Health Net Reports an 18.5 Percent Increase in First Quarter 2007 Earnings Per Share

Health Net, Inc. (NYSE:HNT) today announced that 2007 first quarter net income was $88.6 million, or $0.77 per diluted share. Net income for the first quarter of 2006 was $76.6 million, or $0.65 per diluted share. Following are key highlights for the first quarter of 2007: Pretax margin of 4.2 percent, a 30 basis point improvement compared to the first quarter of 2006; Commercial gross margin per member per month (PMPM) increased 5.1 percent compared to the first quarter of 2006; Medicare Advantage membership grew by 33,000 members, or 17.4 percent, compared to the first quarter of 2006; Membership in the company’s individual, small group and mid-market accounts increased by 3.3 percent in the first quarter of 2007 compared to the first quarter of 2006, despite a commercial and administrative services only (ASO) enrollment decrease of 3.7 percent over the same period; The administrative expense ratio of 10.7 percent improved 80 basis points from the first quarter of 2006 and 100 basis points from the fourth quarter of 2006; The company completed the sale of its Shelton, Conn. campus effective March 29, 2007, and received net proceeds of $83.9 million in cash; The company entered into an agreement with The Guardian Life Insurance Company of America to purchase The Guardian’s 50 percent interest in the Healthcare Solutions joint venture; Health Net’s behavioral health care subsidiary, MHN, was awarded a five-year, $50 million contract to administer and monitor the Military and Family Life Counseling program for military service members and their families; and The company repurchased 1.0 million shares during the first quarter, bringing its total share repurchases to nearly 6.5 million shares since it resumed repurchases under its stock repurchase program in November 2006. The company has approximately $178 million in remaining repurchase authority. Membership Total health plan enrollment during the first quarter of 2007 declined by nearly 74,000 members, or 2.2 percent, to 3.3 million members compared to the same period in 2006, and by 78,000 members, or 2.3 percent, sequentially. Most of the decline in membership occurred in the commercial large group segment. "As expected, total health plan enrollment declined in the first quarter of 2007, driven mainly by lapses in unprofitable, large group accounts,” said Jay Gellert, Health Net’s chief executive officer. Commercial enrollment, including both at-risk and ASO membership, declined by approximately 87,000 members, or 3.7 percent, to approximately 2.3 million members in the first quarter of 2007 compared to both the first and fourth quarters of 2006, which were at approximately 2.4 million members. Health Net is the fifth largest Medicare contractor in the United States based on enrollment with approximately 223,000 members in its Medicare Advantage plans at the end of the first quarter of 2007. This reflects an increase of 33,000 members, or 17.4 percent, since the end of the first quarter of 2006, and an increase of 24,000 members, or 12.1 percent, since the end of the fourth quarter of 2006. Membership in the company’s Medicare Part D plans at the end of the first quarter of 2007 was 341,000, an increase of 86,000 members, or 33.7 percent, from the end of the first quarter of 2006. Since the end of the fourth quarter of 2006, Medicare Part D membership increased by 41,000 members, or 13.7 percent. State Health Plan enrollment at the end of the first quarter of 2007 was 825,000 members, a decline of 20,000 members since the end of the first quarter of 2006 and 15,000 members since the end of the fourth quarter of 2006. Revenues and Health Care Costs Health Net’s total revenues increased 7.6 percent in the first quarter of 2007 to $3.4 billion from $3.2 billion in the first quarter of 2006. Health plan services premium revenues increased 10.0 percent to $2.8 billion in the first quarter of 2007 compared to $2.5 billion in the first quarter of 2006. Health Net’s Government contracts revenues decreased 2.7 percent in the first quarter of 2007 to $608 million from $625 million in the first quarter of 2006. "The decrease in revenues was driven by the government assuming payment responsibility for health care expenditures for active duty personnel in the civilian sector as of the third quarter of 2006 and by improved Option Period 3 health care costs,” said Jim Woys, Health Net’s interim chief financial officer. The health plan medical care ratio (MCR) was 84.3 percent in the first quarter of 2007 compared to 83.4 percent in the first quarter of 2006. This expected increase was driven by a higher Medicare Advantage MCR of 86.4 percent, compared to 84.0 percent in the first quarter of 2006, and an increase in the Medicaid MCR, which was 120 basis points higher than the first quarter of 2006. The commercial MCR in the first quarter of 2007 was 83.2 percent, up 20 basis points compared to the first quarter of 2006. The commercial premium yield increased 6.2 percent in the first quarter of 2007 compared to the first quarter of 2006. Commercial health care costs rose by 6.4 percent on a PMPM basis in the first quarter of 2007 compared to the first quarter of 2006. "The business we renewed in the first quarter of 2007 experienced a yield increase in excess of 8 percent. The quarter-over-quarter comparison in the yield of 6.2 percent was impacted by two factors. First, lower cost, new business replaced higher cost, terminated business. Second, the first quarter of 2007 includes the impact of the company’s Universal Care acquisition, which closed on March 31, 2006,” said Gellert. "We expect to see a continuation of lower cost business replacing higher cost business throughout the year. For 2007, we expect the premium yield to be approximately 7.0 percent, and health care costs to be 30 to 50 basis points below yield,” said Gellert. The Government contracts cost ratio was 93.3 percent in the first quarter of 2007, representing a 200 basis point improvement compared with the first quarter of 2006. "We continue to see improvement in the Government contracts ratio due to both our strong partnership and ongoing care coordination with the Department of Defense and the Military Health System and our continuous efforts in cost and quality management. Through our partnership, we are in a position to assist the Military Health System in the delivery of health care services for our men and women in uniform and their families,” said Woys. Administrative Expenses In the first quarter of 2007, total general, administrative and depreciation expenses increased by $5.8 million to $297.8 million compared to $292.0 million in the first quarter of 2006. "The administrative expense ratio improved 80 basis points compared to the first quarter of 2006 as we continue to focus on expense management,” said Woys. Health Net’s selling expenses of $69.1 million in the first quarter of 2007 increased by $12.6 million compared to the first quarter of 2006. "Consistent with our strategy of growing the individual, small and mid-market segments and partnering with the agents and brokers who sell our products, our commercial new sales increased 20 percent in the first quarter of 2007 compared to the first quarter of 2006,” said Gellert. "As a result, our selling ratio of 2.5 percent increased 30 basis points compared to the first quarter of 2006.” Balance Sheet Cash and investments as of March 31, 2007 were $2.3 billion compared with $2.1 billion as of December 31, 2006. Reserves for claims and other settlements increased by $49.2 million to $1.1 billion at March 31, 2007, from $1.05 billion at December 31, 2006. Days claims payable (DCP), including provider settlements, capitation payments and Medicare Part D expenses, declined by 2.0 days to 41.3 days in the first quarter of 2007, compared to 43.3 days in the first quarter of 2006. DCP decreased by 3.5 days compared to the fourth quarter of 2006, primarily as a result of inventory pay down during the first quarter of 2007 on the claims backlog that developed at the end of the fourth quarter of 2006. Excluding provider settlements, capitation payments and Medicare Part D, DCP declined by 4.8 days to 54.4 days at March 31, 2007, from 59.2 days at December 31, 2006, and by 3.8 days compared with 58.2 days at March 31, 2006 (see footnote (a) in the Notes to Condensed Consolidated Financial Statements in the accompanying tables). The company’s debt-to-total capital ratio was 17.9 percent as of March 31, 2007 compared to 21.9 percent as of December 31, 2006 and 18.5 percent on March 31, 2006. "Strong cash flow during the first quarter of 2007 allowed us to further reduce debt by $94 million sequentially,” said Woys. Due to the redemption of the company’s Senior Notes in the third quarter of 2006, interest expense decreased by $2.7 million in the first quarter of 2007 compared to the first quarter of 2006. On March 29, 2007, Health Net completed the sale of its commercial campus in Shelton, Conn., and entered into a 10-year operating leaseback agreement. In connection with the sale, the company received net proceeds of $83.9 million in cash and recorded a deferred gain of $60.9 million, which will be amortized over the term of the lease. Cash Flow Operating cash flow was $344 million in the first quarter of 2007, which included an extra payment of $245 million from the Centers for Medicare & Medicaid (CMS), compared to operating cash flow of $222 million in the first quarter of 2006, which included an extra CMS payment of $169 million. "Excluding the extra CMS payment, operating cash flow was approximately $99 million in the first quarter of 2007, which is greater than net income plus depreciation and amortization of $96 million. We continue to expect that operating cash flow will be greater than net income plus depreciation and amortization for the full year 2007,” said Woys. Outlook Health Net expects earnings per diluted share of $0.79 in the second quarter of 2007 and $3.65 for the full year 2007. Conference Call As previously announced, Health Net will discuss the company’s first quarter results during a conference call scheduled on Monday, April 30, 2007, at approximately 11:00 a.m. Eastern Time. To listen to the call, please dial 800.811.8824, code 4090549. 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 April 30, 2007 through May 4, 2007, by dialing 888.203.1112, code 4090549. 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, 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 6.6 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 7.3 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 This release contains forward-looking statements 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, 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 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 March 31, June 30, September 30, December 31, March 31, REVENUES: 2006  2006  2006  2006  2007  Health plan services premiums $ 2,524,374  $ 2,599,079  $ 2,622,065  $ 2,619,222  $ 2,777,259  Government contracts 624,637  626,957  578,514  545,906  607,995  Net investment income 23,359  26,256  33,198  28,229  31,364  Administrative services fees and other income 14,260  13,830  13,648  14,816  12,294  Total revenues 3,186,630  3,266,122  3,247,425  3,208,173  3,428,912    EXPENSES: Health plan services 2,105,214  2,181,975  2,174,191  2,139,063  2,341,074  Government contracts 595,126  590,117  538,215  511,077  567,099  General and administrative 287,253  288,670  287,463  301,927  291,285  Selling 56,538  59,630  62,783  66,353  69,129  Depreciation 4,753  4,950  5,622  6,216  6,541  Amortization 591  1,275  1,092  1,092  1,092  Interest 12,226  13,449  15,411  10,093  9,560  3,061,701  3,140,066  3,084,777  3,035,821  3,285,780  Litigation and severance costs -  -  -  37,093  -  Debt refinancing -  -  70,095  -  -  Total expenses 3,061,701  3,140,066  3,154,872  3,072,914  3,285,780    Income from operations before income taxes 124,929  126,056  92,553  135,259  143,132  Income tax provision 48,336  49,023  1,651  50,474  54,547  Net income $ 76,593  $ 77,033  $ 90,902  $ 84,785  $ 88,585    Basic earnings per share $ 0.67  $ 0.67  $ 0.78  $ 0.74  $ 0.79    Diluted earnings per share $ 0.65  $ 0.65  $ 0.76  $ 0.72  $ 0.77      Weighted average shares outstanding: Basic 114,594  115,213  115,867  114,841  111,970  Diluted 118,398  118,305  118,830  117,707  114,759    Pretax margin (Income from operations before income taxes / Total revenues) 3.9% 3.9% 2.9% 4.2% 4.2% Health plan services MCR 83.4% 84.0% 82.9% 81.7% 84.3% Government contracts cost ratio 95.3% 94.1% 93.0% 93.6% 93.3% Administrative ratio ((G&A+Dep) / (HP serv prem + admin serv fees and other income)) 11.5% 11.2% 11.1% 11.7% 10.7% Selling costs ratio (Selling costs / HP serv prem) 2.2% 2.3% 2.4% 2.5% 2.5% Days claims payable (a) 43.3  40.9  42.5  44.8  41.3  Days claims payable - adjusted (a) 58.2  52.9  55.2  59.2  54.4  Effective tax rate 38.7% 38.9% 1.8% 37.3% 38.1% Health plan services premiums PMPM $ 244.78  $ 241.75  $ 244.49  $ 243.82  $ 259.35  Health plan services costs PMPM $ 204.14  $ 202.95  $ 202.73  $ 199.12  $ 218.62  Health Net, Inc. Condensed Consolidated Balance Sheets (Amounts in thousands, except ratio data)   March 31, June 30, September 30, December 31, March 31, 2006  2006  2006  2006  2007  ASSETS Current Assets Cash and cash equivalents $ 870,224  $ 825,925  $ 825,369  $ 704,806  $ 949,171  Investments - available for sale 1,356,386  1,382,583  1,399,478  1,416,038  1,393,161  Premiums receivable, net 163,237  214,173  235,267  302,355  234,795  Amounts receivable under government contracts 152,365  150,393  152,731  199,569  190,259  Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract 295,800  318,827  299,878  272,961  291,862  Other receivables 84,414  116,258  101,161  106,135  196,029  Deferred taxes 99,866  57,141  33,379  54,702  72,107  Restricted assets for senior notes redemption -  499,557  -  -  -  Other assets 147,600  159,662  138,850  161,280  175,270  Total current assets 3,169,892  3,724,519  3,186,113  3,217,846  3,502,654  Property and equipment, net 136,727  144,436  155,395  151,184  157,464  Goodwill, net 751,949  751,949  751,949  751,949  751,949  Other intangible assets, net 47,062  45,532  44,183  42,835  41,486  Deferred taxes 46,560  48,574  51,557  33,137  90,953  Other noncurrent assets 137,645  132,186  101,719  100,071  182,158  Total Assets $ 4,289,835  $ 4,847,196  $ 4,290,916  $ 4,297,022  $ 4,726,664    LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Reserves for claims and other settlements $ 986,117  $ 975,383  $ 1,035,374  $ 1,048,796  $ 1,097,953  Health care and other costs payable under government contracts 62,937  61,324  41,045  52,384  41,952  IBNR health care costs payable under TRICARE North contract 295,800  318,827  299,878  272,961  291,862  Unearned premiums 324,063  338,611  140,939  164,099  402,613  Bridge loan -  200,000  200,000  200,000  -  Senior notes payable -  376,052  -  -  -  Accounts payable and other liabilities 434,605  389,130  256,096  371,263  378,233  Total current liabilities 2,103,522  2,659,327  1,973,332  2,109,503  2,212,613  Senior notes payable 379,983  -  -  -  -  Revolver payable and other financing arrangement -  300,000  300,000  300,000  406,000  Other noncurrent liabilities 129,507  108,222  106,897  108,554  245,477  Total Liabilities 2,613,012  3,067,549  2,380,229  2,518,057  2,864,090    Stockholders' Equity Common stock and additional paid-in capital 932,254  967,265  992,497  1,028,018  1,077,210  Treasury common stock, at cost (636,252) (640,623) (640,623) (891,294) (947,187) Retained earnings 1,400,758  1,477,791  1,568,693  1,653,478  1,743,985  Accumulated other comprehensive loss (19,937) (24,786) (9,880) (11,237) (11,434) Total Stockholders' Equity 1,676,823  1,779,647  1,910,687  1,778,965  1,862,574  Total Liabilities and Stockholders' Equity $ 4,289,835  $ 4,847,196  $ 4,290,916  $ 4,297,022  $ 4,726,664    Debt-to-Total Capital Ratio 18.5% 33.0% 20.7% 21.9% 17.9% Health Net, Inc. Condensed Consolidated Statements of Cash Flows (Amounts in thousands)   Quarter Ended March 31, June 30, September 30, December 31, March 31, 2006  2006  2006  2006  2007    CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 76,593  $ 77,033  $ 90,902  $ 84,785  $ 88,585  Adjustments to reconcile net income to net cash provided by (used in) operating activities:   Amortization and depreciation 5,344  6,225  6,714  7,308  7,633  Debt refinancing charge -  -  70,095  -  -  Share-based compensation expense 4,435  5,195  5,191  5,294  5,240  Other changes 4,349  4,007  3,685  1,583  (1,510) Changes in assets and liabilities, net of the effects of dispositions: Premiums receivable and unearned premiums 186,259  (36,388) (218,766) 80,802  181,344  Other receivables, deferred taxes and other assets (41,899) (107) 46,574  (131,634) (16,980) Amounts receivable/payable under government contracts (29,168) 359  (22,617) (35,499) (1,122) Reserves for claims and other settlements (54,055) (10,734) 59,991  13,422  49,157  Accounts payable and other liabilities 70,191  (63,055) (107,593) 121,409  31,680  Net cash provided by (used in) operating activities (b) 222,049  (17,465) (65,824) 147,470  344,027    CASH FLOWS FROM INVESTING ACTIVITIES: Sales of investments 228,995  44,374  47,397  144,021  383,857  Maturities of investments 15,770  30,248  29,683  37,424  60,004  Purchases of investments (252,973) (110,683) (71,344) (200,611) (419,172) Proceeds from sale of property and equipment -  -  4,242  -  83,870  Purchases of property and equipment (15,730) (12,679) (20,420) (23,978) (19,629) Net cash paid for acquisition of business (73,100) (494) (405) -  -  Restricted assets related to the Guardian transaction -  -  -  -  (69,780) Sales and purchases of restricted investments and other (9,027) (496,943) 523,336  (1,982) (9,970) Net cash (used in) provided by investing activities (106,065) (546,177) 512,489  (45,126) 9,180    CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options and employee stock purchases 10,380  20,895  15,136  23,883  30,652  Repurchases of common stock (1,724) (1,107) -  (250,671) (55,893) Excess tax benefits from share-based compensation 3,099  2,221  2,688  3,881  10,399  Borrowings under revolver and other financing arrangement -  497,334  -  -  106,000  Repayment of borrowings and interest rate swap settlement -  -  (465,045) -  (200,000) Net cash provided by (used in) financing activities (b) 11,755  519,343  (447,221) (222,907) (108,842)   Net increase (decrease) in cash and cash equivalents 127,739  (44,299) (556) (120,563) 244,365  Cash and cash equivalents, beginning of period 742,485  870,224  825,925  825,369  704,806  Cash and cash equivalents, end of period $ 870,224  $ 825,925  $ 825,369  $ 704,806  $ 949,171  Health Net, Inc. Notes to Condensed Consolidated Financial Statements   Notes:   (a) Management believes that days claims payable (excluding capitation, provider 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 settlements and Medicare Part D) and days claims payable, the most directly comparable financial measure calculated and presented in accordance with GAAP:   Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 (Dollars in millions) Reserve for Claims and Other Settlements $986.1  $975.4  $1,035.4  $1,048.8  $1,098.0  Less: Capitation Payable, Provider Settlements and Medicare Part D (120.5) (110.3) (100.5) (85.3) (101.1) Adjusted Reserve for Claims and Other Settlements 865.6  865.1  934.9  963.5  996.9    (1) Average Reserve for Claims and Other Settlements 1,013.2  980.8  1,005.4  1,042.1  1,073.4    (2) Average Adjusted Reserve for Claims and Other Settlements 905.2  865.4  900.0  949.2  980.2    (3) Health Plan Services Cost 2,105.2  2,182.0  2,174.2  2,139.1  2,341.1  Less: Capitation Payments, Provider Settlements and Medicare Part D (705.9) (692.6) (674.1) (662.8) (720.9) (4) Adjusted Health Plan Services Cost 1,399.3  1,489.4  1,500.1  1,476.3  1,620.2    (5) Number of Days in Period 90  91  92  92  90    = (1) / (3) x (5) Days Claims Payable 43.3  40.9  42.5  44.8  41.3  = (2) / (4) x (5) Days Claims Payable (Excl. Capitation, Provider Settlements and Medicare Part D) 58.2  52.9  55.2  59.2  54.4  (b) 2006 operating cash flow amounts reflect reclassification of Medicare Part D net deposits from financing cash flow to conform to 2007 presentation. HEALTH NET, INC. Medical Covered Lives at March 31, 2007 (in Thousands)           Commercial - Large Group(a)   Commercial - Small Group & Individual   Commercial Risk Subtotal   ASO Commercial Subtotal 3/07  12/06  3/06  3/07  12/06  3/06  3/07  12/06  3/06  3/07  12/06  3/06  3/07  12/06  3/06    Arizona 78  75  71  52  50  47  130  125  118  -  -  -  130  125  118  California 1,009  1,064  1,055  413  419  422  1,422  1,483  1,477  5  6  6  1,427  1,489  1,483  Connecticut 143  153  161  29  30  28  172  183  189  57  67  70  229  250  259  New Jersey 36  44  47  61  59  63  97  103  110  19  19  20  116  122  130  New York 116  122  117  109  102  98  225  224  215  15  17  17  240  241  232  Oregon 96  96  101  35  37  37  131  133  138  -  -  -  131  133  138                                Total 1,478  1,554  1,552  699  697  695  2,177  2,251  2,247  96  109  113  2,273  2,360  2,360    Year over Year (5)% 1% (3)% (15)% (4)% Sequential   (5)%     0%     (3)%     (12)%     (4)%       Medicare Advantage Medicaid Health Plan Total 3/07  12/06  3/06  3/07  12/06  3/06  3/07  12/06  3/06    Arizona 45  35  33  -  -  -  175  160  151  California 108  104  103  694  710  713  2,229  2,303  2,299  Connecticut 40  34  29  85  84  87  354  368  375  New Jersey -  -  -  46  46  45  162  168  175  New York 8  6  7  -  -  -  248  247  239  Oregon 20  20  18  -  -  -  151  153  156  Other States 2  -  -  -  -  -  2  -  -                      Total 223  199  190  825  840  845  3,321  3,399  3,395    Year over Year 17% (2)% (2)% Sequential   12%     (2)%     (2)%   3/07  12/06  3/06  Medicare PDP (Stand-Alone) 341  300  255          3/07  12/06  3/06  TRICARE North Contract (b) 2,930  2,930  2,941  (a) Commercial Large Group includes Medicare Supplement (b) Includes Tricare eligible for which we have health care risk, and those for which we provide Administrative Services Only (ASO), primarily active duty Health Net, Inc. Reconciliation of Reserves for Claims and Other Settlements (In millions)   Health Plan Services Q1 2007 Year 2006 Year 2005   Reserve for claims (a), beginning of period $ 754.2  $ 768.7  $ 794.6    Incurred claims related to: Current Year 1,405.9  5,222.0  5,130.4  Prior Years (c) (26.5) (77.3) (114.5) Total Incurred (b) 1,379.4  5,144.7  5,015.9    Paid claims related to: Current Year 784.2  4,485.7  4,401.3  Prior Years 587.2  673.5  640.5  Total Paid (b) 1,371.4  5,159.2  5,041.8    Reserve for claims (a), end of period 762.2  754.2  768.7  Add: Claims Payable 225.3  203.9  177.2  Other (d) 110.5  90.7  94.3    Reserves for claims and other settlements, end of period $ 1,098.0  $ 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 accrued capitation, shared risk settlements, provider incentives and other reserve items.