Health Net 2000 Annual Report Download - page 28

26 HEALTH NET 2000 Annual Report
In 1995, the Company entered into a five year tax
retention operating lease for the construction of various
health care centers and a corporate facility. Upon expira-
tion in May 2000, the lease was extended for four months
through September 2000 whereupon the Company set-
tled its obligations under the agreement and purchased the
leased properties which were comprised of three rental
health care centers and a corporate facility for $35.4 mil-
lion.The health care centers are held as investment rental
properties and are included in other noncurrent assets.
The corporate facility building is used in operations and
included in property and equipment.The buildings are
being depreciated over a remaining useful life of 35 years.
Throughout 2000 and the first quarter of 2001, the
Company has provided funding in the amount of approx-
imately $4.2 million in MedUnite, Inc., an independent
company, funded and organized by seven major managed
health care companies. MedUnite, Inc. is designed to pro-
vide on-line internet provider connectivity services
including eligibility information, referrals, authorizations,
claims submission and payment.The funded amounts are
included in other noncurrent assets.
During 2000, the Company secured an exclusive
e-business connectivity services contract from the
Connecticut State Medical Society IPA, Inc. (“CSMS-
IPA”) for $15.0 million. CSMS-IPA is an association of
medical doctors providing health care primarily in
Connecticut.The amounts paid to CSMS-IPA for this
agreement are included in other noncurrent assets.
financing activities
Net cash used in financing activities was $268.1 million
at December 31, 2000 compared to $213.9 million at
December 31, 1999.This increase was primarily due to
higher repayment of funds previously drawn under the
Company’s Credit Facility in 2000 compared to 1999 (as
defined below), which was partially offset by additional
drawings under the Credit Facility.
The Company has a $1.5 billion credit facility (the
“Credit Facility”) with Bank of America as Administrative
Agent for the Lenders thereto, which was amended by a
Letter Agreement dated as of March 27, 1998 and
Amendments in April, July, and November 1998, March
1999 and September 2000 (the “Amendments”).All previ-
ous revolving credit facilities were terminated and rolled
into the Credit Facility on July 8, 1997.At the election of
the Company, and subject to customary covenants, loans are
initiated on a bid or committed basis and carry interest at
offshore or domestic rates, at the applicable LIBOR rate plus
margin or the bank reference rate.Actual rates on borrow-
ings under the Credit Facility vary, based on competitive
bids and the Company’s unsecured credit rating at the time
of the borrowing.As of December 31, 2000, the Company
was in compliance with the financial covenants of the Credit
Facility, as amended by the Amendments. As of December
31, 2000, the maximum commitment level under the Credit
Agreement was approximately $1.36 billion, of which
approximately $590 million remained available.The total
outstanding balance under the Credit Agreement was
$766.5 million as of December 31, 2000.The Credit Facility
expires in July 2002, but it may be extended under certain
circumstances for two additional years.
The Company’s subsidiaries must comply with cer-
tain minimum capital requirements under applicable state
laws and regulations.The Company will, however, make
contributions to its subsidiaries, as necessary, to meet risk-
based capital requirements under state laws and regula-
tions.The Company contributed $45.5 million to certain
of its subsidiaries to meet capital requirements during the
year ended December 31, 2000. As of December 31,
2000, the Company’s subsidiaries were in compliance
with minimum capital requirements.
In March 1998, the National Association of Insurance
Commissioners adopted the Codification of Statutory
Accounting Principles (“Codification”).The Codification,
which is intended to standardize regulatory accounting and
reporting to state insurance departments, was effective
January 1, 2001. However, statutory accounting principles
continue to be established by individual state laws and per-
mitted practices. Certain states in which the Company
conducts business required the adoption of Codification
for the preparation of statutory financial statements effec-
tive January 1, 2001.The Company estimates that the
adoption of Codification will reduce the statutory net
worth of the Company’s subsidiaries as of January 1, 2001
by approximately $1.2 million, which primarily relates to
accounting principles regarding electronic data processing
equipment, unpaid claims adjustments, provider receivables,
accident and health premiums due and unpaid, and
deferred income taxes. Such reduction may require the
Company to contribute additional capital to its subsidiaries
to satisfy minimum statutory net worth requirements.
Legislation has been or may be enacted in certain
states in which the Company’s subsidiaries operate impos-
ing substantially increased minimum capital and/or statu-
tory deposit requirements for HMOs in such states. Such
statutory deposits may only be drawn upon under limited
circumstances relating to the protection of policyholders.
As a result of the above requirements and other reg-
ulatory requirements, certain subsidiaries are subject to
restrictions on their ability to make dividend payments,
loans or other transfers of cash to the Company. Such
restrictions, unless amended or waived, limit the use of
any cash generated by these subsidiaries to pay obligations
of the Company.The maximum amount of dividends
which can be paid by the insurance company subsidiaries
to the Company without prior approval of the insurance
departments is subject to restrictions relating to statutory
surplus, statutory income and unassigned surplus.
Management believes that as of December 31, 2000, all of
the Company’s health plans and insurance subsidiaries
met their respective regulatory requirements.
health insurance portability and
accountability act of 1996 (“hipaa”)
In December 2000, the Department of Health and
Human Services (“DHHS”) promulgated certain regula-
tions under HIPAA related to the privacy of individually
identifiable health information (protected health informa-
tion or “PHI”).The new regulations require health plans,
clearinghouses and providers to (a) comply with various
requirements and restrictions related to the use, storage
and disclosure of PHI, (b) adopt rigorous internal proce-