FOUNDATION HEALTH: PAYS HIGHER CHARGE THAN EXPECTED
Foundation Health Systems Inc., the insurance giant createdThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
from the merger of Foundation Health Corp. and Health Systems
International Inc., expects to face $405.9 million in second
quarter pretax charges and costs as a result of the merger, Wall
Street Journal reports. Foundation had "estimated in a joint
statement filed in January with the Securities and Exchange
Commission" that the charges would be between $175 million and
$225 million. Of the $405.9 million, $57.5 million will be used
to purchase reinsurance for Gem Insurance Co., which had stopped
writing new policies and is facing "potential costs from future
claims payments on old business." Additionally, $74 million will
go towards transaction and integration costs; $68.1 million for
severance of a "predicted" 1,000 employees; $44.2 million for
"asset impairments"; $43.2 million to consolidate the provider
networks; $32.6 million to consolidate real-estate and $86.3
million for "other costs, including legal settlements."
HOW AND WHY
Jay Gellert, president and COO of Foundation, said, "We
decided to aggressively review the balance sheet to guarantee
that any asset that wasn't going to be useful to our future
growth would be eliminated." He added that the charges would put
the company "on track to meet its goal of eliminating $110
million by the end of next year."
RESULTS AND PROBLEMS
The charges will cause Foundation to post a net loss for the
quarter; however, that is not expected to cause analysts to
"flinch," according to the Journal. Foundation is currently
troubled by "double digit" increases in pharmacy costs and hopes
to bring those down in the near future. Gellert said premium
rates are beginning to increase in California, though the
company's gains in other markets have allowed it to maintain
enrollment at 5.1 million members despite losses on the West
Coast (Rundle, 8/8).