DOW JONES NEWSWIRES

Aetna Inc. (AET) said a U.S. government office sustained a protest by Health Net Inc. (HNT) involving a billion-dollar military health-care contract awarded to Aetna.

In July, Aetna was selected to take over the program in the North region, replacing Health Net, while Humana Inc. (HUM) was replaced in the South by UnitedHealth Group Inc. (UNH).

A week after the decision, both Health Net and Humana protested the awards. On Wednesday, Health Net said in a filing with the Securities and Exchange Commission it can't yet determine what actions the Defense Department will take in response to the recommendations by the U.S. Government Accountability Office. That office hasn't yet made its recommendations publicly known to Health Net or Humana.

Last week, Humana learned its protest was upheld. Humana has cited discrepancies between the award criteria and procedures prescribed in the request for the proposals.

The change in vendors for the new contracts, which is set to go into effect in April, was seen as modestly positive for the winners, somewhat negative for Humana and a significant blow to Health Net, which derives a major share of earnings from the Tricare business serving military personnel, retirees and families.

In July, the Tricare program awarded base contracts of $2.48 billion to Aetna and $3.73 billion to UnitedHealth.

"We will continue to cooperate with the Department of Defense as it considers the GAO's recommendations," said Susan M. Peters, president of Aetna Government Health Plans.

TriWest Healthcare Alliance, with the support of Blue Shield of California, won a $16 billion contract to provide coverage in the West, replacing the Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS, created in 1956 to expand health-care coverage to military retirees and the families of active-duty personnel.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

(END) Dow Jones Newswires

11-04-09 1823ET