Health Net 2010 Annual Report Download - page 12

Veterans Affairs
During 2010, HNFS administered nine contracts with the U.S. Department of Veterans Affairs to manage
community-based outpatient clinics in eight states. HNFS also administered or supported six other contracts with
the U.S. Department of Veterans Affairs for 153 Veterans Affairs medical centers for claims repricing and audit
services. Total revenues for our Veterans Affairs business were approximately $35 million for the year ended
December 31, 2010. These revenues are derived from service fees received and have no insurance risk associated
with them. MHN is a subcontractor in a program under the U.S. Department of Veterans Affairs pursuant to
which we make proactive outbound calls to returning veterans, perform assessments and make referrals to
Veterans Affairs facilities.
Northeast Operations Segment
On December 11, 2009, we completed the sale (the “Northeast Sale”) to UnitedHealth Group Incorporated
(“United”) 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 (“Acquired Companies”) that had previously conducted
businesses in our Northeast Operations segment. Prior to the Northeast Sale, our Northeast Operations reportable
segment included our commercial, Medicare and Medicaid health plans, the operations of our HMOs in
Connecticut, New York and New Jersey and our New York insurance company. The sale was made pursuant to a
Stock Purchase Agreement (as amended, the “Stock Purchase Agreement”), dated as of July 20, 2009, by and
among the Company, Health Net of the Northeast, Inc., Oxford Health Plans, LLC (“Buyer”) and, solely for the
purposes of guaranteeing Buyer’s obligations thereunder, United. At the closing 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 to serve the members of the Acquired Companies under
Administrative Services Agreements we entered into with United and certain of its affiliates (the “United
Administrative Services Agreements”) until all members are either transitioned to legacy United products or
non-renewed, which is expected to occur in the second quarter of 2011. After this transition is complete, we will
not be providing any services to members pursuant to the United Administrative Services Agreements. At that
time, we will enter into Claims Servicing Agreements with the Acquired Companies, pursuant to which we will
continue to adjudicate run out claims.
As part of the Northeast Sale, we retained certain financial responsibilities for the profits and losses of the
Acquired Companies, subject to specified adjustments, for the period beginning on the closing date and ending
on the earlier of the second anniversary of the closing date and the date that the last United Administrative
Services Agreement is terminated. Accordingly, our Northeast Operations segment (“Northeast Operations”) now
includes the operations of the businesses that are providing administrative services pursuant to the United
Administrative Services Agreements, as well as the operations of HNL in Connecticut and New Jersey prior to
the renewal dates of the Transitioning HNL Members. We retained HNL’s stand-alone Part D business in
Connecticut and New Jersey following the Northeast Sale, and those results of operations are reported in our
Western Region Operations reportable segment.
At the closing of the Northeast Sale, United paid to us $350 million, consisting of (i) a $60 million initial
minimum payment for the commercial membership of the acquired business and the Medicare and Medicaid
businesses of the Acquired Companies, and (ii) $290 million, representing a portion of the adjusted tangible net
equity of the Acquired Companies at closing. This payment was subject to certain post-closing adjustments.
Pursuant to the terms of the Stock Purchase Agreement, on December 10, 2010, we received $80 million, which
is one-half of the remaining amount of the closing adjusted tangible net equity of the Acquired Companies, and
we expect to receive the other half following the second anniversary of the closing, estimated to also be $80
million subject to certain adjustments. United is required to pay us additional consideration as our Northeast
commercial members, Medicare and/or Medicaid businesses transition to other United products to the extent the
value of such members, based on formulae set forth in the Stock Purchase Agreement, exceeds the initial
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