Health Net 2010 Annual Report Download - page 104

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of Business
Health Net, Inc. (referred to herein as Health Net, the Company, we, us, our or HNT) is a publicly traded
managed care organization that delivers managed health care services. 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 6.0 million
individuals across the country through group, individual, Medicare (including the Medicare prescription drug
benefit commonly referred to as “Part D”), Medicaid, Department of Defense; including TRICARE, and
Veterans Affairs 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.
We operate within three reportable segments: Western Region Operations, Government Contracts and
Northeast Operations, each of which is described below. Prior to the third quarter ended September 30, 2009, we
operated within two reportable segments, Health Plan Services and Government Contracts. See Note 14—
Segment Information for discussion of our reportable segments and Note 3—Sale of Northeast Health Plan
Subsidiaries for events that lead to changes in our reportable segments in 2009 and 2010.
Our health plan services are provided under our Western Region Operations reportable segment, which
includes the operations of our commercial, Medicare (including Part D) and Medicaid health plans, as well as the
operations of our health and life insurance companies primarily in Arizona, California, Oregon and Washington,
and our behavioral health and pharmaceutical services subsidiaries in several states including Arizona, California
and Oregon.
Our Government Contracts reportable segment includes government-sponsored managed care plans through the
TRICARE program and other health care, mental health and behavioral health government contracts that we
administer for the Department of Defense and the U.S. Department of Veterans Affairs. The Government Contracts
reportable segment administers a large managed care contract with the U.S. Department of Defense under the
TRICARE program in the North Region. The current TRICARE contract for the North Region 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 and a small portion of Tennessee, Missouri and Iowa. The Company provides health care services
to approximately 3.1 million eligible individuals in the Military Health System under the current TRICARE contract.
The current North Region contract is subject to annual renewals on April 1 of each year at the option of the
Department of Defense. In 2007, Congress passed legislation allowing for up to two additional years worth 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 for the following three option periods with the Department
of Defense: option period 6 (April 1, 2009—March 31, 2010), option period 7 (April 1, 2010—September 30,
2010), and option period 8 (October 1, 2010—March 31, 2011). We are currently in the eighth option period of
health care operations which is scheduled to conclude on March 31, 2011. On May 13, 2010, we were awarded
the Managed Care Support Contract (T-3) for the TRICARE North Region. The transition-in period for the T-3
contract commenced on May 13, 2010, and health care delivery under the new contract is scheduled to
commence on April 1, 2011. We believe that the T-3 contract will be accounted for as an administrative services
only contract and are currently evaluating the T-3 contract’s expected impact on our consolidated results of
operations and financial condition in 2011 and the related accounting and reporting requirements.
On December 11, 2009, we completed the sale (the Northeast Sale) of all of the outstanding shares of capital
stock of our health plan subsidiaries that were domiciled in Connecticut, New Jersey, New York and Bermuda
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