Health Net 2010 Annual Report Download - page 141

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
litigation. The surety bonds are secured by $88.1 million of irrevocable standby letters of credit (the “LC”) issued
under the Company’s revolving credit facility in favor of the issuers of the surety bonds.
Under the surety bond and LC arrangement, if the Company were to fail to pay the amount, if any, of a final
judgment in connection with the AmCareco litigation following appeal, the issuers of the surety bonds would
make payment in satisfaction of the judgment. The Company would, in turn, be responsible for reimbursing the
issuing bank under the LC to the extent that the issuers of the surety bonds were to draw on the LC. To the extent
the Company incurs liabilities as a result of the arrangements under the surety bonds or the LC, such liabilities
would be included on the Company’s consolidated balance sheet.
We will recognize a liability for any amounts actually, or expected to be, funded to these surety bonds or
drawn down from the letters of credit. At this time, the Company does not believe it will be required to fund or
draw down any amounts related to the surety bonds or the LC. Accordingly, no liability related to the surety
bonds or the LC has been recognized in the Company’s financial statements as of December 31, 2010 and 2009.
Note 14—Segment Information
During the year ended December 31, 2009, we reviewed our reportable segments following the execution of
the agreements for the Northeast Sale, which was completed on December 11, 2009. As a result of the Northeast
Sale and the entry into the United Administrative Services Agreements to provide administrative services post-
closing, we operate the Northeast business in a manner that is different than the rest of our health plans. Under
the terms of the United Administrative Services Agreements, we assist United and its affiliates in operating the
Acquired Companies, including winding-down the entities. The rest of our health plans are operated as
continuing core health plans. Prior to this change in our reportable segments, the Western Region Operations and
the Northeast Operations had been aggregated into a single reportable segment called Health Plan Services.
As a result of our review of the reportable segments, we expanded our reportable segments to Western
Region Operations, Government Contracts and Northeast Operations. Our Western Region Operations reportable
segment includes the operations conducted in California, Arizona, Oregon and Washington for our commercial,
Medicare (including Part D) and Medicaid health plans, our health and life insurance companies and our
behavioral health and pharmaceutical services subsidiaries. Our Government Contracts reportable segment has
not changed and continues to include government-sponsored managed care plans through the TRICARE program
and other health care-related government contracts. Our Government Contracts segment administers one large,
multi-year managed health care government contract and other health care-related government contracts. For
periods prior to the Northeast Sale, our Northeast Operations reportable segment included 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 United and its affiliates pursuant to the United
Administrative Services Agreements and the operations of Health Net Life in Connecticut and New Jersey prior
to the renewal dates of the Transitioning HNL Members. All prior period segment disclosures have been updated
to reflect this change in our reportable segments.
Our reportable segments are determined by applying the aggregation criteria in the Segment Reporting
Topic of the FASB Accounting Standards Codification. The financial results of our reportable segments are
reviewed on a monthly basis by our executive operating team which comprises the chief operating decision
maker (CODM). We continuously monitor our reportable segments to ensure that they reflect how our CODM
manages our company. Although our health plan services operating components can no longer be aggregated into
one reporting unit and operating segment, as previously done, these operating components can be grouped into
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