Health Net Inc.'s (HNT) loss of a major military contract slammed shares Tuesday and led to speculation that the health insurer may speed up consideration of strategic alternatives.

Health Net's stock recently traded down nearly 14% after an announcement late Monday that the Department of Defense will drop the company and Humana Inc. (HUM) as the vendors for two Tricare regional contracts, replacing them with Aetna Inc. (AET) and UnitedHealth Group Inc. (UNH).

Humana's shares recently fell 6%.

The change in vendors for the new multibillion-dollar contracts, which 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.

"Conclusion of the award process removes some uncertainty for a potential acquirer of the company," Stifel Nicolaus analyst Thomas Carroll wrote.

A Health Net spokeswoman said Tuesday that the contract decision won't affect 2009 results and that the company would conduct a thorough review of the impact on future earnings. The company had no comment on the potential effects on its strategic planning or on how it might make up for the lost Tricare business.

Analysts estimated Tricare would have represented 20% or more of Health Net's 2010 earnings, and 30% on an annual basis. Credit Suisse analyst Greg Nersessian noted that in 2008, as Health Net struggled in its other managed-care operations, Tricare accounted for "an unusually large" 44% of earnings per share. Analysts didn't expect the decision to hurt 2009 earnings for the companies.

Wall Street will look for Health Net and Humana on upcoming second-quarter conference calls to discuss strategies for replacing the lost business. Health Net's role as the subcontractor on UnitedHealth's winning bid in a different region should, to some extent, mitigate the blow by allowing Health Net to keep a piece of Tricare earnings, Barclays said.

Health Net, long the subject of takeover speculation due to various operating difficulties, has been reviewing strategic alternatives for its Northeast and Arizona operations. The loss of the Tricare contract clarifies Health Net's outlook and may speed up the review process, either for those particular businesses or for the company more broadly.

Health Net operates a major managed-care business in California, where state budget problems and the weak economy are taking a toll.

"For Health Net, we believe the loss of the Tricare contract is a significant blow but [it] may free up management to pursue strategic alternatives, now that uncertainty around the business has lifted," Wells Fargo analyst Matt Perry wrote.

Meanwhile, larger and more diversified health plans are continuing to grow, which "could be another harbinger of the not-so-distant future in which a few select organizations dominate the private insurance market," Stifel's Carroll wrote.

Analysts considered the announcements a surprise, considering that incumbents Health Net and Humana had voiced confidence in their bids. Deutsche Bank analyst Scott Fidel called the loss a "notable hit" for Humana, as the company faces the prospect of losing the Tricare contract in the same year that its core Medicare Advantage business is absorbing a 4% to 5% reimbursement cut from the government. He cut his 2010 EPS estimate for Humana by 7%.

The Defense Department is expected to give the companies a debriefing within two weeks, after which Health Net will decide whether to accept or challenge the award. Humana, also weighing a protest, said that because of complexities of the award and protest process, it cannot yet estimate whether there will be an impact on 2009 earnings.

Credit Suisse analyst Nersessian considered it highly likely that Health Net and Humana will protest the award but he doubted the protests would be successful, given that price apparently was the deciding factor.

-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;