Health Net 2004 Annual Report Download - page 93

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of Business
Health Net, Inc. (referred to herein as the Company, we, us, our or HNT) is an integrated managed care organization that
delivers managed health care services. We are among the nation’s largest publicly traded managed health care companies. Our health
plans and government contracts subsidiaries provide health benefits through our health maintenance organizations (HMOs), insured
preferred provider organizations (PPOs) and point of service (POS) plans to approximately 6.5 million individuals in 27 states and the
District of Columbia through group, individual, Medicare, Medicaid and TRICARE programs. Our subsidiaries also offer managed
health care products related to behavioral health and prescription drugs. We also own health and life insurance companies licensed to
sell exclusive provider organization (EPO), PPO, POS and indemnity products, as well as auxiliary non-health products such as life
and accidental death and dismemberment, dental, vision, behavioral health and disability insurance in 37 states and the District of
Columbia.
We currently operate within two reportable segments: Health Plan Services and Government Contracts. Our Health Plan
Services reportable segment includes the operations of our health plans in the states of Arizona, California, Connecticut, New Jersey,
New York and Oregon, the operations of our health and life insurance companies and our behavioral health and pharmaceutical
services subsidiaries.
Our Government Contracts reportable segment includes government-sponsored managed care plans through the TRICARE
program and other government contracts. The Government Contracts reportable segment administers one large, multi-year TRICARE
managed health care contract and other health care related government contracts. Certain components of these contracts are
subcontracted to unrelated third parties. The Company administers health care programs covering approximately 2.9 million eligible
individuals under TRICARE and currently has one TRICARE contract that covers Connecticut, Delaware, Illinois, Indiana,
Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, Wisconsin and the District of Columbia. In addition, the contract
covers a small portion of Tennessee, Missouri and Iowa.
Note 2—Summary of Significant Accounting Policies
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Principal areas requiring the use of estimates
include the determination of allowances for doubtful accounts, reserves for claims and other settlements, reserves for professional and
general liabilities (including litigation and workers’ compensation reserves), amounts receivable or payable under government
contracts, remaining reserves for restructuring and other charges, and assumptions when determining net realizable values on long-
lived assets.
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