Health Net 2000 Annual Report Download - page 21

2000 Annual Report HEALTH NET 19
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Health Net, Inc. (formerly named Foundation Health
Systems, Inc.) (together with its subsidiaries, the
“Company”) is an integrated managed care organization
which administers the delivery of managed health care
services.Through its subsidiaries, the Company offers
group, individual, Medicaid and Medicare health mainte-
nance organization (“HMO”), point of service (“POS”)
and preferred provider organization (“PPO”) plans; gov-
ernment-sponsored managed care plans; and managed care
products related to administration and cost containment,
behavioral health, dental, vision and pharmaceutical prod-
ucts and other services.
The Company currently operates within two seg-
ments: Health Plan Services and Government
Contracts/Specialty Services.The Health Plan Services
segment consists of two regional divisions:Western
Division (Arizona, California and Oregon) and Eastern
Division (Connecticut, Florida, New Jersey, New York
and Pennsylvania). During 1999, the Health Plan Services
segment consisted of four regional divisions:
• Arizona (Arizona and Utah)
• California (encompassing only the State of California)
• Central (Colorado, Florida, Idaho, Louisiana, New
Mexico, Oklahoma, Oregon,Texas and Washington)
• Northeast (Connecticut, New Jersey, New York, Ohio,
Pennsylvania and West Virginia).
During 1999, the Company either divested its health
plans or entered into arrangements to transition the
membership of its health plans in the states of Colorado,
Idaho, Louisiana, New Mexico, Oklahoma,Texas, Utah
and Washington. Effective January 1, 2000, as a result of
such divestitures, the Company consolidated and reorga-
nized its Health Plan Services segment into its two cur-
rent regional divisions.
In 2000, the Company decided to exit the Ohio,West
Virginia and Western Pennsylvania markets and provided
notice of its intention to withdraw from these service areas
to the appropriate regulators. As of February 2001, the
Company no longer had any members in such markets.
In January 2001, the Company entered into a defini-
tive agreement to sell its Florida health plan, Foundation
Health, a Florida Health Plan, Inc., to Florida Health
Plan Holdings II, LLC for $48 million consisting of $23
million in cash and $25 million in a secured five-year
note bearing 8% interest. At December 31, 2000, the
Florida health plan had total membership of approxi-
mately 169,700 members.The sale transaction is expected
to close by June 30, 2001, subject to regulatory approvals
and other customary conditions of closing.
The Company is one of the largest managed health
care companies in the United States, with about 4.0 mil-
lion at-risk and administrative services only (“ASO”)
members in its Health Plan Services segment.The
Company also owns health and life insurance companies
licensed to sell PPO, POS and indemnity products, as
well as certain auxiliary non-health products such as
life and accidental death and disability insurance in 35
states and the District of Columbia.
The Government Contracts/Specialty Services seg-
ment administers large, multi-year managed health care
government contracts. Certain components of these con-
tracts, including administration and assumption of health
care risk, are subcontracted to affiliated and unrelated
third parties.The Company administers health care
programs covering approximately 1.5 million eligible
individuals under TRICARE.The Company has three
TRICARE contracts that cover Alaska, Arkansas,
California, Hawaii, Oklahoma, Oregon,Washington and
parts of Arizona, Idaho, Louisiana and Texas.Through this
segment, the Company also offers behavioral health, den-
tal and vision services as well as managed care products
related to bill review, administration and cost contain-
ment for hospitals, health plans and other entities.
This discussion and analysis and other portions of
this 2000 Annual Report to Stockholders and the
Company’s Annual Report on Form 10-K for the year
ended December 31, 2000 (“Form 10-K”) contain “for-
ward-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 risks and uncertainties. All state-
ments other than statements of historical information
provided herein may be deemed to be forward-looking
statements.Without limiting the foregoing, the words
“believes,”“anticipates,”“plans,”“expects”and similar
expressions are intended to identify forward-looking
statements. 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 dis-
cussed in the “Cautionary Statements”section and other
sections included in the Company’s Form 10-K and