Health Net cuts profit outlook on higher medical costs

The company said it now expects profit between $3.45 and $3.55 in 2008, excluding the charges. Analysts polled by Thomson Financial expect profit $3.92 per share in 2008.

During the second quarter, the company expects profit between 77 cents and 79 cents per share. Analysts expect 83 cents per share.

Health Net said the lower guidance is due to higher costs because of an "unusual" increase in services from physician's and hospitals, a rough flu season and higher costs for its Medicare programs. A higher tax rate and a rate reduction in one of its California plans also factor into the lower guidance.

"Most of the negative factors impacted the first quarter of 2008," said Jay Gellert, president and chief executive. "Despite the challenges we face in our Medicare and Medicaid businesses and the impact of the flu this year, we believe we can resume earnings growth in the second half of 2008 compared to the second half of 2007."

The company's membership growth expectations remain unchanged, as do revenue expectations of $15 billion to $16 billion.

Health Net shares fell 29 cents to $29.43 in morning trading.