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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2010
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-12718
HEALTH NET, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4288333
(State or Other Jurisdiction
of Incorporation or Organization)
(I.R.S. Employer
Identification No.)
21650 Oxnard Street, Woodland Hills, CA 91367
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (818) 676-6000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.001 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Junior Participating
Preferred Stock
New York Stock Exchange, Inc.
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ÈNo
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No È
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ÈNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
ÈLarge accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No È
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2010 was
$2,351,168,202 (which represents 96,477,973 shares of Common Stock held by such non-affiliates multiplied by $24.37, the
closing sales price of such stock on the New York Stock Exchange on June 30, 2010).
The number of shares outstanding of the registrant’s Common Stock as of February 22, 2011 was 93,317,700 (excluding
52,957,736 shares held as treasury stock).
Documents Incorporated By Reference
Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement
for the 2011 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after
the close of the year ended December 31, 2010.

Table of contents

  • Page 1
    ... Street, Woodland Hills, CA (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (818) 676-6000 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.001 par value New York...

  • Page 2
    ... Data ...Item 9-Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A-Controls and Procedures ...Item 9B-Other Information ...PART III. Item 10-Directors, Executive Officers of the Registrant and Corporate Governance ...Item 11-Executive Compensation...

  • Page 3
    ... care products related to prescription drugs and offer managed health care product coordination for multi-region employers and administrative services for self-funded benefits programs. In addition, we own health and life insurance companies licensed to sell preferred provider organization (PPO...

  • Page 4
    ... or frequency of medical services actually received by the member. These plans are offered generally through contracts with participating network physicians, hospitals and other providers. When an individual enrolls in one of our HMO plans, he or she may select a primary care physician ("PCP") from...

  • Page 5
    ...-cost premiums for employers when their employees access medical care through the Sutter Health system of hospitals, primary care physicians and specialists. As of December 31, 2010, more than 30% of our California commercial capitated membership was enrolled in tailored network products. In 2010...

  • Page 6
    ... Capital Resources-Critical Accounting Estimates-Health Plan Services Membership" for a discussion on changes in our membership levels during 2010. Arizona. Our Arizona health plan operations are conducted by our subsidiaries, Health Net of Arizona, Inc. and Health Net Life Insurance Company ("HNL...

  • Page 7
    ...-Western Region Operations Segment Membership" for detailed information regarding our Medicaid enrollment. Medi-Cal is a public health insurance program which provides health care services for low-income individuals, and is financed by California and the federal government. As of December 31, 2010...

  • Page 8
    ...lowest cost for Health Net members. HNPS contracts with national health care providers, vendors, drug manufacturers and pharmacy distribution networks (directly and indirectly through a third party vendor), oversees pharmacy claims and administration, reviews and evaluates new FDA-approved drugs for...

  • Page 9
    ... affiliated companies. DBP also administers dental products and coverage we provide to our members in Oregon and Washington. Liberty Dental Plans of California, Inc. serves as the underwriter and administrator for the dental services we provide to our Medi-Cal and Healthy Families program enrollees...

  • Page 10
    ... December 31, 2010, there were approximately 1.5 million TRICARE eligibles enrolled in TRICARE Prime under our North Region contract. The current TRICARE contract for the North Region includes a target cost and underwriting fee for reimbursed health care costs which is negotiated annually during the...

  • Page 11
    ... two additional years of extensions for all TRICARE regions, including the North Region contract, at the Department of Defense's option. Subsequent to the passage of this legislation, we negotiated the terms, including administrative prices and health care target costs, of the North Region contract...

  • Page 12
    ... of the Northeast Sale, affiliates of United also acquired membership renewal rights for certain commercial health care business conducted by our subsidiary, Health Net Life Insurance Company ("HNL") in the states of Connecticut and New Jersey (the "Transitioning HNL Members"). We will continue...

  • Page 13
    ... the HMO's or PPG's medical director as required under the terms of our various plans) to specialists and hospitals. Certain of our HMOs offer enrollees "open access" plans under which members are not required to secure prior authorization for access to network physicians in certain specialty areas...

  • Page 14
    ...their service areas. These hospital contracts generally have multi-year terms or annual terms with automatic renewals and provide for payments on a variety of bases, including capitation, per diem rates, case rates and discounted fee-for-service schedules. Covered hospital-based care for our members...

  • Page 15
    ... also a number of small, regional-based health plans that compete with Health Net in California, mainly in the small business group market segment. In addition, two of the major national managed care companies, Aetna, Inc. and CIGNA Corp., are active in California. Their respective commercial full...

  • Page 16
    ... rates, electronic data interchange and internet capabilities. Outsourcing our information management systems to third party vendors was also the first phase of our three-phased plan designed to enhance our information technology service delivery, increase our agility and improve our decision making...

  • Page 17
    ... Association of Insurance Commissioners ("NAIC")), new annual fees on companies in our industry which may not be deductible for income tax purposes, limiting Medicare Advantage payment rates, mandated additional benefits, elimination of medical underwriting for medical insurance coverage decisions...

  • Page 18
    ...government controlled "exchanges" where individuals and small business groups may purchase health coverage. Some provisions of the health care reform legislation became effective in 2010, including those that increase the restrictions on rescinding coverage, those that bar health insurance companies...

  • Page 19
    ... on December 21, 2010 with requirements for establishing a process for review of "unreasonable" premium increases filed or effective on or after July 1, 2011), essential benefits, the application of the health insurer fee, and federal criteria for participation in state-based exchanges, among others...

  • Page 20
    ... audit of our Medicare Advantage, Medicare Advantage Prescription Drug and stand-alone PDP plan operations, including the areas of membership accounting, premium billing, Part D formulary administration, Part D appeals, grievances and coverage determinations, and our compliance program. Based on the...

  • Page 21
    ... Department of Health Care Services and Healthy Families is regulated by the Managed Risk Medical Insurance Board. On May 1, 2010, our New Jersey Medicaid contract was transferred to an affiliate of United. Prior to that transfer, our provision of administrative services to Health Net of New Jersey...

  • Page 22
    ... Net Life Insurance Company (Arizona and California PPO) MHN Regulatory Agency Arizona Department of Insurance California Department of Managed Health Care Oregon Department of Consumer and Business Services California Department of Insurance generally, and the Department of Insurance of each state...

  • Page 23
    ...These employees perform a variety of functions, including, among other things, provision of administrative services for employers, providers and members; negotiation of agreements with physician groups, hospitals, pharmacies and other health care providers; handling of claims for payment of hospital...

  • Page 24
    ... coverage of federal employees under the Federal Employees Health Benefits Program. Medicare premiums accounted for 30% of our total premium revenue in 2010. Shareholder Rights Plan On July 27, 2006, our Board of Directors adopted a shareholder rights plan pursuant to a Rights Agreement with Wells...

  • Page 25
    ... revenues, new taxes, expanded liability, and increased costs (including medical, administrative, technology or other costs), or require changes to the ways in which we do business; rising health care costs; continued slow economic growth or a further decline in the economy; negative prior period...

  • Page 26
    ... of compensation paid to health insurance executives that is tax deductible, additional regulations governing premium rate increase requests, requirements that individuals obtain coverage and the creation of government controlled "exchanges" where individuals and small business groups may purchase...

  • Page 27
    ... on December 21, 2010 with requirements for establishing a process for review of "unreasonable" premium increases filed or effective on or after July 1, 2011), essential benefits, the application of the health insurer fee, and federal criteria for participation in state-based exchanges, among others...

  • Page 28
    ... of hospital and other provider contracts, coupled with continued consolidation of physician, hospital and other provider groups, may result in increased health care costs or limit our ability to negotiate favorable rates. Government-imposed limitations on Medicare and Medicaid reimbursement have...

  • Page 29
    ... our pharmaceutical costs include, but are not limited to, the price of drugs, utilization of new and existing drugs, changes in discounts and the impact of health care reform on pharmaceutical manufacturers through such requirements as increased fees. In addition, a large scale public health...

  • Page 30
    ... to price at levels that can adequately cover our cost and margin goals. See "-Federal health care reform legislation, as well as potential additional changes in federal or state legislation and regulations, could have an adverse impact on our revenues and the costs of operating our business and...

  • Page 31
    ... business and may restrict our revenue and/or enrollment growth, increase our health care and administrative costs, and/or increase our exposure to liability with respect to members, providers or others. See "-Federal health care reform legislation, as well as potential additional changes in federal...

  • Page 32
    ... drug coverage, as well as to our Medicare Advantage and PDP-only plans that offer prescription drug coverage. In connection with our participation in the Medicare Advantage and Part D programs, we regularly record revenues associated with the risk adjustment reimbursement mechanism employed...

  • Page 33
    ... effect on our business, financial condition or results of operations. Approximately 56% of our 2010 total revenues relate to federal, state and local government health care coverage programs, such as Medicare, Medicaid and TRICARE. All of the revenues in our Government Contracts segment come from...

  • Page 34
    ... supporting documentation maintained by health care providers to support risk adjustment payments made to plans pursuant to their Medicare Advantage contracts. We utilize claims submissions, medical records and other medical data as provided by health care providers as the basis for payment requests...

  • Page 35
    ... business. In August 2010, CMS conducted a targeted audit of our Medicare Advantage, Medicare Advantage Prescription Drug and stand-alone PDP plan operations, including the areas of membership accounting, premium billing, Part D formulary administration, Part D appeals, grievances and coverage...

  • Page 36
    ... by members alleging failure to pay for or provide health care, poor outcomes for care delivered or arranged, improper rescission, termination or nonrenewal of coverage, insufficient payments for out-of-network services and claims relating to information security breaches; claims by employer groups...

  • Page 37
    ... include, but are not limited to, information technology system providers, medical management providers, claims administration providers, billing and enrollment providers, third party providers of actuarial services, call center providers and specialty service providers. Our arrangements with third...

  • Page 38
    ... new T-3 TRICARE contract, we are now targeting further reductions in our general and administrative expenses associated with those businesses. We refer to this as our "stranded costs" initiative. Under the United Administrative Services Agreements, HNNE has agreed to provide certain administrative...

  • Page 39
    ... providers as a means to assure access to health care services for our members, to manage health care costs and utilization and to better monitor the quality of care being delivered. In any particular market, providers could refuse to contract with us, demand higher payments or take other actions...

  • Page 40
    ... create an increased risk of out of network claims issues, which could result in higher medical costs to us. Some providers that render services to our members and insureds that have coverage for out-of-network services are not contracted with our plans and insurance companies. In those cases, there...

  • Page 41
    ...'s, resulting in reduced reimbursements or payments in our federal and state government health care coverage programs, including Medicare, Medi-Cal and CHIP. A reduction in California's Medi-Cal reimbursement rates could be implemented retrospectively to payments already negotiated and/or received...

  • Page 42
    ... our customers and, in turn, our business, results of operations, financial condition and cash flow could be adversely impacted. In addition, we obtain significant portions of our systems-related and other services and facilities, including our data center, from independent third parties, which make...

  • Page 43
    ...business associates, we may have limited control over the actions and practices of our business associates. Compliance with HIPAA and other state and federal privacy and security laws and regulations may result in cost increases due to necessary systems changes, the development of new administrative...

  • Page 44
    ... detailed forensic review by computer experts, reported the loss to authorities and notified our customers of the incident. In connection with this incident, in 2010 we entered into agreements with the Connecticut Department of Insurance and the Attorneys General of Connecticut, New York and Vermont...

  • Page 45
    ... give them an advantage in competing with us. These competitors include HMOs, PPOs, self-funded employers, insurance companies, hospitals, health care facilities and other health care providers. In addition, other companies may enter our markets in the future. The addition of new competitors in our...

  • Page 46
    ... rating organizations are increasingly important factors in establishing the competitive position of insurance companies and managed care companies. We believe our claims paying ability and financial strength ratings also are important factors in marketing our products to certain of our customers...

  • Page 47
    ...Insurance Commissioners. Failure to maintain the minimum RBC standards could subject certain of our regulated subsidiaries to corrective action, including increased reporting and/or state supervision. In addition, in most states, we are required to seek prior approval before we transfer money or pay...

  • Page 48
    ... obligated to provide administrative services in connection with the wind-down and run-off of the acquired business, which exposes us to operational and financial risks" and "-Under the agreements that govern the Northeast Sale, we have retained responsibility for certain liabilities of the acquired...

  • Page 49
    ... pressures as other administrative costs of health insurers, and there is pressure to make changes to existing commission structures for brokers and agents. For example, some of our competitors have reduced the commissions payable to brokers and agents for sales in the individual market, and we are...

  • Page 50
    ..., public communications regarding managed care, legislative or regulatory actions, litigation or threatened litigation, health care cost trends, proposed premium increases, pricing trends, competition, earnings, receivable collections or membership reports of particular industry participants, and...

  • Page 51
    ...government's actions and the responsiveness of public health agencies and insurance companies, a largescale public health epidemic or future acts of bio-terrorism could lead to, among other things, increased use of health care services, disruption of information and payment systems, increased health...

  • Page 52
    ... and rental costs are consistent with those associated with similar space in the applicable local areas. Our properties are well maintained, adequately meet our needs and are being utilized for their intended purposes. Item 3. Legal Proceedings. Litigation Related to the Sale of Businesses AmCareco...

  • Page 53
    ... AmCare-LA receiver, with the exception of a single breach of contract claim, on which it entered judgment in favor of the AmCare-LA receiver in the amount of $2 million. On January 14, 2009, the three receivers filed a request for rehearing by the Court of Appeal. On February 13, 2009, the Court of...

  • Page 54
    ... applicable to our business, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, rules relating to pre-authorization penalties, payment of out-of-network claims, timely review of grievances and appeals, and timely and accurate payment of claims...

  • Page 55
    PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The following table sets forth the high and low sales prices of the Company's common stock, par value $.001 per share, on The New York Stock Exchange, Inc. ("NYSE") since ...

  • Page 56
    ... shares of our common stock outside our publicly announced stock repurchase programs, except shares withheld in connection with our various stock option and long-term incentive plans. (b) On March 18, 2010, our Board of Directors authorized our New Stock Repurchase Program, pursuant to which a total...

  • Page 57
    ... beginning of each annual period. The Company's Industry Peer Group Index includes the following companies: Aetna, Inc., Cigna Corporation, Coventry Health Care, Humana, Inc., UnitedHealth Group, Inc. and WellPoint, Inc. Indexed Total Return Stock Price Plus Reinvested Dividends Health Net $140.00...

  • Page 58
    ... performance data of acquired companies. The preceding graph and related information are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K and shall not be deemed "soliciting materials" or to be "filed" with the Securities and Exchange...

  • Page 59
    ... statements and notes thereto contained elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2010 2009 2008 2007 2006 (Dollars in thousands, except per share and PMPM data) REVENUES: Health plan services premiums ...Government contracts ...Net investment income ...Administrative...

  • Page 60
    ... managed health care products related to prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs. How We Report Our Results We expanded our reportable segments in the quarter...

  • Page 61
    ... of service ("POS") and preferred provider organization ("PPO") premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage (which premiums are based on a predetermined prepaid fee), Medicaid revenues based on multi-year contracts to...

  • Page 62
    ...Services Agreements, we provide claims processing, customer services, medical management, provider network access and other administrative services. Administrative services fees are recognized as revenue in the period services are provided. See "-Results of Operations-Northeast Operations Reportable...

  • Page 63
    ... changes in federal or state legislation and regulations, could have an adverse impact on our revenues and the costs of operating our business and could materially adversely affect our business, cash flows, financial condition and results of operations." 2010 Financial Performance Summary Health Net...

  • Page 64
    ... 13 percent to $13.6 billion from the same period in 2009; Western Region Operations segment pretax income decreased to $244.5 million in 2010 compared to $270.3 million in 2009; Government Contracts segment pretax income was $178.7 million and $168.6 million for the years ended December 31...

  • Page 65
    ...31, 2010 2009 2008 (Dollars in thousands, except per share) Revenues Health plan services premiums ...Government contracts ...Net investment income ...Administrative services fees and other income ...Northeast administrative services fees and other ...Total revenues ...Expenses Health plan services...

  • Page 66
    ...agreement for class action lawsuits referred to in this Form 10-K as the McCoy, Wachtel and Scharfman class action lawsuits, and other-than-temporary impairments of investments. Our total revenues increased 2.3 percent in 2009 to $15.7 billion from $15.4 billion in 2008. Health plan services premium...

  • Page 67
    ... Cost ...Less: Health Plan Services Cost for Divested Businesses ...Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D ...$ 833.3 $ 8,609.1 - (3,291.1) $ 788.9 $10,732.0 (2,123.0) (3,296.0) (4) Health Plan Services Cost-Adjusted ...$ 5,318.0 $ 5,313.0 (5) Number...

  • Page 68
    ...Large Group ...Small Group and Individual ...Commercial Risk ...Medicare Advantage ...Total Oregon (including Washington) ...Total Health Plan Enrollment Large Group ...Small Group and Individual ...Commercial Risk ...ASO ...Total Commercial ...Medicare Advantage ...Medi-Cal/Medicaid ...Medicare PDP...

  • Page 69
    ... 1A. Risk Factors- Medicare programs represent a significant portion of our business and are subject to risk." We participate in the state Medicaid program in California, where the program is known as Medi-Cal. Medi-Cal enrollment as of December 31, 2010, increased by 44,000 members or 5.1 percent...

  • Page 70
    ... Healthy Families program. Western Region Operations Segment Results Year Ended December 31, 2010 2009 2008 (Dollars in thousands, except per share and PMPM data) Health plan services premiums ...Net investment income ...Administrative services fees and other income ...Total revenues ...Health plan...

  • Page 71
    ... December 31, 2009. The commercial health care cost trend continued to increase for 2010, but at a slower rate than 2009, as 2009 was impacted by higher utilization related to the H1N1 flu and COBRA. Medical Care Ratios The health plan services MCR in the Western Region Operations was 86.6 percent...

  • Page 72
    ... due to increases in claims and enrollment processing fees and other outsourcing costs and higher investments in information technology as we prepare for health care reform. Selling expense in our Western Region Operations was $235.6 million for the year ended December 31, 2010 compared with...

  • Page 73
    ..., and health care delivery under the new contract is scheduled to commence on April 1, 2011. In addition to the 3.1 million eligible beneficiaries that we service under the TRICARE contract for the North Region, we administer contracts with the U.S. Department of Veterans Affairs to manage community...

  • Page 74
    ... compared to the same period in 2009. The increases were primarily due to an increase in health care services provided under a new option year in the TRICARE contract and growth in the family counseling business with the DoD. The Government contracts cost ratio was 94.7 percent and 94.6 percent for...

  • Page 75
    ... Reportable Segment Results Year Ended December 31, 2010 2009 2008 (Dollars in thousands, except per share data) Health plan services premiums ...Net investment income ...Administrative services fees and other income ...Northeast administrative services fees and other ...Total revenues ...Health...

  • Page 76
    ... December 31, 2010 2009 2008 (Dollars in thousands, except per share data) Charges included in net investment income ...Charges included in administrative services fees and other income ...Charges included in health plan services costs ...Charges included in government contract costs ...Charges...

  • Page 77
    ... as part of health plan services expenses for estimated litigation and regulatory actions related to our rescission practices in Arizona and California and claim-related matters in connection with the settlement agreement for the McCoy, Wachtel and Scharfman class action lawsuits, $14.6 million loss...

  • Page 78
    ... cash reserves and other working capital and lines of credit are adequate to allow us to fund existing obligations, repurchase shares under our stock repurchase program, introduce new products and services, and continue to operate and develop health carerelated businesses at least for the next 12...

  • Page 79
    ... and low-income subsidies receivable and a $17 million Medi-Cal rate court settlement related to 2001-2002 rates paid in 2009. Investing Activities Our cash flow from investing activities is primarily impacted by the sales, maturities and purchases of our available-for-sale investment securities and...

  • Page 80
    ...Northeast Sale and cash at Health Net, Inc., to fund the share repurchases. For additional information on our Completed Stock Repurchase Program and our New Stock Repurchase Program, see Note 9 of our consolidated financial statements. Termination of Amortizing Financing Facility On May 26, 2010, we...

  • Page 81
    ... months) at the applicable treasury rate plus 30 basis points plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date. Each of the following will be an Event of Default under the indenture governing the Senior Notes: • failure to pay interest...

  • Page 82
    ... in our net income due to changes in variable interest rates. We recognized a pretax loss of $0.2 million in the three months ended June 30, 2010 in connection with the termination and settlement of the 2009 Swap, which is included in our administrative services fees and other income for the...

  • Page 83
    ... is granted, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by our insurance company subsidiaries without prior approval of the applicable state insurance departments is subject to restrictions relating to statutory...

  • Page 84
    ... data center services, IT security management and help desk support. The remaining term of this contract is approximately three years, and total estimated future commitments under the agreement are approximately $174.5 million. We have entered into an agreement with Cognizant Technology Solutions...

  • Page 85
    ... Annual Report on Form 10-K. Health Plan Services Health plan services premium revenues include HMO, POS and PPO premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage (for which premiums are based on a predetermined prepaid fee...

  • Page 86
    ... estimates reserves for claims based upon the historical lag between the month when services are rendered and the month claims are paid while taking into consideration, among other things, expected medical cost inflation, seasonal patterns, product mix, benefit plan changes and changes in membership...

  • Page 87
    ...management, claims processing, enrollment, customer services and other services unique to the managed care support contracts with the government. Health care costs and associated revenues are recognized as the costs are incurred and the associated revenue is earned. Revenue related to administrative...

  • Page 88
    ... month in which the administrative services are performed or the period that coverage for services is provided. Under our TRICARE contract for the North Region we recognize amounts receivable and payable under the government contracts related to estimated health care IBNR expenses which are reported...

  • Page 89
    ... include, but are not limited to: significant decreases in the market price of the asset, significant adverse changes in the business climate or legal factors, current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of...

  • Page 90
    ... fluctuations in interest rates and in equity prices. Interest rate risk is a consequence of maintaining variable interest rate earning investments and fixed rate liabilities or fixed income investments and variable rate liabilities. We are exposed to interest rate risks arising from changes in the...

  • Page 91
    ... securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. The following table presents the expected cash outflows relating to market risk sensitive debt obligations as of December 31, 2010...

  • Page 92
    ...or that the degree of compliance with the policies or procedures may deteriorate. Deloitte & Touche, LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, has issued an attestation report on our internal control over...

  • Page 93
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Health Net, Inc. Woodland Hills, California We have audited the internal control over financial reporting of Health Net, Inc., and subsidiaries ("the Company") as of December 31, 2010, based on criteria...

  • Page 94
    Item 9B. Other Information. None. 92

  • Page 95
    ... and Corporate Governance. The information required by this Item as to (1) directors and executive officers of the Company and (2) compliance with Section 16(a) of the Securities Exchange Act of 1934 is set forth in the Company's definitive proxy statement, which will be filed with the SEC within...

  • Page 96
    ... set forth on page F-1 and covered by the Report of Independent Registered Public Accounting Firm are incorporated into this Item 15(a) by reference and filed as part of this Annual Report on Form 10-K. 2. Financial Statement Schedule The financial statement schedule listed on the accompanying Index...

  • Page 97
    ...behalf by the undersigned thereunto duly authorized. HEALTH NET, INC. By: /s/ JOSEPH C. CAPEZZA Joseph C. Capezza Chief Financial Officer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 98
    ... statements and financial statement schedule are filed as part of this Annual Report on Form 10-K: Consolidated Financial Statements Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Operations for each of the three years in the period ended December 31, 2010...

  • Page 99
    ...PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Health Net, Inc. Woodland Hills, California We have audited the accompanying consolidated balance sheets of Health Net, Inc. and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements...

  • Page 100
    HEALTH NET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) 2010 Year Ended December 31, 2009 2008 Revenues Health plan services premiums ...Government contracts ...Net investment income ...Administrative services fees and other income ...Northeast ...

  • Page 101
    ...Investments-available- for-sale (amortized cost: 2010-$1,653,502, 2009-$1,372,090) ...Premiums receivable, net of allowance for doubtful accounts (2010-$6,613, 2009-$6,283) ...Amounts receivable under government contracts ...Incurred but not reported (IBNR) health care costs receivable under TRICARE...

  • Page 102
    ... Net income ...Change in unrealized loss on investments, net of tax impact of $4,319 ...Defined benefit pension plans: Prior service cost and net loss ... Total comprehensive income ... Exercise of stock options and vesting of restricted stock units ...Share-based compensation expense ...Tax benefit...

  • Page 103
    ... under government contracts ...Reserves for claims and other settlements ...Accounts payable and other liabilities ...Net cash provided by (used in) operating activities ...CASH FLOWS FROM INVESTING ACTIVITIES: Sales of investments ...Maturities of investments ...Purchases of investments ...Sales of...

  • Page 104
    ... 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. We operate within three reportable segments: Western Region Operations, Government Contracts...

  • Page 105
    ...plan services premium revenues include HMO, POS and PPO premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide...

  • Page 106
    ...value for revenue, using our best estimate of what will ultimately be negotiated. We offer administrative services only (ASO) products to large employer groups in California. Prior to the Northeast Sale, we provided ASO services to our health plans in Connecticut, New Jersey and New York. Subsequent...

  • Page 107
    ... STATEMENTS-(Continued) the Company and the medical groups share in the variance between actual costs and predetermined goals. Additionally, we contract with certain hospitals to provide hospital care to enrolled members on a capitation basis. Our HMOs also contract with hospitals, physicians...

  • Page 108
    ... Health Net, on the member's behalf, some or all of the monthly member premium depending on the member's income level in relation to the Federal Poverty Level. The low-income premium subsidy is recognized evenly over the contract period and reported as part of health plan services premium revenue...

  • Page 109
    ... on the member's income level in relation to the Federal Poverty Level. Health Net receives prospective payments on a monthly basis, and they represent a cost reimbursement that is finalized and settled after the end of the year. The low-income member cost sharing subsidy is accounted for as...

  • Page 110
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Share-Based Compensation Expense As of December 31, 2010, we had various long-term incentive plans that permit the grant of stock options and other equity awards to certain employees, officers and non-employee directors, which ...

  • Page 111
    ... the three months ended June 30, 2010 in connection with the termination and settlement of the 2009 Swap, which is included in our administrative services fees and other income for that period. Property and Equipment Property and equipment are stated at historical cost less accumulated depreciation...

  • Page 112
    ... and intangible assets acquired and liabilities assumed (goodwill). Identifiable intangible assets primarily consist of the value of employer group contracts, provider networks and customer relationships, which are all subject to amortization. We perform our annual impairment test on our recorded...

  • Page 113
    ...-line method over their estimated lives are as follows: Gross Carrying Amount Accumulated Amortization Intangible Fair Value Assets Sold Adjustment (Dollars in millions) Net Balance Weighted Average Life (in years) As of December 31, 2009: Provider networks ...Employer groups (Note 3) ...Customer...

  • Page 114
    ... basis in various disputes with members, health care providers, and other entities, as well as audits or investigations by government agencies and elected officials that relate to our services and/or business practices that expose us to potential losses. We recognize an estimated loss, which may...

  • Page 115
    ... revenue. In addition, the federal government is a significant customer of the Company's Western Region Operations segment as a result of its contract with CMS for coverage of Medicare-eligible individuals. Medicare revenues accounted for 30%, 30% and 28% of our health plan premium revenues in 2010...

  • Page 116
    ... on membership or billed premiums. These taxes are paid in lieu of or in addition to state income taxes and totaled $54.3 million in 2010, $75.7 million in 2009 and $48.0 million in 2008. These amounts are recorded in general and administrative expenses on our consolidated statements of operations...

  • Page 117
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Award of New TRICARE Contract We are currently the managed care contractor for the Department of Defense's TRICARE program in the North Region. On May 13, 2010, we were awarded the new T-3 Managed Care Support Contract for the ...

  • Page 118
    ...created by our obligation to provide and be financially impacted by our performance under the United Administrative Services Agreements, as well as our financial incentive based on members renewing with legacy United entities. Upon signing the Stock Purchase Agreement, we assessed the recoverability...

  • Page 119
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) During the years ended December 31, 2010 and 2009, we recognized $0 and $60,000, respectively, in losses from other-than-temporary impairments of our cash equivalents and available-for-sale investments. We classified $8.8 ...

  • Page 120
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2010, the contractual maturities of our current investments available-for-sale were as follows: Amortized Estimated Cost Fair Value (Dollars in millions) Due in one year or less ...Due after one year through ...

  • Page 121
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table shows our noncurrent investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through December 31, 2010: Less than 12 Months Fair Unrealized ...

  • Page 122
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table shows our current investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through December 31, 2009: Less than 12 Months Fair Unrealized ...

  • Page 123
    ... million for the termination and settlement of the 2007 Swap (see Note 2), which is included in our administrative services fees and other income for the year ended December 31, 2010. We paid a total of $116.8 million, including the $3.0 million call premium, to retire the total outstanding debt. We...

  • Page 124
    ...the ability to pay dividends or make or repay loans or advances; make investments, loans, and advances; engage in transactions with affiliates; and make dividends. In addition, we are required to maintain a specified consolidated leverage ratio and consolidated fixed charge coverage ratio throughout...

  • Page 125
    ... the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably impact the quoted price. Level 2-Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and...

  • Page 126
    ... 2010 Assets: Investments-available-for-sale Asset-backed debt securities: Residential mortgage-backed securities ...Commercial mortgage-backed securities ...Other asset-backed securities ...U.S. government and agencies: U.S. Treasury securities ...U.S. Agency securities ...Obligations of states and...

  • Page 127
    ... ended December 31, 2010 the compensation cost that has been charged against income under our various stock option and long-term incentive plans (the Plans) was $33.1 million. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $12.8 million...

  • Page 128
    ...the Company's attainment of specific performance conditions as outlined in each performance share award agreement. As of December 31, 2010, we have reserved up to an aggregate of 15.4 million shares of our common stock for issuance under the Plans. The fair value of each option award is estimated on...

  • Page 129
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of option activity under our various plans as of December 31, 2010, and changes during the year then ended is presented below: Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Number...

  • Page 130
    ..., respectively. Under the Plans, employees and non-employee directors may elect for the Company to withhold shares to satisfy minimum statutory federal, state and local tax withholding and/or exercise price obligations, as applicable, arising from the exercise of stock options. For certain other...

  • Page 131
    ...Person or Adverse Person and such person's affiliates and associates, to purchase, upon exercise at the then-current exercise price of such Right, that number of shares of common stock having a market value of two times such exercise price. In addition, and subject to certain exceptions contained in...

  • Page 132
    ... in March 2010) at an average price of $32.39 per share for aggregate consideration of $1,510.0 million. We used net free cash available, including proceeds from the Northeast Sale and cash at the parent company, Health Net, Inc., to fund the share repurchases. Note 10-Employee Benefit Plans Defined...

  • Page 133
    ... defined benefit health care and life insurance plans that provide postretirement medical and life insurance benefits to directors, key executives, employees and dependents who meet certain eligibility requirements. The Health Net health care plan is non-contributory for employees retired prior to...

  • Page 134
    ...effective income tax rate on income is as follows for the years ended December 31: 2010 2009 2008 Statutory federal income tax rate ...State and local taxes, net of federal income tax effect ...Tax exempt interest income ...Goodwill impairment ...Fines and penalties ...Class action lawsuit expenses...

  • Page 135
    ...the Northeast Sale (see Note 3). The Northeast Sale resulted in a total federal and state income tax benefit of $60.6 million for 2009 plus an additional tax benefit of $4.4 million for 2010. The 2010 adjustment in tax benefit arose due to a change in our estimate of contingent sale price components...

  • Page 136
    ... the Knox-Keene Health Care Service Plan Act of 1975, as amended, California plans must comply with certain minimum capital or tangible net equity requirements. Our non-California health plans, as well as our insurance companies, must comply with their respective state's minimum regulatory capital...

  • Page 137
    ... courts, both of which relate to claims asserted by three separate state receivers overseeing the liquidation of three health plans in Louisiana, Texas and Oklahoma that were previously owned by our former subsidiary, Foundation Health Corporation (FHC), which merged into Health Net, Inc. in January...

  • Page 138
    ... applicable to our business, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, rules relating to pre-authorization penalties, payment of out-of-network claims, timely review of grievances and appeals, and timely and accurate payment of claims...

  • Page 139
    ... to providers, members, employer groups and others, including the alleged failure to properly pay claims and challenges to the manner in which we process claims, and claims alleging that we have engaged in unfair business practices. In addition, we are subject to claims relating to the insurance...

  • Page 140
    ...data center services, IT security management and help desk support. The remaining term of this contract is approximately three years, and the total estimated future commitments under the agreement are approximately $174.5 million. We have entered into an agreement with Cognizant Technology Solutions...

  • Page 141
    ... the operations conducted in Connecticut, New Jersey and New York for our commercial, Medicare and Medicaid health plans. For periods following the Northeast Sale, our Northeast Operations reportable segment includes the operations of our businesses that are providing administrative services to...

  • Page 142
    ... criteria Similar managed health care products and services including HMO, PPO and POS, Similar production process as they support similar customer groups and products, Same type of customers, individuals within large and small employer groups and senior and commercial individuals, Similar...

  • Page 143
    ...CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2009 Western Region Operations Government Northeast Corporate/Other/ Contracts Operations Eliminations (Dollars in millions) Total Revenues from external sources ...Intersegment revenues ...Net investment income ...Administrative services fees and other...

  • Page 144
    ... the last United Administrative Services Agreement is terminated. Under the United Administrative Services Agreements, we provide claims processing, customer services, medical management, provider network access and other administrative services to United and certain of its affiliates. As part of...

  • Page 145
    ...31, 2010, 2009 and 2008. Health Plan Services Year Ended December 31, 2010 2009 2008 (Dollars in millions) Reserve for claims (a), beginning of period ...Incurred claims related to: Current year ...Prior years (c) ...Total incurred (b) ...Paid claims related to: Current year ...Prior years ...Total...

  • Page 146
    ... a quarterly basis: 2010 March 31 June 30 September 30 December 31 (Dollars in millions, except per share data) Total revenues ...Health plan services costs ...Government contracts costs ...Income from operations before income taxes ...Net income ...Basic earnings per share ...Diluted earnings per...

  • Page 147
    ...(Dollars in millions, except per share data) Total revenues ...Health plan services costs ...Government contracts costs ...Income (loss) from operations before income taxes ...Net income (loss) ...Basic earnings (loss) per share ...Diluted earnings (loss) per share (5) ... $3,932.8 2,721.8 725.0 24...

  • Page 148
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) other United products to the extent such amounts exceed the initial minimum payment of $60 million that United made to us at closing. The receivable amount is due in March 2011. Loans to health care providers are made from time ...

  • Page 149
    SUPPLEMENTAL SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) HEALTH NET, INC. CONDENSED STATEMENTS OF OPERATIONS (Amounts in thousands) Year Ended December 31, 2010 2009 2008 REVENUES: Net investment income (loss) ...Other income (loss) ...Administrative service fees ...

  • Page 150
    SUPPLEMENTAL SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) HEALTH NET, INC. CONDENSED BALANCE SHEETS (Amounts in thousands) December 31, 2010 December 31, 2009 ASSETS Current Assets: Cash and cash equivalents ...Investments-available-for-sale ...Other assets ......

  • Page 151
    ... SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) HEALTH NET, INC. CONDENSED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2010 2009 2008 NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES ...CASH FLOWS FROM INVESTING ACTIVITIES: Sales...

  • Page 152
    ... INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) HEALTH NET, INC. NOTE TO CONDENSED FINANCIAL STATEMENTS Note 1-Basis of Presentation Health Net, Inc.'s (HNT) investment in subsidiaries is stated at cost plus equity in undistributed earnings (losses) of subsidiaries. HNT's share of net income...

  • Page 153
    ... ^2.1 Stock Purchase Agreement, dated as of July 20, 2009, by and among Health Net, Inc., Health Net of the Northeast, Inc., Oxford Health Plans, LLC and solely with respect to section 8.16 thereof, UnitedHealth Group Incorporated (filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10...

  • Page 154
    ... the SEC on June 17, 2010 (File No. 1-12718) and incorporated herein by reference). Form of Nonqualified Stock Option Agreement utilized for eligible employees of Health Net, Inc. under the 2006 Long-Term Incentive Plan, as amended (filed as Exhibit 10.14 to the Company's Annual Report on Form 10...

  • Page 155
    ... of Performance Share Award Agreement utilized for eligible employees of Health Net, Inc. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on January 21, 2009 (File No. 1-12718) and incorporated herein by reference). Form of Nonqualified Stock Option Agreement...

  • Page 156
    ...by reference). Amendment Number One to the Health Net, Inc. (formerly Foundation Health Systems, Inc.) Deferred Compensation Plan Trust Agreement between Health Net, Inc. and Union Bank of California, adopted January 1, 2001 (filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the...

  • Page 157
    ...the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 1-12718) and incorporated herein by reference). Foundation Health Systems, Inc. Third Amended and Restated Non-Employee Director Stock Option Plan (filed as Exhibit 10.46 to the Company's Quarterly Report on Form...

  • Page 158
    ...and Restated Deferred Compensation Plan of Foundation Health Corporation (filed as Exhibit 10.49 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 1-12718) and incorporated herein by reference). Foundation Health Corporation Executive Retiree Medical Plan (as...

  • Page 159
    ... Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-12718) and incorporated herein by reference). Amendment No. 2010-01 to Master Services Agreement, effective as of April 15, 2010, between Health Net, Inc. and Cognizant Technology Solutions U.S. Corporation...

  • Page 160
    ... subject to liability under those sections. †A copy of the exhibit is being filed with this Annual Report on Form 10-K. ^ This exhibit has been redacted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. + Schedules and exhibits...

  • Page 161
    ... medical, dental and vision coverage for non-employee directors and their eligible dependents, which directors can continue to utilize following their retirement from the Board. Non-employee directors will pay monthly premiums for any such coverage they elect at the same rates paid by Company...

  • Page 162
    In addition, the non-employee directors of the Company are eligible to participate in the Company's 2006 Long-Term Incentive Plan (the "Plan"). Under the Plan, non-employee directors receive an initial grant of restricted stock units ("RSUs") when they join the Company's Board and automatic annual ...

  • Page 163
    ... NO. 2010-01 TO MASTER SERVICES AGREEMENT This Amendment Number 2010-01 ("Amendment 2010-01"), effective as of April 15, 2010 (the "Amendment 2010-01 Effective Date"), is between Health Net, Inc. ("Health Net"), and Cognizant Technology Solutions U.S. Corporation ("Supplier") (each, a "Party" and...

  • Page 164
    ...Execution Version Health Net, Inc. By: /s/ David R. Moffitt CognizantTechnologySolutionsU.S.Corporation By: /s/ Eugene Solomonov Print Name: David R. Moffitt Title: Date: Schedule B Sourcing Manager 02/25/2011 Print Name: Eugene Solomonov Title: Date: Corporate Counsel February 25, 2011 Health Net...

  • Page 165
    Final Execution Version SCHEDULE B SERVICE LEVELS Version 2.0 Schedule B Health Net/Cognizant Confidential

  • Page 166
    ... 5.5 Quarterly or Annual Meeting to adjust Service Levels CUSTOMER SATISFACTION SURVEYS Table of Exhibits Exhibit B-1: Service Level Metrics Exhibit B-2: Problem / Incident Severity Level Definitions Exhibit B-3: Service Request Completion Times Schedule B B -i Health Net/Cognizant Confidential...

  • Page 167
    ..." mean Monday through Friday (except holidays on which the offices of Health Net, as applicable, are not open for regular business). Where this Schedule B provides for the addition or subtraction of a Business Day(s), the result will mean the same time of day as the time of an event on the original...

  • Page 168
    ... of this Schedule B. (b) Supplier shall provide (except as expressly stated otherwise in this Agreement) and utilize the necessary measurement and monitoring tools and procedures required to measure and report Supplier's performance of the Services against the applicable Service Levels. Such...

  • Page 169
    ... the Monthly Performance Report to Health Net in accordance with Section 17.3 of the Terms and Conditions. (b) Upon Health Net's request, Supplier shall provide to Health Net detailed supporting information (including raw performance data) relating to Supplier's performance relative to the Service...

  • Page 170
    ... Date, Supplier shall meet or exceed the levels of performance achieved by Health Net prior to the Effective Date; and Within 60 days of the Service Commencement Date, Supplier shall provide Health Net with a plan for improving the Code 3 Service Levels to meet the target metrics set for such...

  • Page 171
    ... and establishes within two months after such failure that: (a) Health Net's failure to perform a retained responsibility was the root cause of Supplier's failure to meet such Service Level (e.g., providing the required infrastructure to host In-Scope Applications); (b) Supplier would have achieved...

  • Page 172
    ... Health Net. 5.1 Deletions of Service Levels (b) If Health Net adds a new Service Level for which there is at least *** of historical data within the ***, but such data does not indicate performance that is acceptable to Health Net, then, upon Health Net's written request, Supplier will perform...

  • Page 173
    ... meet to review the Service Levels on a quarterly or annual basis to discuss the Service Levels***. *** *** (b) The Parties will also discuss in good faith revisions to Service Levels that may be appropriate as a result of material changes in the characteristics of Health Net's In-Scope Application...

  • Page 174
    ... and report to Health Net the results, and integrating the results with previous survey results (e.g., performing trend analysis). The Parties shall meet to identify the areas of dissatisfaction as such dissatisfaction relates to the Services. Supplier shall prepare a project plan, with Health Net...

  • Page 175
    ... subject matter contained herein. IN WITNESS WHEREOF, the parties hereto by their duly authorized representatives executed this Amendment to be effective as of the Amendment Effective Date. COGNIZANT TECHNOLOGY SOLUTIONS U.S. CORPORATION By /s/ Ralph Nicosia HEALTH NET, INC. By /s/ David R. Moffitt

  • Page 176
    Final Execution Copy Name Ralph Nicosia Title Account Ops. Lead. Name David R. Moffitt Title Sourcing Manager

  • Page 177
    Final Execution Copy REVISED SCHEDULE C CHARGES

  • Page 178
    ... 8.1 Cost of Living Adjustment (COLA) 8.2 Service Level Credits 8.3 Benchmarking 9. TERMINATION CHARGES 9.1 Termination Charge 9.2 Pro-ration of Termination Charges Schedule C (Charges) C- i i 1 1 1 1 1 2 2 2 2 4 5 5 6 6 7 8 8 8 9 9 9 9 9 9 10 10 10 10 10 11 11 11 12 12 12 12 Health Net / Supplier...

  • Page 179
    ... C-5: Exhibit C-6: Exhibit C-7: Production Support Charge Individual Application Production Support Charges Applications Development Charge Baseline AD Hours Transitioned Employees T&M Rates Skillset Mix and Supporting Skillset Rates C- ii Health Net / Supplier Confidential Schedule C (Charges)

  • Page 180
    ... Applications Development Services requested by Health Net that do not constitute a Minor Enhancement. (c) "Application Development Services" or "AD Services" has the meaning given in Section 5 of Schedule A (d) "Charges" has the meaning given in Section 1. (e) "Contract Year" means each 12 month...

  • Page 181
    ...in Schedule G. (j) "Minor Enhancement" means an enhancement or upgrade to In-Scope Applications requested by Health Net that is (i) estimated to require *** hours or less of Productive Work of Applications Development Services and (ii) not otherwise required to perform break-fix, operational support...

  • Page 182
    ...the new In-Scope Application. Upon request, Supplier shall provide Health Net with supporting detail from Supplier's estimating tools to allow Health Net to understand and validate Supplier's proposed staffing. (ii) After the staffing is determined, the Parties shall: (A) establish a new T&M Rate in...

  • Page 183
    ... FTEs in such staffing plan by the applicable T&M Rates in Exhibit C-6. 4.4 Minor Enhancements (a) The Production Support Charge includes a baseline of Productive Hours that Supplier shall perform each calendar quarter on Minor Enhancements requested by Health Net ("Baseline Minor Enhancement Hours...

  • Page 184
    ... Net adds a new In-Scope Application, beginning in the month following such addition, the quarterly Baseline Minor Enhancement Hours shall be ***. (iii) Upon request, Supplier shall provide Health Net with supporting detail to allow Health Net to understand and validate Supplier's staffing numbers...

  • Page 185
    ...-Scope Application. If Health Net requests a material change under item (c) above, the Parties shall document the new skillset mix requested by Health Net in Exhibit C-7 and revise the blended T&M Rates in Exhibit C-6 to reflect the new skillset mix using the individual Supporting Skillset Rates in...

  • Page 186
    ... AD Projects and associated resource requirements ("AD Project Forecast"). Each month, and as otherwise requested by Health Net, the Parties shall meet to (i) update the AD Project Forecast as necessary to remain current with Health Net's estimated AD Schedule C (Charges) C-7 Health Net / Cognizant...

  • Page 187
    ... than 30 days after the end of each calendar quarter, Supplier will report (i) the quantity of Productive Hours authorized by Health Net and performed by Supplier on Applications Development Services during the quarter for each In-Scope Application ("Actual AD Hours") and (ii) any variance in Actual...

  • Page 188
    ... by Supplier and paid by Health Net in U.S. Dollars. ***. 7.3 New Services The Charges for any New Services performed by Supplier at Health Net's request shall be calculated in accordance with Section 3.7 of the Terms and Conditions. Schedule C (Charges) C-9 Health Net / Cognizant Confidential

  • Page 189
    ...the terminated Services for each Contract Year as set forth as of the Effective Date. 7.9 Travel (a) ***. (b) Health Net shall reimburse Supplier for actual expenses for travel requested by Health Net in connection with an Applications Development Product or Minor Enhancement; provided such Schedule...

  • Page 190
    ... with Health Net's travel and expense policy. 8. ADJUSTMENTS TO CHARGES 8.1 Cost of Living Adjustment (COLA) (a) On January 1 of each calendar year *** Supplier shall increase (i) the Production Support Charge, (ii) the Applications Development Charge, and (iii) the T&M Rates (collectively...

  • Page 191
    ...the Contract Year after the Contract Year in which the termination is effective; and C = the number of whole calendar months after the effective date of termination that remain during the Contract Year in which termination is effective. Schedule C (Charges) C - 12 Health Net / Cognizant Confidential

  • Page 192
    ... Surgery Center Limited Partnership (CA) (68-0343818)** Foundation Health Facilities, Inc. (CA) (68-0390438) FH Assurance Company (Cayman Islands)(98-0150604) Health Net Federal Services, LLC (DE) (68-0214809) • • Health Net Preferred Providers, LLC (DE) (61-1388903) Network Providers, LLC...

  • Page 193
    ..., Inc. (PA) (23-2456130) Health Net One Payment Services, Inc. (DE) (54-2153100) Health Net Foundation, Inc. is a nonprofit, nonstock corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. FH Surgery Centers, Inc. owns general and limited partnership units...

  • Page 194
    ... schedule of Health Net Inc. and its subsidiaries (the "Company") and the effectiveness of the Company's internal control over financial reporting appearing in the annual report on Form 10-K of the Company for the year ended December 31, 2010. /s/ DELOITTE & TOUCHE LLP Los Angeles, California...

  • Page 195
    ... Jay M. Gellert, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Health Net, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances...

  • Page 196
    ... of 2002 I, Joseph C. Capezza, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Health Net, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the...

  • Page 197
    ... In connection with the Annual Report of Health Net, Inc. (the "Company") on Form 10-K for the year ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Jay M. Gellert, as Chief Executive Officer of the Company, and Joseph C. Capezza, as...