the second quarter of 2007. The company's Government contracts revenues increased 13.2 percent in the second quarter of 2008 to $694.9 million from $613.9 million in the second quarter of 2007.

The health plan MCR was 85.3 percent in the second quarter of 2008 compared to 84.7 percent in the second quarter of 2007. The commercial MCR was 84.2 percent in the second quarter of 2008 compared to 84.5 percent in the second quarter of 2007.

The Government contracts cost ratio was 94.7 percent in the second quarter of 2008 compared to 92.9 percent in the second quarter of 2007. The year-over-year increase primarily was due to favorable Option Period 3 health care costs that impacted 2007.

"Our Government Contracts division continues to perform as expected," said Jim Woys, Health Net's chief operating officer. "We are honored to serve the dynamic needs of the military family - whether through our TRICARE, Veterans Affairs or Military Family Life Counseling programs. We continue to work in a very close and collaborative partnership with our customers, and our collective efforts have broadened access and health care quality for military personnel, their families and Veteran beneficiaries."

G&A Expenses

Total G&A expense was $297.5 million in the second quarter of 2008 compared with $270.0 million in the second quarter of 2007. Total adjusted(1) G&A expense in the second quarter of 2008 was $284.4 million compared to $270.0 million in the second quarter of 2007. In the first quarter of 2008, G&A expenses of $352.3 million included $35.8 million in litigation and operations strategy charges. Excluding the charges taken in the first and second quarters of 2008, G&A expenses improved by $32.1 million in the second quarter of 2008 compared to the first quarter of 2008.

"The adjusted(1) G&A expense ratio in the second quarter improved by 50 basis points from the second quarter of 2007 and 100 basis points from the first quarter of 2008 as we continue to focus on our operations strategy and managing our expenses," said Joseph C. Capezza, Health Net's chief financial officer. "For the full year 2008, we expect the G&A ratio, excluding any operations strategy charges, to increase from the second quarter."

Health Net's selling expenses of $88.2 million in the second quarter of 2008 increased by $11.4 million compared to the second quarter of 2007.

Membership

Total health plan enrollment as of June 30, 2008 was nearly 3.8 million members. This represents an increase of 60,000 members, or 1.6 percent, compared to June 30, 2007, and a decrease of 88,000 members, or 2.3 percent, compared to March 31, 2008.

Commercial risk enrollment as of June 30, 2008 decreased to approximately 2.1 million, or by 57,000 members, compared to June 30, 2007. Sequentially, commercial risk enrollment decreased by 39,000 members, or 1.8 percent, since March 31, 2008. Administrative Services Only (ASO) membership decreased by 52,000 members, or 54.2 percent, to 44,000 members as of June 30, 2008 compared to June 30, 2007. Sequentially, ASO membership declined by 14,000, or 24.1 percent, from March 31, 2008, consistent with the company's strategy to de-emphasize this business.

Enrollment in the company's Medicare Advantage plans grew by 49,000 members, or 20.8 percent, to 285,000 members at the end of the second quarter of 2008 compared to the end of the second quarter of 2007. Sequentially, Medicare Advantage membership grew by 9,000 members, or 3.3 percent, from March 31, 2008. Membership in the company's Medicare PDP plans was 526,000 at the end of the second quarter of 2008, an increase of 178,000 members, or 51.1 percent, compared to the end of the second quarter of 2007. Sequentially, PDP membership grew by 4,000 members, or nearly 1.0 percent, from March 31, 2008.

Medicaid enrollment at June 30, 2008 was 781,000 members, a decrease of 58,000 members, or 6.9 percent, from June 30, 2007. Sequentially, Medicaid membership decreased by 48,000 members, or 5.8 percent, from March 31, 2008. The decline in Medicaid membership primarily was due to the company's exit from the Connecticut Medicaid business in April 2008.

Balance Sheet

The company recorded cash and investments as of June 30, 2008 of approximately $2.3 billion compared with $2.4 billion as of June 30, 2007. The company noted that its investment portfolio is comprised of a diversified mix of high quality, fixed income securities. Mortgage and asset-backed securities represent 41 percent of the portfolio, of which approximately 98 percent are issued by government-sponsored or -owned enterprises. The company does not own any investments that have direct subprime mortgage exposure.

Reserves for claims and other settlements as of June 30, 2008 were approximately $1.4 billion compared with nearly $1.1 billion as of June 30, 2007. Reserves for claims and other settlements decreased by $73.0 million from March 31, 2008 to June 30, 2008.

Days claims payable (DCP), including provider and other claims settlements, capitation payments and Medicare Part D expenses, for the second quarter of 2008 increased by 6.1 days to 47.8 days compared to 41.7 days in the second quarter of 2007, and increased sequentially by 3.2 days compared to the first quarter of 2008.

Excluding provider and other claim settlements, capitation payments and Medicare Part D, DCP in the second quarter of 2008 increased by 0.7 days to 56.0 days compared to the second quarter of 2007, and increased by 3.1 days sequentially.(2)

The company's debt-to-total capital ratio was 27.8 percent as of June 30, 2008 compared to 27.5 percent as of March 31, 2008 and 17.0 percent as of June 30, 2007. The debt-to-total capital ratio increased primarily as a result of the result of the company's draw on its revolving credit facility to fund various legal settlement payments and the purchase of equipment under a lease facility that expired in the second quarter of 2008.

Interest expense increased by $3.5 million in the second quarter of 2008 compared to the second quarter of 2007. The increase is due to the higher draw on the revolving credit facility and an increase in the imputed interest on the company's financing facility. The imputed interest on the financing facility is offset by other income related to the same facility.

Cash Flow

Operating cash flow was negative $80.5 million in the second quarter of 2008. This decrease was primarily driven by the following factors:

1. Part D risk adjusters and reinsurance that total $87 million, of which the company received $47 million in July 2008. 2. Litigation settlement and operations strategy payments of $41 million in the quarter. 3. The company's annual shared risk settlement with California medical groups in the amount of $18 million in the quarter.

"For the full year 2008, we expect operating cash flow of approximately $320 million, excluding litigation and operation strategy payments," said Capezza. "This will provide sufficient cash to repurchase our annual goal of three to five percent of our outstanding shares."

Full Year 2008 Guidance Table

The table below updates previously issued full-year 2008 guidance on a number of operating metrics.

FY2008 Revised Outlook ---------------------------------------------------------------------- Revised Guidance Comment ---------------------------------------------------------------------- Year-end Membership Commercial Risk: -6% Previously: -3% to -4% to -7% Medicaid: flat Unchanged Medicare Advantage: Unchanged +20% to 25% PDP: +40% to 45% Unchanged ---------------------------------------------------------------------- Consolidated Revenues $15 to $16 billion Unchanged ---------------------------------------------------------------------- Commercial Yields 8.0% Unchanged ---------------------------------------------------------------------- Commercial 8.4% Previously: 8.0% Health Care Cost (Includes 50 bps of Trends* prior period development booked in 1Q08) ---------------------------------------------------------------------- Selling Cost Ratio approx. 2.8% Unchanged Government Contracts approx. 94.5% Unchanged Ratio G&A Expense Ratio* approx. 9.8% Previously: approx. 10.0% ---------------------------------------------------------------------- Tax Rate* approx. 39.5% Unchanged ---------------------------------------------------------------------- Weighted-average Fully Diluted Shares 105.5-107 million Unchanged Outstanding ---------------------------------------------------------------------- EPS* $2.85 to $2.95 Previously: $3.45 - $3.55 ----------------------------------------------------------------------

*Excludes the impact of litigation and operations strategy-related charges.

Conference Call

As previously announced, Health Net will discuss the company's second quarter 2008 results during a conference call on Tuesday, August 5, 2008, beginning at approximately 11:00 a.m. Eastern time. The conference call should be accessed at least 15 minutes prior to its start with the following numbers:

877.856.1965 (Domestic) 888.203.1112 (Replay - Domestic) 719.325.4793 (International) 719.457.0820 (Replay - International)

The access code for both the live conference call and the replay is 2150941. A replay of the conference call will be available through August 9, 2008. A live webcast and replay of the conference call also will be available at www.healthnet.com under "Investor Relations." The conference call webcast is open to all interested parties. 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, 2007, Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, 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 6.9 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

All statements in this press release, other than statements of historical information provided herein, including but not limited to the guidance for future periods included herein and the assumptions underlying such projections, may be deemed to be forward-looking statements and as such are subject to a number of risks and uncertainties. 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 guidance as to expected future period results and statements including 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, unexpected utilization patterns or unexpectedly severe or widespread illnesses, membership declines, rate cuts affecting our Medicare or Medicaid business, issues relating to provider contracts, litigation costs, regulatory issues, 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 "Risk Factors" section, included within the company's most recent 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 its guidance, the assessment of the underlying assumptions or any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.

(1) On a reported GAAP basis, diluted earnings per share were $0.71, pretax margin was 3.1 percent and G&A expense ratio was 9.5 percent for the second quarter of 2008. G&A expense for the second quarter of 2008 includes the operations strategy charge of $13.0 million, or $0.03 per share. Excluding this charge, earnings per share were $0.74, pretax margin was 3.4 percent and G&A expense ratio was 9.1 percent for the second quarter of 2008. Such adjusted numbers are non-GAAP financial measures. Further explanation of these non-GAAP measures and reconciliation to the comparable GAAP measures are included in the attached reconciliation schedule. Other key metrics, including MCR, government contracts cost ratio and selling expense ratio, are not impacted by the charge.

(2) See footnote (a) in the Notes to Consolidated Financial Statements in the financial schedules attached to this release for a reconciliation of this information to the comparable GAAP financial measure.

Health Net, Inc. Enrollment Data - By State (In thousands) June 30, March 31, June 30, 2008 2008 2007 -------- --------- -------- California Large Group 971 984 1,013 Small Group and Individual 453 468 425 -------- --------- -------- Commercial Risk 1,424 1,452 1,438 ASO 5 5 5 -------- --------- -------- Total Commercial 1,429 1,457 1,443 Medicare Advantage 126 123 112 Medi-Cal 737 720 708 -------- --------- -------- Total California 2,292 2,300 2,263 -------- --------- -------- Connecticut Large Group 124 127 142 Small Group and Individual 25 25 27 -------- --------- -------- Commercial Risk 149 152 169 ASO 25 26 58 -------- --------- -------- Total Commercial 174 178 227 Medicare Advantage 57 54 43 Medicaid 0 65 85 -------- --------- -------- Total Connecticut 231 297 355 -------- --------- -------- New York Large Group 104 105 116 Small Group and Individual 109 113 117 -------- --------- -------- Commercial Risk 213 218 233 ASO 11 11 15 -------- --------- -------- Total Commercial 224 229 248 Medicare Advantage 6 6 9 -------- --------- -------- Total New York 230 235 257 -------- --------- -------- New Jersey Large Group 22 25 32 Small Group and Individual 56 58 62 -------- --------- -------- Commercial Risk 78 83 94 ASO 3 16 18 -------- --------- -------- Total Commercial 81 99 112 Medicaid 44 44 46 -------- --------- -------- Total New Jersey 125 143 158 -------- --------- -------- Arizona Large Group 84 85 80 Small Group and Individual 54 54 53 -------- --------- -------- Commercial Risk 138 139 133 Medicare Advantage 64 62 48 -------- --------- -------- Total Arizona 202 201 181 -------- --------- -------- Oregon Large Group 103 101 96 Small Group and Individual 36 35 35 -------- --------- -------- Commercial Risk 139 136 131 Medicare Advantage 22 22 20 -------- --------- -------- Total Oregon 161 158 151 -------- --------- -------- Other States Medicare Advantage 10 9 4 -------- --------- -------- Medicare PDP (stand-alone) 526 522 348 -------- --------- -------- ------------------------------------------------ --------- -------- Total Health Plan Enrollment Large Group 1,408 1,427 1,479 Small Group and Individual 733 753 719 -------- --------- -------- Commercial Risk 2,141 2,180 2,198 ASO 44 58 96 -------- --------- -------- Total Commercial 2,185 2,238 2,294 Medicare Advantage 285 276 236 Medicare PDP (stand-alone) 526 522 348 Medi-Cal/Medicaid 781 829 839 -------- --------- -------- Total Health Plans 3,777 3,865 3,717 ------------------------------------------------ --------- -------- TRICARE - North Contract Eligibles 2,951 2,895 2,913 ------------------------------------------------ --------- -------- Health Net, Inc. Enrollment Data - By State (In thousands) Change from ---------------------------------------- March 31, 2008 June 30, 2007 -------------------- ------------------- Increase/ % Increase/ % (Decrease) Change (Decrease) Change ----------- -------- ---------- -------- California Large Group (13) (1.3)% (42) (4.1)% Small Group and Individual (15) (3.2)% 28 6.6% ----------- -------- ---------- -------- Commercial Risk (28) (1.9)% (14) (1.0)% ASO 0 0.0% 0 0.0% ----------- -------- ---------- -------- Total Commercial (28) (1.9)% (14) (1.0)% Medicare Advantage 3 2.4% 14 12.5% Medi-Cal 17 2.4% 29 4.1% ----------- -------- ---------- -------- Total California (8) (0.3)% 29 1.3% ----------- -------- ---------- -------- Connecticut Large Group (3) (2.4)% (18) (12.7)% Small Group and Individual 0 0.0% (2) (7.4)% ----------- -------- ---------- -------- Commercial Risk (3) (2.0)% (20) (11.8)% ASO (1) (3.8)% (33) (56.9)% ----------- -------- ---------- -------- Total Commercial (4) (2.2)% (53) (23.3)% Medicare Advantage 3 5.6% 14 32.6% Medicaid (65) (100.0)% (85) (100.0)% ----------- -------- ---------- -------- Total Connecticut (66) (22.2)% (124) (34.9)% ----------- -------- ---------- -------- New York Large Group (1) (1.0)% (12) (10.3)% Small Group and Individual (4) (3.5)% (8) (6.8)% ----------- -------- ---------- -------- Commercial Risk (5) (2.3)% (20) (8.6)% ASO 0 0.0% (4) (26.7)% ----------- -------- ---------- -------- Total Commercial (5) (2.2)% (24) (9.7)% Medicare Advantage 0 0.0% (3) (33.3)% ----------- -------- ---------- -------- Total New York (5) (2.1)% (27) (10.5)% ----------- -------- ---------- -------- New Jersey Large Group (3) (12.0)% (10) (31.3)% Small Group and Individual (2) (3.4)% (6) (9.7)% ----------- -------- ---------- -------- Commercial Risk (5) (6.0)% (16) (17.0)% ASO (13) (81.3)% (15) (83.3)% ----------- -------- ---------- -------- Total Commercial (18) (18.2)% (31) (27.7)% Medicaid 0 0.0% (2) (4.3)% ----------- -------- ---------- -------- Total New Jersey (18) (12.6)% (33) (20.9)% ----------- -------- ---------- -------- Arizona Large Group (1) (1.2)% 4 5.0% Small Group and Individual 0 0.0% 1 1.9% ----------- -------- ---------- -------- Commercial Risk (1) (0.7)% 5 3.8% Medicare Advantage 2 3.2% 16 33.3% ----------- -------- ---------- -------- Total Arizona 1 0.5% 21 11.6% ----------- -------- ---------- -------- Oregon Large Group 2 2.0% 7 7.3% Small Group and Individual 1 2.9% 1 2.9% ----------- -------- ---------- -------- Commercial Risk 3 2.2% 8 6.1% Medicare Advantage 0 0.0% 2 10.0% ----------- -------- ---------- -------- Total Oregon 3 1.9% 10 6.6% ----------- -------- ---------- -------- Other States Medicare Advantage 1 11.1% 6 150.0% ----------- -------- ---------- -------- Medicare PDP (stand-alone) 4 0.8% 178 51.1% ----------- -------- ---------- -------- ----------------------------------------- -------- ---------- -------- Total Health Plan Enrollment Large Group (19) (1.3)% (71) (4.8)% Small Group and Individual (20) (2.7)% 14 1.9% ----------- -------- ---------- -------- Commercial Risk (39) (1.8)% (57) (2.6)% ASO (14) (24.1)% (52) (54.2)% ----------- -------- ---------- -------- Total Commercial (53) (2.4)% (109) (4.8)% Medicare Advantage 9 3.3% 49 20.8% Medicare PDP (stand- alone) 4 0.8% 178 51.1% Medi-Cal/Medicaid (48) (5.8)% (58) (6.9)% ----------- -------- ---------- -------- Total Health Plans (88) (2.3)% 60 1.6% ----------------------------------------- -------- ---------- -------- TRICARE - North Contract Eligibles 56 1.9% 38 1.3% ----------------------------------------- -------- ---------- -------- -

Health Net, Inc. Enrollment Data - Line of Business (In thousands) June 30, March 31, June 30, 2008 2008 2007 -------- --------- -------- Large Group California 971 984 1,013 Connecticut 124 127 142 New York 104 105 116 New Jersey 22 25 32 Arizona 84 85 80 Oregon 103 101 96 -------- --------- -------- 1,408 1,427 1,479 -------- --------- -------- Small Group and Individual California 453 468 425 Connecticut 25 25 27 New York 109 113 117 New Jersey 56 58 62 Arizona 54 54 53 Oregon 36 35 35 -------- --------- -------- 733 753 719 -------- --------- -------- Commercial Risk California 1,424 1,452 1,438 Connecticut 149 152 169 New York 213 218 233 New Jersey 78 83 94 Arizona 138 139 133 Oregon 139 136 131 -------- --------- -------- 2,141 2,180 2,198 -------- --------- -------- ASO California 5 5 5 Connecticut 25 26 58 New York 11 11 15 New Jersey 3 16 18 -------- --------- -------- 44 58 96 Total Commercial California 1,429 1,457 1,443 Connecticut 174 178 227 New York 224 229 248 New Jersey 81 99 112 Arizona 138 139 133 Oregon 139 136 131 -------- --------- -------- 2,185 2,238 2,294 Medicare Advantage California 126 123 112 Connecticut 57 54 43 New York 6 6 9 Arizona 64 62 48 Oregon 22 22 20 Other States 10 9 4 -------- --------- -------- 285 276 236 Medi-Cal/Medicaid California 737 720 708 Connecticut 0 65 85 New Jersey 44 44 46 -------- --------- -------- 781 829 839 Medicare PDP (stand-alone) 526 522 348 -------- --------- -------- ------------------------------------------------- --------- -------- Total Health Plan Enrollment Large Group 1,408 1,427 1,479 Small Group and Individual 733 753 719 -------- --------- -------- Commercial Risk 2,141 2,180 2,198 ASO 44 58 96 -------- --------- -------- Total Commercial 2,185 2,238 2,294 Medicare Advantage 285 276 236 Medicare PDP (stand-alone) 526 522 348 Medi-Cal/Medicaid 781 829 839 -------- --------- -------- Total Health Plans 3,777 3,865 3,717 ------------------------------------------------- --------- -------- TRICARE - North Contract Eligibles 2,951 2,895 2,913 ------------------------------------------------- --------- -------- Health Net, Inc. Enrollment Data - Line of Business (In thousands) Change from ---------------------------------------- March 31, 2008 June 30, 2007 -------------------- ------------------- Increase/ % Increase/ % (Decrease) Change (Decrease) Change ----------- -------- ---------- -------- Large Group California (13) (1.3)% (42) (4.1)% Connecticut (3) (2.4)% (18) (12.7)% New York (1) (1.0)% (12) (10.3)% New Jersey (3) (12.0)% (10) (31.3)% Arizona (1) (1.2)% 4 5.0% Oregon 2 2.0% 7 7.3% ----------- -------- ---------- -------- (19) (1.3)% (71) (4.8)% ----------- -------- ---------- -------- Small Group and Individual California (15) (3.2)% 28 6.6% Connecticut 0 0.0% (2) (7.4)% New York (4) (3.5)% (8) (6.8)% New Jersey (2) (3.4)% (6) (9.7)% Arizona 0 0.0% 1 1.9% Oregon 1 2.9% 1 2.9% ----------- -------- ---------- -------- (20) (2.7)% 14 1.9% ----------- -------- ---------- -------- Commercial Risk California (28) (1.9)% (14) (1.0)% Connecticut (3) (2.0)% (20) (11.8)% New York (5) (2.3)% (20) (8.6)% New Jersey (5) (6.0)% (16) (17.0)% Arizona (1) (0.7)% 5 3.8% Oregon 3 2.2% 8 6.1% ----------- -------- ---------- -------- (39) (1.8)% (57) (2.6)% ----------- -------- ---------- -------- ASO California 0 0.0% 0 0.0% Connecticut (1) (3.8)% (33) (56.9)% New York 0 0.0% (4) (26.7)% New Jersey (13) (81.3)% (15) (83.3)% ----------- -------- ---------- -------- (14) (24.1)% (52) (54.2)% Total Commercial California (28) (1.9)% (14) (1.0)% Connecticut (4) (2.2)% (53) (23.3)% New York (5) (2.2)% (24) (9.7)% New Jersey (18) (18.2)% (31) (27.7)% Arizona (1) (0.7)% 5 3.8% Oregon 3 2.2% 8 6.1% ----------- -------- ---------- -------- (53) (2.4)% (109) (4.8)% Medicare Advantage California 3 2.4% 14 12.5% Connecticut 3 5.6% 14 32.6% New York 0 0.0% (3) (33.3)% Arizona 2 3.2% 16 33.3% Oregon 0 0.0% 2 10.0% Other States 1 11.1% 6 150.0% ----------- -------- ---------- -------- 9 3.3% 49 20.8% Medi-Cal/Medicaid California 17 2.4% 29 4.1% Connecticut (65) (100.0)% (85) (100.0)% New Jersey 0 0.0% (2) (4.3)% ----------- -------- ---------- -------- (48) (5.8)% (58) (6.9)% Medicare PDP (stand-alone) 4 0.8% 178 51.1% ----------- -------- ---------- -------- ----------------------------------------- -------- ---------- -------- Total Health Plan Enrollment Large Group (19) (1.3)% (71) (4.8)% Small Group and Individual (20) (2.7)% 14 1.9% ----------- -------- ---------- -------- Commercial Risk (39) (1.8)% (57) (2.6)% ASO (14) (24.1)% (52) (54.2)% ----------- -------- ---------- -------- Total Commercial (53) (2.4)% (109) (4.8)% Medicare Advantage 9 3.3% 49 20.8% Medicare PDP (stand- alone) 4 0.8% 178 51.1% Medi-Cal/Medicaid (48) (5.8)% (58) (6.9)% ----------- -------- ---------- -------- Total Health Plans (88) (2.3)% 60 1.6% ----------------------------------------- -------- ---------- -------- TRICARE - North Contract Eligibles 56 1.9% 38 1.3% ----------------------------------------- -------- ---------- -------- -

Health Net, Inc. Consolidated Statements of Operations (Amounts in thousands, except per share, PMPM and ratio data) Quarter Ended Quarter Ended Quarter Ended June 30, March 31, June 30, REVENUES: 2007 2008 2008 ------------- ------------- ------------- Health plan services premiums $ 2,811,186 $ 3,122,988 $ 3,114,168 Government contracts 613,865 664,449 694,885 Net investment income 27,884 35,371 20,931 Administrative services fees and other income 11,243 13,948 11,516 ------------- ------------- ------------- 3,464,178 3,836,756 3,841,500 ------------- ------------- ------------- EXPENSES: Health plan services 2,381,279 2,788,403 2,655,066 Government contracts 570,518 637,577 658,255 General and administrative 270,003 352,278 297,475 Selling 76,842 86,592 88,243 Depreciation and amortization 9,013 12,279 13,073 Interest 7,824 10,657 11,316 ------------- ------------- ------------- 3,315,479 3,887,786 3,723,428 Income (loss) from operations before income taxes 148,699 (51,030) 118,072 Income tax provision (benefit) 56,669 (15,350) 41,394 ------------- ------------- ------------- Net income (loss) $ 92,030 $ (35,680) $ 76,678 ============= ============= ============= Basic earnings (loss) per share $ 0.82 $ (0.33) $ 0.71 Diluted earnings (loss) per share $ 0.80 $ (0.33) $ 0.71 Weighted average shares outstanding: Basic 112,122 109,232 107,308 Diluted 114,808 109,232 108,338 Pretax margin 4.3% -1.3% 3.1% Health plan services MCR 84.7% 89.3% 85.3% Government contracts cost ratio 92.9% 96.0% 94.7% G&A expense ratio 9.6% 11.2% 9.5% Selling costs ratio 2.7% 2.8% 2.8% Days claims payable (a) 41.7 44.6 47.8 Days claims payable - adjusted (a) 55.3 52.9 56.0 Effective tax rate 38.1% 30.1% 35.1% Health plan services premiums PMPM $ 260.18 $ 277.17 $ 278.25 Health plan services costs PMPM $ 220.39 $ 247.48 $ 237.23

Health Net, Inc. Reconciliation of Non-GAAP Financial Measures Operating Results Excluding Charge (Amounts in thousands, except per share, PMPM and ratio data) Note: This table presents the company's consolidated operations for the quarter ended June 30, 2008 and the charge recorded in the consolidated statement of operations for quarter ended June 30, 2008. Management believes that the presentation of certain financial information in the attached press release (such as General and administrative expense, Income before income taxes, Income tax provision, Net income, Basic and diluted earnings per share, Pretax margin and G&A expense ratio), excluding the charge that was recorded in the quarter ended June 30, 2008, all of which is non-GAAP financial information, is important to investors as it excludes special items that are not indicative of our core operating results. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.

As Reported Quarter Ended Impact Excluding June 30, of Impact of 2008 Charge Charge ------------- --------- ----------- REVENUES: Health plan services premiums $3,114,168 $3,114,168 Government contracts 694,885 694,885 Net investment income 20,931 20,931 Administrative services fees and other income 11,516 11,516 ------------- --------- ----------- 3,841,500 - 3,841,500 ------------- --------- ----------- EXPENSES: Health plan services 2,655,066 2,655,066 Government contracts 658,255 658,255 General and administrative 297,475 13,037 284,438 Selling 88,243 88,243 Depreciation and amortization 13,073 13,073 Interest 11,316 11,316 ------------- --------- ----------- 3,723,428 13,037 3,710,391 Income (loss) from operations before income taxes 118,072 (13,037) 131,109 Income tax provision (benefit) 41,394 (9,739) 51,133 ------------- --------- ----------- Net income (loss) $ 76,678 $ (3,298) $ 79,976 ============= ========= =========== Basic earnings per share $ 0.71 $ 0.75 Diluted earnings per share $ 0.71 $ (0.03) $ 0.74 Weighted average shares outstanding: Basic 107,308 107,308 Diluted 108,338 108,338 Pretax margin 3.1% -0.3% 3.4% Health plan services MCR 85.3% - 85.3% Government contracts cost ratio 94.7% - 94.7% G&A expense ratio 9.5% 0.4% 9.1% Selling costs ratio 2.8% - 2.8% Effective tax rate 35.1% -3.9% 39.0%

Health Net, Inc. Consolidated Statements of Cash Flows (Amounts in thousands) Quarter Quarter Quarter Ended Ended Ended June 30, March 31, June 30, 2007 2008 2008 ---------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 92,030 $ (35,680) $ 76,678 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization and depreciation 9,013 12,279 13,073 Share-based compensation expense 6,529 6,667 7,888 Deferred income taxes (7,219) (26,862) 1,975 Excess tax benefits from share- based compensation (3,789) (774) (6) Other changes (3,067) (5,116) 5,637 Changes in assets and liabilities, net of the effects of dispositions/acquisitions: Premiums receivable and unearned premiums 40,925 (64,281) (58,723) Other receivables, deferred taxes and other assets 96,616 (16,665) 35,652 Amounts receivable/payable under government contracts (27,299) (71,770) 8,196 Reserves for claims and other settlements (13,492) 130,298 (72,974) Accounts payable and other liabilities (54,591) (45,429) (97,888) ---------- ----------- ---------- Net cash provided by (used in) operating activities 135,656 (117,333) (80,492) ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales of investments 86,689 341,197 209,569 Maturities of investments 46,730 46,820 89,812 Purchases of investments (190,873) (377,638) (296,988) Proceeds from sale of property and equipment 12,878 4 - Purchases of property and equipment (13,394) (14,765) (60,078) Net cash paid for acquisition of Guardian assets (10,497) - - Purchases and Sales of restricted investments and other (35,592) 11,150 1,959 ---------- ----------- ---------- Net cash (used in) provided by investing activities (104,059) 6,768 (55,726) ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options and employee stock purchases 11,949 5,559 842 Repurchases of common stock (13,891) (142,978) (67) Excess tax benefits from share-based compensation 3,789 774 6 Borrowings under financing arrangements 393,535 100,000 45,000 Repayment of borrowings under financing arrangements (400,000) - (8,722) ---------- ----------- ---------- Net cash (used in) provided by financing activities (4,618) (36,645) 37,059 ---------- ----------- ---------- Net increase (decrease) in cash and cash equivalents 26,979 (147,210) (99,159) Cash and cash equivalents, beginning of period 949,171 1,007,017 859,807 ---------- ----------- ---------- Cash and cash equivalents, end of period $ 976,150 $ 859,807 $ 760,648 ========== =========== ==========

Health Net, Inc. Consolidated Balance Sheet (Amounts in thousands, except ratio data) June 30, March 31, June 30, 2007 2008 2008 ----------- ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 976,150 $ 859,807 $ 760,648 Investments - available for sale 1,421,537 1,547,236 1,514,421 Premiums receivable, net 206,513 335,085 400,918 Amounts receivable under government contracts 229,134 263,642 262,877 Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract 271,327 285,545 280,801 Other receivables 105,093 90,660 92,310 Deferred taxes 69,369 102,868 107,478 Other assets 179,722 265,758 223,326 ----------- ------------ ------------ Total current assets 3,458,845 3,750,601 3,642,779 Property and equipment, net 163,877 184,329 234,423 Goodwill, net 751,949 751,949 751,949 Other intangible assets, net 119,463 104,348 101,216 Deferred taxes 92,127 49,743 55,096 Other noncurrent assets 145,703 137,492 135,896 ----------- ------------ ------------ Total Assets $4,731,964 $ 4,978,462 $ 4,921,359 =========== ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Reserves for claims and other settlements $1,084,461 $ 1,430,730 $ 1,357,756 Health care and other costs payable under government contracts 53,528 70,910 78,341 IBNR health care costs payable under TRICARE North contract 271,327 285,545 280,801 Unearned premiums 415,256 183,094 190,204 Borrowings under amortizing financing facility - 25,356 26,028 Accounts payable and other liabilities 315,688 432,304 327,782 ----------- ------------ ------------ Total current liabilities 2,140,260 2,427,939 2,260,912 Senior notes payable 397,968 398,122 398,173 Borrowings under amortizing financing facility - 124,782 117,984 Borrowings under revolving credit facility - 100,000 145,000 Other noncurrent liabilities 243,943 216,042 215,199 ----------- ------------ ------------ Total Liabilities 2,782,171 3,266,885 3,137,268 ----------- ------------ ------------ Stockholders' Equity Common stock and additional paid-in capital 1,100,623 1,164,688 1,173,132 Treasury common stock, at cost (966,691) (1,267,125) (1,267,192) Retained earnings 1,836,015 1,813,417 1,890,095 Accumulated other comprehensive (loss) income (20,154) 597 (11,944) ----------- ------------ ------------ Total Stockholders' Equity 1,949,793 1,711,577 1,784,091 ----------- ------------ ------------ Total Liabilities and Stockholders' Equity $4,731,964 $ 4,978,462 $ 4,921,359 =========== ============ ============ Debt-to-Total Capital Ratio 17.0% 27.5% 27.8%

Health Net, Inc. Notes to 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:

Q2 2007 Q1 2008 Q2 2008 --------------------------- (Dollars in millions) Reserve for Claims and Other Settlements $