Health Net 2010 Annual Report Download - page 146

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
no changes in the approach used to determine the key actuarial assumptions, which are the completion factor
and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and GAAP. The
majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred
services because these are the services for which the fewest claims have been paid. The degree of
uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services.
Revised estimates for prior years are determined in each quarter based on the most recent updates of paid
claims for prior years. As of December 31, 2010, and 2009, incurred claims related to prior years were
estimated to be $70.0 million and $80.0 million lower than originally estimated at December 31, 2009 and
2008, respectively. The majority of this amount was due to adjustments to our reserves that related to
variables and uncertainties associated with our assumptions. As our reserve balance for older months of
service decreased, and estimates of our incurred costs for older dates of service became more certain and
predictable, our estimates of incurred claims related to prior periods were adjusted accordingly. Actual
claim experience was more favorable than our estimate.
(d) Includes claims payable, provider dispute reserve, and other claims-related liabilities.
(e) Includes accrued capitation, shared risk settlements, provider incentives and other reserve items.
The following table shows the Company’s health plan services capitated and non-capitated expenses for the
years ended December 31:
Health Plan Services
2010 2009 2008
(Dollars in millions)
Total incurred claims ............................................. $4,574.2 $ 6,342.8 $ 6,363.9
Capitated expenses and shared risk .................................. 2,700.2 2,782.0 2,644.5
Pharmacy and other .............................................. 1,334.7 1,607.2 1,754.3
Health plan services ............................................. $8,609.1 $10,732.0 $10,762.7
For the years ended December 31, 2010, 2009 and 2008, the Company’s capitated, shared risk, pharmacy
and other expenses represented 47%, 41% and 41%, respectively, of the Company’s total health plan services.
Note 17—Quarterly Information (Unaudited)
The following interim financial information presents the 2010 and 2009 results of operations on a quarterly
basis:
2010
March 31 June 30 September 30 December 31
(Dollars in millions, except per share data)
Total revenues .................................. $3,416.1 $3,437.0 $3,393.5 $3,373.3
Health plan services costs ......................... 2,211.3 2,163.2 2,134.7 2,100.0
Government contracts costs ........................ 771.9 811.4 814.4 770.5
Income from operations before income taxes .......... 26.6 77.9 102.2 124.2
Net income ..................................... 16.1(1) 45.1(2) 62.7(3) 80.4(4)
Basic earnings per share ........................... $ 0.16 $ 0.46 $ 0.64 $ 0.84
Diluted earnings per share (5) ...................... $ 0.16 $ 0.45 $ 0.64 $ 0.83
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