Health Net 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 Health Net annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 307

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238
  • 239
  • 240
  • 241
  • 242
  • 243
  • 244
  • 245
  • 246
  • 247
  • 248
  • 249
  • 250
  • 251
  • 252
  • 253
  • 254
  • 255
  • 256
  • 257
  • 258
  • 259
  • 260
  • 261
  • 262
  • 263
  • 264
  • 265
  • 266
  • 267
  • 268
  • 269
  • 270
  • 271
  • 272
  • 273
  • 274
  • 275
  • 276
  • 277
  • 278
  • 279
  • 280
  • 281
  • 282
  • 283
  • 284
  • 285
  • 286
  • 287
  • 288
  • 289
  • 290
  • 291
  • 292
  • 293
  • 294
  • 295
  • 296
  • 297
  • 298
  • 299
  • 300
  • 301
  • 302
  • 303
  • 304
  • 305
  • 306
  • 307

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, 2011
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, 2011 was $2,845,009,708
(which represents 88,657,205 shares of Common Stock held by such non-affiliates multiplied by $32.09, the closing sales price of
such stock on the New York Stock Exchange on June 30, 2011).
The number of shares outstanding of the registrant’s Common Stock as of February 21, 2012 was 82,836,834 (excluding
65,277,475 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
2012 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, 2011.

Table of contents

  • Page 1
    ...1-12718 HEALTH NET, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 95-4288333 (I.R.S. Employer Identification No.) 21650 Oxnard Street, Woodland Hills, CA (Address of Principal Executive Offices) 91367 (Zip Code...

  • 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
    ... request to Investor Relations, Health Net, Inc., 21650 Oxnard Street, Woodland Hills, California 91367, or contact Investor Relations by telephone at (818) 676-6000. Our transfer agent, Wells Fargo, can help you with a variety of shareholder-related services, including change of address, lost stock...

  • Page 4
    ... of medical services actually received by the member. We offer HMO plans with differing benefit designs and varying levels of co-payments at different premium rates. These plans are offered generally through contracts with participating network physicians, hospitals and other providers. When...

  • Page 5
    ... provides lower-cost premiums for employers as their employees access medical care through the Sutter Health system of hospitals, primary care physicians and specialists. We have also developed tailored network products with strategic provider partners in Phoenix, Arizona and Portland, Oregon...

  • Page 6
    ... on changes in our membership levels during 2011. Arizona. Our Arizona health plan operations are conducted by our subsidiaries, Health Net of Arizona, Inc. and Health Net Life Insurance Company ("HNL"). Our commercial membership in Arizona was 140,182 as of December 31, 2011. Our Medicare Advantage...

  • Page 7
    ... based on membership of 204,912 members. We contract with CMS under the Medicare Advantage program to provide Medicare Advantage products directly to Medicare beneficiaries and through employer and union groups. We provide or arrange health care services normally covered by Medicare, plus a broad...

  • Page 8
    ...-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, 2011...

  • Page 9
    ..., 2011, the U.S. Department of Health and Human Services announced several initiatives to offer states more flexibility to adopt new practices in order to provide better and more coordinated care for individuals dually eligible for Medicare and Medicaid programs, or "dual eligibles." California was...

  • Page 10
    ... services we provide to our Medi-Cal and Healthy Families vision program enrollees in California. Government Contracts Segment Our Government Contracts segment includes our government-sponsored managed care federal contract with the Department of Defense under the TRICARE program in the North Region...

  • Page 11
    ... provider panel. The primary care physicians are responsible for making referrals to specialists and hospitals. Except for active duty family members, who have no co-payment charges, TRICARE Prime enrollees pay co-payments each time they receive medical services from a civilian provider. TRICARE...

  • Page 12
    ... cost reimbursement arrangements for health care costs plus administrative fees received in the form of fixed prices, fixed unit prices, and contingent fees and payments based on various incentives and penalties. For additional information regarding our previous TRICARE contract for the North Region...

  • Page 13
    ... 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...

  • Page 14
    ... health services. The primary care physicians and PPGs are responsible for making referrals (approved by the HMO's or PPG's medical director as required under the terms of our various plans and PPG contracts) to specialists and hospitals. Additionally, our tailored network products utilize a network...

  • Page 15
    ... PPO plans, members are not required to select a primary care physician and generally do not require prior authorization for specialty care. For services provided under our PPO products and the out-of-network benefits of our POS products, we ordinarily reimburse physicians pursuant to discounted fee...

  • Page 16
    ...the largest managed health care company in California and Anthem Blue Cross of California is the largest PPO provider in California. There are also a number of small, regional health plans that compete with Health Net in California, mainly in the small business group market segment. In addition, two...

  • Page 17
    ... group accounts (taking the group's past health care utilization and costs into consideration) and requires detailed rate filings for individual and family plans and small employer plans. See "Item 1A. Risk Factors-We face competitive pressure to contain premium prices." for additional information...

  • Page 18
    ... modernize legacy health plan systems, provide technology renewal for our desktops, networks and servers, and improve our customer service capabilities and contact center voice and desktop agent infrastructure, among other information technology-related initiatives. For additional information on our...

  • Page 19
    ... to health insurance executives that is tax deductible, expanding regulations that govern premium rate increase requests, in addition to requirements that individuals obtain coverage and the creation of government controlled "exchanges" where individuals and small business groups may purchase health...

  • Page 20
    ...relating to guaranteed issuance of coverage to children under age 19, coverage for preventive health services without cost-sharing, lifetime and annual limits, rescissions and patient protections, rate review of unreasonable rates in the individual and small group markets and guidance on accountable...

  • Page 21
    ...in provider payments would result in a premium reduction from the Medi-Cal business conducted in our California health plan. In addition, our ability to obtain health care cost recoveries from providers relating to any implemented rate cuts could affect the financial results of our California health...

  • Page 22
    ... benefit plans are regulated by the federal government under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Employment-based health coverage is such an employee benefit plan. ERISA is administered, in large part, by the U.S. Department of Labor. ERISA contains disclosure...

  • Page 23
    ... and the Department of Insurance of each state in which it does business California Department of Managed Health Care, New York Department of Insurance Oregon HMO Health Net Life Insurance Company (Arizona and California PPO) MHN Additionally, the administrative services that we provided to United...

  • Page 24
    ... persons on a part-time or temporary basis. 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...

  • Page 25
    ... with CMS for coverage of Medicare-eligible individuals, including PDPs, and our contracts with California state agencies for federally-subsidized Medicaid and CHIP programs. Medicare premiums accounted for 28%, 30% and 31% of our Western Region Operations segment revenues in 2011, 2010 and 2009...

  • Page 26
    ..., 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 claims...

  • Page 27
    ...insured premiums and an excise tax on high premium insurance policies, stipulate a minimum medical loss ratio (as adopted by the Department of Health and Human Services), limit Medicare Advantage payment rates, increase mandated benefits, eliminate medical underwriting for medical insurance coverage...

  • Page 28
    ... of government controlled "exchanges" where individuals and small business groups may purchase health coverage. For a further discussion regarding the ACA and related legislation, see "Item 1-Government Regulation- Federal Legislation and Regulations". Various aspects of the health care reform...

  • Page 29
    ... our members. Many of these costs, including costs associated with physician and hospital care, new medical technology and prescription drugs, for example, are rising. The total amount of health care costs we incur is affected by the number and type of individual services we provide and the cost of...

  • Page 30
    ...change in related revenues for our health plan products, our annual pre-tax income for 2011 would have been reduced by approximately $89 million. The inability to accurately forecast and manage our health care costs in all circumstances could have a material adverse effect on our business, financial...

  • Page 31
    ... rate increases. In addition, the federal government and some states where we do business have required prior regulatory approval of premium rate increases and/or have subjected such increases to heightened scrutiny, such as third-party review. For example, the California Department of Insurance...

  • Page 32
    ... agencies. Our HMO and insurance subsidiaries are subject to regulations relating to cash reserves, minimum net worth, premium rates, approval of policy language and benefits, appeals and grievances with respect to benefit determinations, provider contracting, utilization management, issuance and...

  • Page 33
    ... awarded, new government contracts for a period of time. In addition, we are subject to state and federal false claims laws that generally prohibit the submission of false claims for reimbursement or payment to government agencies. We are also subject to the Foreign Corrupt Practices Act and similar...

  • Page 34
    ... government's Medicare payment rates. For more information on the risks associated with the ACA, see "-Federal health care reform legislation 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...

  • Page 35
    ... on our business, financial condition or results of operations. Approximately 49% of our 2011 total revenues relate to federal, state and local government health care coverage programs, such as Medicare, Medicaid, TRICARE and MFLC. Nearly all of the revenues in our Government Contracts segment come...

  • Page 36
    ... rates we receive from federal and state governments relating to our government health care coverage programs are subject to risk. For example, on October 27, 2011, CMS approved certain elements of California's 2011-2012 budget proposals to reduce Medi-Cal provider reimbursement rates as authorized...

  • Page 37
    ... 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 that we submit to CMS under the risk adjustment model for our Medicare Advantage contracts. CMS may conduct risk adjustment data...

  • Page 38
    ... insufficient compensation or reimbursement, claims related to self-funded business and claims related to reinsurance matters; and claims alleging information security incidents and breaches. For example, we currently are party to various putative class action lawsuits filed in federal and state...

  • Page 39
    ... are not limited to, information technology infrastructure and applications solutions providers, medical management providers, claims administration providers, billing and enrollment providers, third party providers of actuarial services, call center providers and specialty service providers. We are...

  • Page 40
    ... 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 industry can occur relatively easily and customers enjoy...

  • Page 41
    ..." for more information regarding our T-3 North Region and MFLC contracts. In addition, see "Item 1-Segment Information-Western Region Operations Segment-Medicaid and Related Products" for more information regarding certain opportunities to expand our business with government customers that are...

  • Page 42
    ...cost-effective physician groups and hospitals. Membership in our tailored network products was approximately 31% of total commercial risk membership as of December 31, 2011, compared with 23% as of December 31, 2010. For additional information on our tailored network products and innovative provider...

  • Page 43
    .... In addition, the use of tailored network products could create an increased risk of out of network claims issues, which could result in higher medical costs to us. The provider groups that we contract with are also required to achieve and maintain compliance with applicable federal and state laws...

  • Page 44
    ...Medi-Cal provider reimbursement rates. In addition, state and federal budgetary pressures could cause new or higher levels of assessments or taxes for our commercial programs, such as surcharges on select fee-for-service and capitated medical claims or premium taxes on insurance companies and health...

  • Page 45
    ...associated with outsourcing services and functions to third parties." The Department of Health and Human Services has mandated new standards in the electronic transmission of healthcare transactions, including claims, remittance, eligibility, claims status requests and related responses, and privacy...

  • Page 46
    ... and notified affected individuals. This matter is under review by various regulatory authorities. In addition, we, and our third party vendor, are currently party to various putative class action lawsuits brought in federal and state courts on behalf of individuals who claim to be affected...

  • Page 47
    ... services or other relevant services to impacted individuals; adverse actions against our licenses to do business; and injunctive relief. Additionally, the costs incurred to remediate any data security or privacy incident could be substantial. Under the agreements that govern the Northeast Sale...

  • Page 48
    ... 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. In addition, our debt ratings impact both the cost and availability of...

  • Page 49
    ...connection with the transaction contains certain termination rights, including that either party may terminate the Asset Purchase Agreement if the closing does not occur prior to May 1, 2012. If the Asset Purchase Agreement is terminated for any reason, HNL will be obligated to pay a termination fee...

  • Page 50
    ... 31, 2011, our available-for-sale investment securities were approximately $1.6 billion. The value of fixed-income securities is highly sensitive to fluctuations in short- and long-term interest rates, with the value decreasing as such rates increase and increasing as such rates decrease. These...

  • Page 51
    ...broker compensation arrangements and bid quoting practices. We market our products and services both through sales people employed by us and through independent sales agents. Independent sales agents typically do not work with us on an exclusive basis and may market health care products and services...

  • Page 52
    ... and financial performance. The market price of our common stock is volatile. The market price of our common stock is subject to volatility. In 2011, the Morgan Stanley Healthcare Payor Index (the "HMO Index"), an index comprised of 11 managed care organizations, including Health Net, recorded...

  • Page 53
    ... with us. In addition, federal antitrust laws apply to us, and any change in control of our state health plans or health insurance companies also would require the approvals of the applicable regulatory agencies in each state in which we operate. In addition to the Rights Agreement, our certificate...

  • Page 54
    ...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 55
    ... arbitration agreement and inviting the parties to submit additional briefing. We have also been informed that a number of regulatory agencies are investigating the incident, including the California Department of Managed Health Care, the California Department of Insurance, the California Attorney...

  • Page 56
    ... litigation regarding, the health care industry's business practices, including, without limitation, information privacy, premium rate increases, utilization management, appeal and grievance processing, rescission of insurance coverage and claims payment practices. In addition, in the ordinary...

  • Page 57
    ... earnings charge in any particular quarter in which we enter into a settlement agreement and could have a material adverse effect on our financial condition, results of operations, cash flow and/or liquidity and may affect our reputation. Item 4. Mine Safety Disclosures. Not applicable. 55

  • Page 58
    ... 21, 2012, the last reported sales price per share of our common stock was $38.72 per share. Securities Authorized for Issuance Under Equity Compensation Plans Information regarding the Company's equity compensation plans is contained in Part III of this Annual Report on Form 10-K under "Item 12...

  • Page 59
    ... consolidated financial statements. Under our various stock option and long-term incentive 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...

  • Page 60
    ... 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 $140.00 Health Net Standard...

  • Page 61
    All historical performance data reflects the performance of each company's stock only and does not include the historical 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...

  • Page 62
    ... and PMPM data) 2011 REVENUES: Health plan services premiums ...$10,364,278 $ 9,996,888 $12,440,589 $12,392,006 $11,435,314 Government contracts ...1,416,619 3,344,483 3,104,700 2,835,261 2,501,677 Net investment income ...74,161 71,181 105,930 91,042 120,176 Administrative services fees and other...

  • Page 63
    ... class action lawsuit, and other-than-temporary impairments of investments. For 2007, includes a $306.8 million pretax litigation and regulatory-related charge. (2) No cash dividends were declared in any of the years presented. (3) The amounts for 2007 are presented for total health plan services...

  • Page 64
    ... individuals, including our own health plan members. Our subsidiaries also offer 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...

  • Page 65
    ... organization ("HMO"), point 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...

  • Page 66
    ... revenue related to administrative services on a straight-line basis over the option period, when the fees become fixed and determinable. The TRICARE North Region members are served by our network and out-of-network providers in accordance with the T-3 contract. We pay health care costs related...

  • Page 67
    ... to health insurance executives that is tax deductible, expanding regulations that govern premium rate increase requests, in addition to requirements that individuals obtain coverage and the creation of government controlled "exchanges" where individuals and small business groups may purchase health...

  • Page 68
    ...000 Medicare PDP members in 49 states and the District of Columbia. Annualized revenue for the Medicare PDP business is approximately $490 million. We will continue to provide prescription drug plans for our Medicare Advantage plan offerings. 2011 Financial Performance Summary Health Net's financial...

  • Page 69
    ... in 2010; Government Contracts segment pretax income increased to $185.2 million in 2011 compared to $178.7 million in 2010; Northeast Operations segment pretax loss was $(71.2) million in 2011 compared to $(68.7) million in 2010; and Net cash provided by operating activities totaled $103.4 million...

  • Page 70
    ... thousands, except per share data) 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 (excluding depreciation...

  • Page 71
    ... to our T-3 contract that commenced on April 1, 2011. For additional information on our T-3 contract, see "-Government Contracts Reportable Segment" and Note 2 to our consolidated financial statements. Health plan services premium revenues increased by 3.7 percent to $10.4 billion in the year ended...

  • Page 72
    ... stand-alone PDP payables/costs from the Claims Reserve and Health Plan Costs. Management believes that adjusted DCP provides useful information to investors because the adjusted DCP calculation excludes from both Claims Reserve and Health Plan Costs amounts related to health care costs for which no...

  • Page 73
    ...Our Western Region Operations segment includes the operations of our commercial, Medicare and Medicaid health plans, the operations of our health and life insurance companies primarily in California, Arizona, Oregon and Washington and our behavioral health and pharmaceutical services subsidiaries in...

  • Page 74
    ...Risk ...Medicare Advantage ...Total Oregon (including Washington) ...Total Health Plan Enrollment Large Group ...Small Group and Individual ...1,134 125 1,009 2,268 77 63 140 41 181 50 42 92 39 131 953 413 Commercial Risk ...1,366 ASO ...- Total Commercial ...Medicare Advantage ...Medi-Cal/Medicaid...

  • Page 75
    .... For additional information on our tailored network products, see "Item 1. Business-Segment Information-Western Region Operations Segment-Managed Health Care Operations." Enrollment in our Medicare Advantage plans in the Western Region Operations at December 31, 2011 was 205,000 members, a decrease...

  • Page 76
    ...-eligible population due to high unemployment and a downturn in economic conditions. Western Region Operations Segment Results Year Ended December 31, 2011 2010 2009 (Dollars in thousands, except PMPM data) Health plan services premiums ...Net investment income ...Administrative services fees...

  • Page 77
    ...by health plan services premiums revenue. (d) PMPM is calculated based on commercial at-risk member months and excludes ASO member months. (e) MCR is calculated as commercial, Medicare Advantage, Medicare PDP (stand-alone), total Medicare, or Medicaid health care cost divided by commercial, Medicare...

  • Page 78
    ... letter of credit fees. Year Ended December 31, 2010 compared to Year Ended December 31, 2009 Revenues Total revenues in the Western Region Operations in the year ended December 31, 2010 were flat at $10.0 billion compared to the same period in 2009. Health plan services premiums revenues in the...

  • Page 79
    ... We recognize revenue related to administrative services on a straight-line basis over the option period, when the fees become fixed and determinable. The T-3 members are served by our network and out-of-network providers in accordance with the T-3 contract. We pay health care costs related to these...

  • Page 80
    .... In addition to the beneficiaries that we service under the T-3 contract, we administer contracts with the U.S. Department of Veterans Affairs to manage community based outpatient clinics in 8 states covering approximately 18,000 enrollees and provide behavioral health services to military families...

  • Page 81
    ...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. As a result of changes in the estimate during the year ended December 31, 2009, we recognized an increase in revenue of $40 million...

  • Page 82
    ... additional information regarding the goodwill impairment and the adjustment to loss on sale of our Northeast health plan subsidiaries. On July 1, 2011, the United Administrative Services Agreements terminated following the completion of the membership transition. At that time we entered into Claims...

  • Page 83
    ... thousands) Costs included in health plan services costs ...Costs included in government contract costs ...Costs included in G&A ...Early debt extinguishment and related interest rate swap termination ...Asset impairment ...Loss from operations before income taxes ...Income tax benefit ...Net loss...

  • Page 84
    ... plans to purchase our products, may reduce the number of individuals to whom they provide coverage, or may make changes in the mix or products purchased from us. In addition, if our customers experience financial issues, they may not be able to pay, or may delay payment of, accounts receivable...

  • Page 85
    ...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, enter into new lines of business and continue to operate and develop health care-related businesses at least...

  • Page 86
    ...deposit accounting and are comprised of health care cost payments and reimbursements for the T-3 contract, catastrophic reinsurance subsidy, low-income member cost sharing subsidy and the coverage gap discount under the Medicare Part D program. See Note 2 to our consolidated financial statements for...

  • Page 87
    .... For additional information on our stock repurchase programs, see Note 9 to our consolidated financial statements. Revolving Credit Facility In October 2011, we entered into a new $600 million unsecured revolving credit facility with Bank of America, N.A., as Administrative Agent, Swing Line Lender...

  • Page 88
    ...both (1) a change of control of Health Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, within a specified period, we will be required to make an offer to purchase the Senior Notes at a price equal to...

  • Page 89
    ... must comply with minimum capital and surplus requirements under applicable state laws and regulations, and must have adequate reserves for claims. Management believes that as of December 31, 2011, all of our active health plans and insurance subsidiaries met their respective regulatory requirements...

  • Page 90
    ... been adopted in their states of domicile. We generally manage our aggregate regulated subsidiary capital at approximately 400% of ACL, although RBC standards are not yet applicable to all of our regulated subsidiaries. Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended...

  • Page 91
    .... We have entered into long-term agreements to receive services related to pharmacy benefit management, pharmacy claims processing services and health quality/risk scoring enhancement services with external thirdparty service providers. As of December 31, 2011, the remaining terms were approximately...

  • Page 92
    ...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), Medicaid...

  • Page 93
    ... 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. A key component of the developmental...

  • Page 94
    ...agreement resulting in membership reverting to fee-for-service arrangements with other providers. Contracts are grouped in a manner consistent with the method of determining premium rates. Losses are determined by comparing anticipated premiums to estimates for the total of health care related costs...

  • Page 95
    ... the acquisitions over the tangible 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...

  • Page 96
    ... potential change in the value of a financial instrument as a result of fluctuations in interest rates and/or market conditions 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...

  • Page 97
    ... our investment assets. Borrowings under our revolving credit facility, which totaled $112.5 million as of December 31, 2011, are subject to variable interest rates. For additional information regarding our revolving credit facility, see "-Management's Discussion and Analysis of Financial Condition...

  • Page 98
    ... reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial...

  • Page 99
    ... 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 financial reporting as of December 31, 2011, which is included herein. Changes in Internal Control Over Financial Reporting There...

  • Page 100
    ... 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, 2011, based on criteria...

  • Page 101
    Item 9B. Other Information. None. 99

  • Page 102
    ...New York Stock Exchange Listed Company Manual. We have adopted a Code of Business Conduct and Ethics that applies to our employees, directors and officers, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct and Ethics...

  • Page 103
    ... 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 to Consolidated Financial Statements set forth on page F-1 and covered by the Report of Independent Registered Public Accounting Firm are...

  • Page 104
    ... behalf by the undersigned thereunto duly authorized. HEALTH NET, INC. By: /s/ Joseph C. Capezza Joseph C. Capezza Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and...

  • Page 105
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial 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 ...

  • Page 106
    ...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, 2011 and 2010, and the related consolidated statements...

  • Page 107
    HEALTH NET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) 2011 Year Ended December 31, 2010 2009 Revenues Health plan services premiums ...Government contracts ...Net investment income ...Administrative services fees and other income ...Northeast ...

  • Page 108
    ...557,997 1,663,218 Premiums receivable, net of allowance for doubtful accounts (2011-$3,318, 2010$6,613) ...251,911 298,892 Amounts receivable under government contracts ...234,740 266,456 Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract ...- 284,247 Other...

  • Page 109
    ... ...Change in unrealized gain on investments, net of tax impact of $2,904 ...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 related to...

  • Page 110
    ...913) Excess tax benefit on share-based compensation ...(1,349) (571) (23) Net realized (gain) loss on investments ...(33,029) (23,019) (45,319) Other changes ...21,485 (21,413) 26,690 Changes in assets and liabilities, net of effects of acquisitions and dispositions: Premiums receivable and unearned...

  • Page 111
    ...), 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, United States Department...

  • Page 112
    ...the low-income member cost sharing subsidy and the coverage gap discount under the Medicare Part D program, which are also accounted for under deposit accounting, are presented as Customer funds administered for the years ended December 31, 2011, 2010 and 2009. Prior to 2011, such cash flows related...

  • Page 113
    ...) Health Plan Services Revenue Recognition 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, Medicaid...

  • Page 114
    ... to provide hospital care to enrolled members on a capitation basis. Our HMOs also contract with hospitals, physicians and other providers of health care, pursuant to discounted fee-for-service arrangements, hospital per diems, and case rates under which providers bill the HMOs for each individual...

  • Page 115
    ... in the Government Contracts reportable segment. The TRICARE members are served by our network and out-of-network providers in accordance with the T-3 contract. We pay health care costs related to these services to the providers and are later reimbursed by the DoD for such payments. Under the...

  • Page 116
    ... for revenue, using our best estimate of what will ultimately be negotiated. In addition to the beneficiaries that we service under the T-3 contract, we provide behavioral health services to military families under the Department of Defense Military and Family Life Consultant (MFLC) Program contract...

  • Page 117
    ... Medicare Advantage Plans or Medicare supplemental plans. MAPD covers both prescription drugs and medical care. The majority of our Part D members in PDP fall into the low-income category. Health Net has two primary categories of contracts under Part D, one with CMS and one with the individual...

  • Page 118
    ...'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. Catastrophic Reinsurance Subsidy-CMS will reimburse Health Net for 80% of the drug costs after a member...

  • Page 119
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Share-Based Compensation Expense As of December 31, 2011, 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 120
    ..., comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. The carrying value of premiums and other receivables, long-term notes receivable and nonmarketable...

  • Page 121
    ... the acquisitions over the tangible 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...

  • Page 122
    ...2014 ...2015 ...2016 ... $3.4 3.4 2.8 2.6 2.0 Policy Acquisition Costs Policy acquisition costs are those variable costs that relate to the acquisition of new and renewal commercial health insurance business. Such costs include broker commissions, costs of policy issuance and underwriting, and F-18

  • Page 123
    ... 10 largest employer group premiums within each of our plans accounted for 17%, 17% and 17% of our health plan services premium revenues for the years ended December 31, 2011, 2010 and 2009, respectively. The federal government is the primary customer of our Government Contracts segment representing...

  • Page 124
    ... 42% of our total Medicaid premium revenue and approximately 6% of total health plan premium revenue. In May 2005, we renewed our contract with the California Department of Health Care Services (DHCS) to provide Medi-Cal service in Los Angeles County. On March 29, 2010, DHCS executed an amendment to...

  • Page 125
    ...0.4 (1.3) (0.9) $ 0.1 Taxes Based on Premiums We provide services in certain states, which require premium taxes to be paid by us based on membership or billed premiums. These taxes are paid in lieu of or in addition to state income taxes and totaled $62.1 million in 2011, $54.3 million in 2010 and...

  • Page 126
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Recently Issued Accounting Pronouncements In July 2011, the Financial Accounting Standards Board (FASB) issued ASU No. 2011-06, Other Expenses (Topic 720), Fees Paid to the Federal Government by Health Insurers (a consensus of ...

  • Page 127
    ...final $80 million payment was received in December 2011. Under the Stock Purchase Agreement, United was required to pay us additional consideration for the value of the Transitioning HNL Members and the members of the Acquired Companies that transitioned to other United products based upon a formula...

  • Page 128
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We classified $2.1 million and $8.8 million as investments available-for-sale-noncurrent as of December 31, 2011 and 2010, respectively, because we did not intend to sell and we believed it may take longer than a year for such ...

  • Page 129
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2011, the contractual maturities of our current investments available-for-sale and our investments available-for-sale-noncurrent were as follows: Amortized Estimated Cost Fair Value (Dollars in millions) ...

  • Page 130
    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, 2011: Less than 12 Months Unrealized Fair ...

  • Page 131
    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 Unrealized Fair ...

  • Page 132
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The interest rate payable on the new credit facility is based on the consolidated leverage ratio of the Company as defined in the new credit facility; however, until the Company delivers a compliance certificate for the fiscal ...

  • Page 133
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) or sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody's Investors Service, Inc...

  • Page 134
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Investments measured and reported at fair value using Level inputs are classified and disclosed in one of the following categories: Level 1-Quoted prices are available in active markets for identical investments as of the ...

  • Page 135
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables present information about our assets and liabilities measured at fair value on a recurring basis at December 31, 2011 and 2010, and indicate the fair value hierarchy of the valuation techniques utilized by ...

  • Page 136
    ... ended December 31, 2011 the compensation cost that has been charged against income under our various stock option and long-term incentive plans (the Plans) was $27.6 million. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $10.7 million...

  • Page 137
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Plans permit the grant of stock options and other equity awards, including but not limited to restricted stock, restricted stock units (RSUs) and performance share units (PSUs) to certain employees, officers and non-employee...

  • Page 138
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of option activity under our various plans as of December 31, 2011, and changes during the year then ended is presented below: Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Number...

  • Page 139
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of RSU and PSU activity under our various plans as of December 31, 2011, and changes during the year then ended is presented below: Number of Restricted Stock Units and Performance Share Units Weighted Average Grant-...

  • Page 140
    ... are released and the shares are issued. Stock options, restricted common stock, RSUs and PSUs are forfeited if the employees terminate their employment prior to vesting, other than in certain limited situations. Note 9-Capital Stock As of December 31, 2011, there were 146,804,000 shares of...

  • Page 141
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In addition, and subject to certain exceptions contained in the Rights Agreement, in the event that we are acquired in a merger or other business combination in which the Common Stock does not remain outstanding or is changed or...

  • Page 142
    ... 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 of California Retiree Medical and Life Benefits Plan is non-contributory for employees retired prior...

  • Page 143
    ... other comprehensive income as of December 31 consist of: Pension Benefits Other Benefits 2011 2010 2011 2010 (Dollars in millions) Prior service cost ...Net loss (gain) ... $- 5.2 $ 5.2 $- 2.4 $ 2.4 0.8 7.2 $8.0 $- 2.4 $ 2.4 The following table sets forth our plans with an accumulated...

  • Page 144
    ... other postretirement plans at December 31, 2011 and 2010 mirror the rate of return expected from high-quality fixed income investments. 2011 2010 Assumed Health Care Cost Trend Rates at December 31: Health care cost trend rate assumed for next year ...Rate to which the cost trend rate is assumed...

  • Page 145
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects for the ...

  • Page 146
    HEALTH NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 11-Income Taxes Significant components of the provision for income taxes are as follows for the years ended December 31: 2011 2010 2009 (Dollars in millions) Current tax expense: Federal ...State ...Total current tax ...

  • Page 147
    ... Sale resulted in a total federal and state income tax benefit of $60.6 million for 2009 plus additional tax benefits of $6.8 million and $4.4 million for 2011 and 2010, respectively. The 2011 and 2010 adjustments in tax benefits arose due to a change in our estimate of contingent sale price...

  • Page 148
    ... all of the federal and state net operating loss carryforwards. Accordingly, valuation allowances have been provided to account for the potential limitations on utilization of these tax benefits. No portion of the 2011 valuation allowance was allocated to reduce goodwill. We maintain a liability for...

  • Page 149
    ... TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) example, under 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...

  • Page 150
    ... arbitration agreement and inviting the parties to submit additional briefing. We have also been informed that a number of regulatory agencies are investigating the incident, including the California Department of Managed Health Care, the California Department of Insurance, the California Attorney...

  • Page 151
    ... TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) and regulations 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...

  • Page 152
    ...10 percent reduction in a number of provider reimbursement rates. The California Department of Health Care Services (DHCS) preliminarily indicated that the Medi-Cal managed care rate reductions could be effective retroactive to July 1, 2011. Recently, the United States District Court for the Central...

  • Page 153
    ..., and the total estimated future commitments under the agreement are approximately $18.6 million. We have also entered into contracts with our health care providers and facilities, the federal government, other IT service companies and other parties within the normal course of our business for the...

  • Page 154
    ... of our commercial, Medicare and Medicaid health plans, our health and life insurance companies, and our behavioral health and pharmaceutical services subsidiaries. These operations are conducted primarily in California, Arizona, Oregon and Washington. Our Government Contracts reportable segment...

  • Page 155
    ...2011 Western Region Operations Corporate/ Government Northeast Other/ Contracts Operations Eliminations (Dollars in millions) Total Revenues from external sources ...Intersegment revenues ...Net investment income ...Administrative services fees and other income ...Northeast administrative services...

  • Page 156
    ....5) Our health plan services premium revenue by line of business is as follows: Year Ended December 31, 2011 2010 2009 (Dollars in millions) Commercial premium revenue ...Medicare premium revenue ...Medicaid premium revenue ...Total Western Region Operations health plan services premiums ...Total...

  • Page 157
    ... United Administrative Services Agreements, we provided claims processing, customer services, medical management, provider network access and other administrative services to United and certain of its affiliates. As part of the transaction, we have provided a guarantee to United to perform under the...

  • Page 158
    ... liabilities including capitation payable, shared risk settlements, provider disputes, provider incentives and other reserves for our health plan services. The table below provides a reconciliation of changes in reserve for claims for the years ended December 31, 2011, 2010 and 2009. Health Plan...

  • Page 159
    ...following interim financial information presents the 2011 and 2010 results of operations on a quarterly basis: 2011 March 31 June 30 September 30 December 31 (Dollars in millions, except per share data) Total revenues ...Health plan services costs ...Government contracts costs ...(Loss) income from...

  • Page 160
    ... 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 share (5) ... $3,416.1 $3,437.0 $3,393.5 2,211.3 2,163.2 2,134...

  • Page 161
    ... 400,000 Medicare PDP members in 49 states and the District of Columbia. Annualized revenue for the Medicare PDP business is approximately $490 million. We will continue to provide prescription drug benefits as part of our Medicare Advantage plan offerings. CMS Risk Adjustment Data Validation Audit...

  • Page 162
    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, 2011 2010 2009 REVENUES: Net investment income (loss) ...Other income (loss) ...Administrative service fees ...

  • Page 163
    ... SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) HEALTH NET, INC. CONDENSED BALANCE SHEETS (Amounts in thousands) December 31, 2011 December 31, 2010 ASSETS Current Assets: Cash and cash equivalents ...Other assets ...Deferred taxes ...Due from subsidiaries ...Total...

  • Page 164
    SUPPLEMENTAL SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) HEALTH NET, INC. CONDENSED STATEMENTS OF CASH FLOWS (Amounts in thousands) 2011 Year Ended December 31, 2010 2009 NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ...CASH FLOWS FROM INVESTING ACTIVITIES: ...

  • Page 165
    ... 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 (loss) of its...

  • Page 166
    ...Restated Amendment No. 1 to Stock Purchase Agreement, effective as of December 11, 2009, by and among Health Net, Inc., Health Net of the Northeast, Inc., Oxford Health Plans, LLC and UnitedHealth Group Incorporated (filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the year ended...

  • Page 167
    ...10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 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, a copy...

  • Page 168
    ...Company's Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 1-12718) and incorporated herein by reference). Form of Nonqualified Stock Option Agreement utilized for eligible employees of Health Net, Inc. (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed...

  • Page 169
    ... Stock Unit Agreement utilized for eligible employees of Health Net, Inc. (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 6, 2006 (File No. 1-12718) and incorporated herein by reference). Form of Performance Share Award Agreement utilized for eligible...

  • Page 170
    ... Bank of California (filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-12718) and incorporated herein by reference). Amendment Number One to the Health Net, Inc. Deferred Compensation Plan Trust Agreement between Health Net, Inc. and...

  • Page 171
    ... Executive Officer Incentive Plan (filed as Appendix A to the Company's Definitive Proxy Statement filed with the SEC on April 8, 2009 (File No. 1-12718) and incorporated herein by reference). Health Net, Inc. Management Incentive Plan (filed as Exhibit 10.40 to the Company's Annual Report on Form...

  • Page 172
    ..., by and among Health Net, Inc., Health Net of Connecticut, Inc., Health Net of New York, Inc., Health Net Insurance of New York, Inc., FOHP, Inc., Health Net of New Jersey, Inc. and Health Net Services (Bermuda) Ltd. (filed as Exhibit 10.107 to the Company's Annual Report on Form 10-K for the year...

  • Page 173
    ...financial statements included as part of this Annual Report on Form 10-K). Subsidiaries of Health Net, Inc., a copy of which is filed herewith. Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, a copy of which is filed herewith. Certification of Chief Executive Officer...

  • Page 174
    Exhibit 2.3 CONFIDENTIAL ASSET PURCHASE AGREEMENT BETWEEN HEALTH NET LIFE INSURANCE COMPANY AND PENNSYLVANIA LIFE INSURANCE COMPANY Dated as of January 6, 2012

  • Page 175
    ... Certain Changes or Events 6.7 Absence of Litigation 6.8 Medicare PDP Contract 6.9 Title to Assets 6.10 Tax Matters 6.11 Material Contracts 6.12 Privacy and Information Security 6.13 Policies and Procedures Related to PDP Business 6.14 Agreements with Brokers 6.15 No Finder's Fee 6.16 No Additional...

  • Page 176
    ... Course of Business. 8.2 No Solicitation. 8.3 Access to Information; Notification of Certain Matters. 8.4 Cooperation; HSR Act; PDP Contract Novation. 8.5 Public Announcements; Confidentiality. 8.6 Finalization and Execution of Transition Services Agreement. 8.7 Finalization and Execution of EGWP...

  • Page 177
    ... Assumption Agreement Exhibit B - Form of Bill of Sale Exhibit C - Form of EGWP Services Agreement Exhibit D - Form of Novation Agreement Exhibit E - Form of Rebate Administration Agreement Exhibit F - Form of Transition Services Agreement Schedules Schedule 1.1(a) - Knowledge of Purchaser Schedule...

  • Page 178
    ... Information Security Schedule 6.13 - Policies and Procedures Related to PDP Business Schedule 7.3 - Permits; Compliance with Laws Schedule 7.5 - Finder's Fee Schedule 9.3(b) - Notifications and Consents Schedule 10.3(b) - Notifications and Consents Schedule 11.2(a) - Transferred Employees Schedule...

  • Page 179
    ... plural forms of the terms defined): "Acquired Business" means (i) any Person that issues, manages or administers any health insurance or health benefit plan or product in the United States that hereafter becomes an Affiliate of Seller pursuant to a stock or equity acquisition, merger, consolidation...

  • Page 180
    ... in the form of Exhibit B annexed hereto. "Broker" means any third party insurance agent, general agent, producer, broker or other Person engaged in the business of marketing and selling managed care and health insurance products for managed care organizations and health plans. "Broker and...

  • Page 181
    ... year in which covered Part D drugs are dispensed if the claim for those drugs (and payment on the claim) is made not later than 3 months after the end of the year"). "CSC Contract" means the Master Services Agreement between Health Net, Inc. and Computer Sciences Corporation dated April 3, 2009, as...

  • Page 182
    ... shorter period as Seller may elect), provide Medicare Part D prescription drug benefits and services under Employer Group Waiver Prescription Drug Plans of Purchaser or its Affiliates to individuals eligible for such benefits and services (whether as an employee, retiree or other beneficiary), for...

  • Page 183
    ... for Applications for New Prescription Drug Plan (PDP) Sponsors (released on January 4, 2011)), (iii) all addenda thereto (including the Employer/Union-Only Group Part D Addendum pursuant to Subpart K of 42 CFR Part 423), and (iv) the Medicare Mark License Agreement entered into August 29, 2011 by...

  • Page 184
    ... payable and Liabilities arising under the Medicare PDP Contract for or with respect to low income member cost sharing, catastrophic reinsurance settlements and coverage gap discounts. "PBM Agreement" means the Prescription Benefit Services Agreement for Medicare Part D, by and between Health Net...

  • Page 185
    ... such Lien. "Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or other entity. "Pre-Closing Enrollee Number" means the number of individuals who will be...

  • Page 186
    ...) or (F) changes in currency exchange rates or commodities prices. "Tax" means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits...

  • Page 187
    ... Statements 2011 Financial Statements Agreement Allocation Assets Assumed Liabilities Business Tangible Property Chosen Court Claim Notice Closing Closing Date Closing Purchase Price Closing Statements Effective Date Enforceability Exceptions Excluded Assets Fundamental Representations HIPAA HSR Act...

  • Page 188
    ...(Payments to Part D Plan Sponsors for Qualified Prescription Drug Coverage) arising or accruing under the Medicare PDP Contract with respect to the 2012 or any subsequent Coverage Years, including (by way of example) Prescription Drug Event ("PDE") reconciliations, low income member cost sharing and...

  • Page 189
    ...CMS and other third parties on account of coordination of benefits, claims corrections, plan-to-plan and other reconciliations and adjustments arising or accruing under the Medicare PDP Contract with respect to the 2012 or any subsequent Coverage Years (excluding any additional drug pricing or other...

  • Page 190
    ... from pharmacies, pharmacy benefit management vendors, CMS and other third parties on account of coordination of benefits, claims corrections, plan-to-plan and other reconciliations and adjustments arising or accruing under the Medicare PDP Contract with respect to the 2011 or any prior Coverage...

  • Page 191
    ...the provision of coverage and services to Enrollees thereunder with respect to the 2012 and all subsequent Coverage Years, and all other Liabilities required to be assumed by Purchaser under applicable Law in connection with the PDP Contract Novation or otherwise assumed by Purchaser pursuant to the...

  • Page 192
    ..., pharmacy benefit management vendors, CMS and other third parties arising or accruing under the Medicare PDP Contract (including the EGWP Contracts) with respect to the 2012 or any subsequent Coverage Years; and (f) All Broker renewal commissions due to Brokers in good standing under applicable Law...

  • Page 193
    ..., pharmacy benefit management vendors, CMS and other third parties with respect to prescriptions dispensed to Enrollees under the Medicare PDP Contract (including the EGWP Contracts) during the 2011 or any prior Coverage Years; (f) Any and all Liabilities of Seller for Taxes, other than as provided...

  • Page 194
    ...of this Section 4.1 prior to taking into account any post-Closing adjustments. 4.2 Enrollee Number Purchase Price Adjustment. (a) As promptly as practicable after the issuance of the CMS monthly membership report for the Medicare PDP Contract for the month that follows the month in which the Closing...

  • Page 195
    ... funds to an account designated by the receiving Party within ten (10) Business Days after the Post-Closing Enrollment Number has been determined. 4.3 Post-Closing Financial Purchase Price Adjustments. In addition to the adjustment provided for in Section 4.2, the Purchase Price shall be subject...

  • Page 196
    ...presentations and supporting material provided by Seller and Purchaser (each of whom agree to cooperate and deliver all information reasonably requested by the Neutral Accounting Firm without delay) and not pursuant to any independent review. The determination of the Neutral Accounting Firm shall be...

  • Page 197
    ... made in good faith by written agreement of the Parties (b) Purchaser and Seller will each report the federal, state and local income and other tax consequences of the purchase and sale contemplated hereby in a manner consistent with the allocation of the Purchase Price and Assumed Liabilities among...

  • Page 198
    ...and signed by an authorized officer of Seller confirming the matters set forth in Section 9.1 and Section 9.2; (f) an updated Schedule 2.1(a) which shall set forth as of the Closing Date all Contracts of Seller (or portions thereof) pursuant to which Seller provides coverage under its Employer Group...

  • Page 199
    ... follows: 6.1 Organization and Qualification. Seller is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of California. Seller, and each of Seller's Affiliates, to the extent such Affiliate provides services in connection with the PDP Business or the...

  • Page 200
    ..., payment, or creation that would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect. (b) Except as set forth in Schedule 6.3(b) and the filing of a premerger notification and report form under the Hart-ScottRodino Antitrust Improvements Act of...

  • Page 201
    ... to matters relating to or affecting the PDP Business), in their individual capacities, has directly or indirectly made or offered to make any contribution, gift, bribe, rebate, payoff, influence payment, kickback to any Person, regardless of form: (i) in violation of the federal Anti-Kickback...

  • Page 202
    ...Seller, any of the directors, officers, agents, or employees of Seller or any such Seller Affiliate (with respect to matters relating to or affecting the PDP Business), in their individual capacities, (i) has been excluded from participation in any federal or state health care program; (ii) has been...

  • Page 203
    ...applicable to Purchaser, good and marketable title to all of the Assets free and clear of all Liens other than Permitted Liens. 6.10 Tax Matters. Seller has timely filed (taking into account any extension of time within which to file) all material Tax Returns required to be filed by it in connection...

  • Page 204
    ... and other relevant provisions and requirements of the Health Insurance Portability and Accountability Act, Pub. L. 104-191 ("HIPAA") and any comparable state laws applicable to the PDP Business for individually identifiable health information. During the past four (4) years, and, except as...

  • Page 205
    ..., Seller and each such Seller Affiliate has policies and procedures in place applicable to the PDP Business designed to prevent improper use or disclosure of or access to individually identifiable health information or other personal information. To the Knowledge of Seller, since January 1, 2010...

  • Page 206
    ... the State of Pennsylvania. Purchaser has all requisite corporate power and authority to carry on its business as it has been and is currently being conducted, to own and operate the business and assets used in connection therewith. Purchaser is duly qualified to do business and is in good standing...

  • Page 207
    ... valid claim by any Person against Seller for a finder's fee, brokerage commission or similar payment. 7.6 Disqualifying Background. Purchaser has never been debarred, suspended, or otherwise excluded from participating in any state or federally funded healthcare program. Purchaser is not party to...

  • Page 208
    ... extent such Taxes relate to the Assets or the PDP Business, and pay to the proper governmental authorities or hold in separate bank accounts for such payment all Taxes and other assessments which it believes in good faith to be required by Law to be so withheld or collected in connection with the...

  • Page 209
    ...required to be obtained from, any third parties or Governmental Authorities under any applicable Law or the terms of any Contracts in connection with the execution and delivery of this Agreement and the consummation of the Transactions, in addition to those addressed in Section 9.3(b) and Section 10...

  • Page 210
    ... Party may request in connection with its preparation of any filing or submission in connection with the PDP Contract Novation, and keep the other Party apprised of the status of any communications with, and inquiries or requests for additional information from, CMS or other Governmental Authority...

  • Page 211
    ... Assumed Liability under this Agreement), or (ii) the Parties taking all necessary steps and actions to (x) enable Purchaser from and after the Closing to receive the services provided under the CSC Contract with respect to the PDP Business and (y) to the extent Purchaser is provided the benefits of...

  • Page 212
    .... To the extent practicable (and provided such action shall not result in any material Liabilities to Seller and its Affiliates), Seller shall cause the reinsurance agreement described on Schedule 6.5(c) to be terminated with respect to coverages related to the PDP Plans prior to the Closing. In any...

  • Page 213
    ...periods imposed by, any Governmental Authority described in Schedule 9.3(b) have been filed, have occurred or have been obtained, as the case may be. (c) No action, suit, claim or proceeding by any Governmental Authority or any other Person against Seller or Purchaser that seeks to restrain, prevent...

  • Page 214
    ...who primarily or exclusively perform services for the PDP Business, the terms and conditions of such employment shall be at the discretion of Purchaser, subject to the following: (a) Prior to the Closing, the Parties shall complete a listing of employees, to be set forth on Schedule 11.2(a), to whom...

  • Page 215
    ... terminates his or her employment with Purchaser "for good reason" (as defined under the severance policy of Seller applicable to such Transferred Employee as of the Closing Date), Seller shall reimburse Purchaser for any severance pay or other severance benefits provided to such employee (up to the...

  • Page 216
    ... respects with applicable Laws, including the Health Insurance Portability and Accountability Act of 1996, as it may be amended or modified from time to time, security standards for the storage, maintenance, transmission, utilization and access to and privacy of patient information and standards...

  • Page 217
    ... Medicare PDP Agreement. 11.11 Certain Requirements Related to EGWP Contracts. Purchaser acknowledges that Seller or an Affiliate thereof has agreed to comply with certain policies, procedures and contractual provisions, in each case as described on Schedule 11.11, in connection with the performance...

  • Page 218
    ... matter shall have been timely given to the Indemnifying Party by the Indemnified Party on or prior to such termination date, until the related claim for indemnification is satisfied or otherwise resolved as provided in this Article XII. The covenants of the Parties in this Agreement shall remain in...

  • Page 219
    ... business or the Assets from and after the Closing Date; provided, however, that (i) Purchaser shall have no liability under Section 12.3(a) or Section 12.3(b) with respect to breaches of representations or warranties, or covenants to be performed prior to Closing with respect to any individual case...

  • Page 220
    ... that are reasonably relevant to such Third-Party Claim, and making officers, directors, employees and agents of the Indemnified Party and Purchaser and Seller (as applicable) available on a mutually convenient basis to provide information, testimony at depositions, hearings or trials, and...

  • Page 221
    ... income or other Tax attributes to permit the utilization of such Tax benefit at the earliest possible time) multiplied by (i) the combined effective Federal and state corporate tax rates in effect at the time of the indemnity payment or (ii) in the case of a credit, 100 percent. (c) Purchaser...

  • Page 222
    ...) and are in no way intended to, nor shall they, constitute an agreement for the benefit of, or be enforceable by, any other Person. 12.7 No Punitive Damages. Except for Losses recovered by a third party under a Third Party Claim for which indemnification is sought pursuant to this Article XII, each...

  • Page 223
    ... finally resolved, and (ii) no Termination Fee shall be payable under this Agreement if as a consequence of such legal proceeding the Parties complete the Transactions. (b) If this Agreement is terminated as provided herein, neither Party shall have any Liability or further obligation to the other...

  • Page 224
    ... mail (return receipt requested), with postage and registration or certification fees thereon prepaid, in each case addressed to the Party at its address set forth below: (a) To Seller: c/o Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 Attn: Chief Operating Officer Facsimile: (818...

  • Page 225
    ... Island 0895 Attention: Chief Legal Officer Facsimile: (401) 770-3663 (c) To such other address or person as any Party may have specified in a notice duly given to the other Party as provided herein. Such notice, request, demand, waiver, consent, approval or other communication shall be deemed to...

  • Page 226
    ... the State of New York applicable to Contracts to be performed wholly within the state and without regard to its conflict of Law principles to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction. 14.9 Third Party Beneficiary; No Benefit To...

  • Page 227
    ...any disputes relating to Closing Purchase Price adjustments covered by Section 4.3 (which shall be resolved pursuant to Section 4.3), each Party agrees that it will bring any action or proceeding in respect of any claim, suit, action or other proceeding arising out of or related to this Agreement or...

  • Page 228
    ...reason of the extent to which any Party or its professionals participated in the preparation of this Agreement. 14.16 Bulk Sale. Each of the parties to this Agreement hereby waives compliance with any bulk sales or bulk transfer laws that are applicable in respect of the transactions contemplated by...

  • Page 229
    ... WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have duly executed this Asset Purchase Agreement on the date first above written. HEALTH NET LIFE INSURANCE COMPANY By: /s/ Steven D. Tough Steven D. Tough Chief Executive Officer PENNSYLVANIA LIFE INSURANCE COMPANY By: /s/ James...

  • Page 230
    ... 7, 2012, by and between Health Net, Inc., a Delaware corporation (the "Company"), with its principal place of business located at 21650 Oxnard Street, Woodland Hills, California 91367, and Juanell Hefner ("Executive"). This Agreement amends and restates the Prior Agreements (as defined below) in...

  • Page 231
    ... stock option agreement, restricted stock agreement, restricted stock unit agreement, performance share agreement and/or severance agreement Executive enters into with the Company from time to time (collectively, "Personal Compensation Information"), may be disclosed in filings with the SEC, the New...

  • Page 232
    ...prices, margins and costs; (iii) confidential financial information; (iv) personnel information (including without limitation employee compensation); and (v) other confidential business information. B. Executive further agrees that at all times during Executive's employment and thereafter, Executive...

  • Page 233
    ... with their terms, as long as Executive remains employed by the Company and Executive meets the applicable participation requirements. These benefit programs and plans currently include paid time off ("PTO"), holidays, group medical, dental, vision, term life, and short and long term disability...

  • Page 234
    ... be "grossed up" for income tax purposes at the supplemental federal tax rate and applicable state tax liability. F. Expenses. Subject to and in accordance with the Company's written policies for business and travel expenses, Executive will receive reimbursement for all business travel and other out...

  • Page 235
    ... under the Company's equity award (including long-term incentive) plans. For purposes of the Executive Stock Ownership Policy, "net settled shares" means those shares that remain after payment of (i) the exercise price of stock options or purchase price of other awards and all applicable withholding...

  • Page 236
    ..., of Executive's medical, dental and vision benefits (as maintained for Executive's benefit immediately prior to the date of Executive's Termination) (the "Benefits") for Executive and Executive's dependents for a period of twelve (12) months, with premium payments paid by the Company on Executive...

  • Page 237
    ... benefits under COBRA, and provided, further, that in the event the Company requests, in writing, prior to such voluntary Termination by Executive for Good Reason that Executive continue in the employ of the Company for a period of time up to 90 days following such Change in Control, then Executive...

  • Page 238
    ... the Company's Code of Business Conduct and Ethics (the "Code of Conduct") or any policy or procedure developed and published by the Company regarding compliance or ethics related to the Code of Conduct, (iii) habitual drunkenness or narcotic drug addiction, (iv) conviction of, or entry by Executive...

  • Page 239
    ... the business of the Company or any of its affiliates to which Executive had access during Executive's employment with the Company. For purposes of this Section, "Competitor" shall refer to any health maintenance organization or insurance company that provides managed health care or related services...

  • Page 240
    ... no person is so appointed, to Executive's estate. 13. Limitation on Payments. A. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Executive (including any payment or benefit received in connection with a Change in Control...

  • Page 241
    ...deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 14. Section 409A of the Internal Revenue Code. It is the intention of the Company and Executive that this Agreement...

  • Page 242
    ... non-qualified deferred compensation that is subject to Section 409A and otherwise payable to or in respect of Executive in connection with Executive's Separation from Service pursuant to this Agreement shall be delayed until the earlier of (i) the expiration of six (6) months measured from the...

  • Page 243
    ... the Company: Health Net, Inc. 21650 Oxnard Street, 22nd Floor Woodland Hills, CA 91367 Attention: General Counsel Juanell Hefner c/o Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 If to Executive: 21. Governing Law. The interpretation, construction and performance of this Agreement...

  • Page 244
    ... carefully read and fully understood all of the provisions of this Agreement, and Executive is knowingly and voluntarily entering into this Agreement. Executive further acknowledges that Executive is obligated to become familiar with and comply at all times with all written policies of the Company...

  • Page 245
    .... Executive By: /s/ Juanell Hefner Name: Juanell Hefner Title: SVP, Customer and Technology Services cc: Angelee F. Bouchard Karin D. Mayhew Debbie J. Colia / Juanell Hefner Personnel File 16 Health Net, Inc. By: /s/ Jay M. Gellert Name: Jay M. Gellert Title: President and Chief Executive Officer

  • Page 246
    ... Company shall provide Employee with the following benefits and payments, subject to the terms and conditions set forth in this Release: a. Employee shall be entitled to receive a lump sum severance payment under the terms of Employee's employment agreement or an applicable Company severance policy...

  • Page 247
    ...to one month of severance pay.) In addition, upon re-hire the COBRA premium benefits set forth in Section 2(d) will cease. In further consideration for the Employee's acceptance of this Waiver and Release of Claims Agreement, the Company will provide outplacement services to the Employee rendered by...

  • Page 248
    ...the COBRA coverage for group health plan and dental and vision benefits under such plan until the earlier of (i) the end of months from the Termination Date and (ii) the date Employee becomes eligible for coverage under a plan of another employer. If, upon the termination of the Company's payment of...

  • Page 249
    ... agreement, including, but not limited to, those he or she may have under the California Labor Code (including indemnification rights), the Employee's right to file a claim for unemployment benefits, worker's compensation benefits, claims under the Fair Labor Standards Act, health insurance benefits...

  • Page 250
    ...based on any communication by Employee to any federal, state or local government agency or department. 9. In addition, Employee shall, without further compensation, cooperate with and assist the Company in the investigation of, preparation for or defense of any actual or threatened third party claim...

  • Page 251
    ...pursuant to this Release shall be decided by the arbitrator. The Federal Arbitration Act, 9 U.S.C. Sections 1-16, shall govern the interpretation and enforcement of this paragraph. The prevailing party will be entitled to recover reasonable attorney's fees and costs incurred in any action to enforce...

  • Page 252
    ...the Company, other than those contained herein. 21. This Release shall in all respects be interpreted, enforced and governed under the laws of the State of California. The sole jurisdiction and venue for any action related to the subject matter of this Agreement shall be the state and federal courts...

  • Page 253
    ..., the parties hereto have executed this Release as of the dates set forth below. Employee By: Name: Health Net, Inc. By: Name: Title: Dated: Dated: NOTE: Please return your signed waiver and release to: Organization Effectiveness Unit Attention: (Name, Title) (Address, City, State, Zip Code) A-8

  • Page 254
    ... between Health Net, Inc., a Delaware corporation (the "Company"), and the participant identified on the Grant Notice, an employee of the Company or a Subsidiary of the Company (the "Optionee"). Pursuant to the Health Net, Inc. 2006 Long-Term Incentive Plan, as amended (the "Plan"), the Compensation...

  • Page 255
    ... time within three months after the Optionee's termination of employment. For purposes of this Option Agreement, if a Subsidiary by which the Optionee is employed ceases to be a Subsidiary, whether through a sale by the Company of all or a portion of the stock or assets of such Subsidiary, a merger...

  • Page 256
    ...the date of acquisition of such Option Shares or (II) on the date such competitive activity with a Competitor was commenced by the Optionee; and "Competitor" shall refer to any health maintenance organization or insurance company that provides managed health care or related services similar to those...

  • Page 257
    ... Recipient at: To the Company at: Health Net, Inc. 21650 Oxnard Street Woodland Hills, California 91367 Attention: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only...

  • Page 258
    ... but prior to any Vesting Date either (A) by the Company without Cause or (B) under circumstances which entitle the Optionee to Change in Control severance benefits under an effective employment agreement between the Optionee and the Company or the Company's Safety Net Security Program, each Option...

  • Page 259
    ... counter-signed copy to the Company for purposes of this Section 15. IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the date and year set forth above. Health Net, Inc. Name: Title: OPTIONEE HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES THAT (I) HE/SHE IS AN EMPLOYEE AT...

  • Page 260
    Notice of Grant of Stock Options Health Net, Inc. Plan Name: Participant Name: Participant ID: Grant Date: Grant Number: Type of Options: Non-Qualified Stock Options Option Shares Granted: Exercise Price: Expiration Date: Vesting Template: Vesting Schedule:

  • Page 261
    ... FORM RESTRICTED STOCK AGREEMENT This Restricted Stock Agreement (this "Restricted Stock Agreement") is made and entered into as of [DATE OF GRANT] (the "Date of Grant"), by and between Health Net, Inc., a Delaware corporation (the "Company"), and [NAME] (the "Recipient"). WHEREAS, the Compensation...

  • Page 262
    ... Restricted Stock or (II) on the date such competitive activity with a Competitor was commenced by the Recipient; and "Competitor" shall refer to any health maintenance organization or insurance company that provides managed health care or related services similar to those provided by the Company or...

  • Page 263
    ...] [ADDRESS] [EMAIL ADDRESS] Health Net, Inc. 21650 Oxnard Street Woodland Hills, California 91367 Attention: General Counsel To the Company at: or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall...

  • Page 264
    .... The Company either has or will file an appropriate Registration Statement on Form S-8 (or other applicable form), and has taken or will take such actions as necessary to keep the information therein current from time to time, in order to register the Restricted Stock under the Securities Act and...

  • Page 265
    ...Recipient has a right to continue to provide services as an officer, director, employee or consultant of the Company and/or the Employer for any period of time or at any specific rate of compensation. Nothing in the Plan or in this Restricted Stock Agreement shall confer upon the Recipient the right...

  • Page 266
    ... parties hereto have executed and delivered this Restricted Stock Agreement on the day and year first above written. Health Net, Inc. Name: Title: THE UNDERSIGNED RECIPIENT HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES THAT HE/SHE IS AN EMPLOYEE AT WILL AND MAY BE TERMINATED BY THE EMPLOYER AT ANY TIME...

  • Page 267
    ... authorize and empower [ ], the [ ] of Health Net, Inc. (the "Company"), and [ ], the [ ] of the Company, or each of their successors in the event either of them is no longer serving the Company in such capacity, (collectively, the "Proxies") to represent me with respect to any and all shares...

  • Page 268
    ... "Restricted Stock Unit Agreement") is made and entered into as of the grant date set forth on the Grant Notice (the "Date of Grant"), by and between Health Net, Inc., a Delaware corporation (the "Company"), and the recipient identified on the Grant Notice, an employee of the Company or a subsidiary...

  • Page 269
    ...such Common Stock or (II) on the date such competitive activity with a Competitor was commenced by the Recipient; and "Competitor" shall refer to any health maintenance organization or insurance company that provides managed health care or related services similar to those provided by the Company or...

  • Page 270
    ...: To the Recipient at: To the Company at: Address on record at Health Net, Inc. as of the date any notice is to be delivered. Health Net, Inc. 21650 Oxnard Street Woodland Hills, California 91367 Attention: General Counsel or to such other address as any party may have furnished to the other in...

  • Page 271
    .... The Company either has or will file an appropriate Registration Statement on Form S-8 (or other applicable form), and has taken or will take such actions as necessary to keep the information therein current from time to time, in order to register the Common Stock under the Securities Act and shall...

  • Page 272
    ... Recipient has a right to continue to provide services as an officer, director, employee or consultant of the Company and/or the Employer for any period of time or at any specific rate of compensation. Nothing in the Plan or in this Restricted Stock Unit Agreement shall confer upon the Recipient the...

  • Page 273
    ... not satisfy an exemption from Section 409A of the Code, including, without limitation, the exemptions under Treasury Regulation Section 1.409A-1(b)(4) or 1.409A-1(b)(9)(iii), then the delivery of Common Stock in respect of such Restricted Stock Units shall be delayed until the earliest date upon...

  • Page 274
    ..., the parties hereto have executed and delivered this Restricted Stock Unit Agreement on the day and year first above written. Health Net, Inc. Name: Title: RECIPIENT HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES THAT HE/SHE IS AN EMPLOYEE AT WILL AND MAY BE TERMINATED BY THE EMPLOYER AT ANY TIME, WITH...

  • Page 275
    Notice of Grant of Restricted Stock Units Health Net, Inc. Plan Name: Recipient Name: Recipient ID: Grant Date: Grant Number: Number of Restricted Stock Units Granted: Vesting Template: Vesting Schedule:

  • Page 276
    ...herein, the "Performance Share Award Agreement") is made and entered into as of the grant date set forth on the Grant Notice (the "Date of Grant"), by and between Health Net, Inc., a Delaware corporation (the "Company"), and the recipient identified on the Grant Notice, an employee of the Company or...

  • Page 277
    ... Performance Shares (I) on the date of transfer of such Common Stock or (II) on the date such competitive activity with a Competitor was commenced by the Recipient; and "Competitor" shall refer to any health maintenance organization or insurance company that provides managed health care or related...

  • Page 278
    ... requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of an email or a fax to the following addresses: To the Recipient at: [NAME] [ADDRESS] [EMAIL ADDRESS] Health Net, Inc. 21650 Oxnard Street Woodland Hills, California...

  • Page 279
    .... The Company either has or will file an appropriate Registration Statement on Form S-8 (or other applicable form), and has taken or will take such actions as necessary to keep the information therein current from time to time, in order to register the Common Stock under the Securities Act and shall...

  • Page 280
    ... has a right to continue to provide services as an officer, director, employee or consultant of the Company and/or the Employer for any period of time or at any specific rate of compensation. Nothing in the Plan or in this Performance Share Award Agreement shall confer upon the Recipient the...

  • Page 281
    ... the parties hereto have executed and delivered this Performance Share Award Agreement on the day and year first above written. Health Net, Inc. Name: Title: RECIPIENT HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES THAT HE/SHE IS AN EMPLOYEE AT WILL AND MAY BE TERMINATED BY THE EMPLOYER AT ANY TIME, WITH...

  • Page 282
    APPENDIX I PERFORMANCE PERIOD AND PERFORMANCE GOALS

  • Page 283
    Notice of Grant of Performance Share Award Health Net, Inc. Plan Name: Health Net, Inc. 2006 Long-Term Incentive Plan, as amended Recipient Name: Recipient ID: Grant Date: Grant Number: Target Number:

  • Page 284
    ... 10.36 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS UNDER THE HEALTH NET, INC. 2006 LONG-TERM INCENTIVE PLAN, AS AMENDED This agreement (the "Option Agreement") is made as of [DATE] (the "Grant Date"), between Health Net, Inc., a Delaware corporation (the "Company"), and...

  • Page 285
    ... is not applicable, then the Option (subject to clause (g) below) may be exercised by the legatee(s) or personal representative of the Optionee at any time within one year after the Optionee's death. (c) Permanent and Total Disability. If the Optionee's service as a Director shall terminate prior to...

  • Page 286
    ...those contained in this Option Agreement or the Plan shall be valid or binding. Any prior agreements, statements or promises, either oral or written, made by any party or agent of any party relating to or effecting the Option that are not contained in the Option Agreement or the Plan are of no force...

  • Page 287
    ...to report all non-employee compensation earned during the preceding calendar year, including income from the exercise of the Option and sale of the Option Shares. This Form 1099-Misc can be used to calculate the applicable federal and state income taxes. 13. Failure to Execute Agreement. This Option...

  • Page 288
    ... AS AMENDED This Restricted Stock Unit Agreement (the "Restricted Stock Unit Agreement") is made and entered into as of [DATE] (the "Date of Grant"), by and between Health Net, Inc., a Delaware corporation (the "Company"), and [NAME], a non-employee director of the Company (the "Recipient"). WHEREAS...

  • Page 289
    ... and delivered to Recipient within ten (10) business days of such request. Upon each Distribution Date, the Recipient shall pay to the Company the par value for each share of Common Stock delivered pursuant to this Restricted Stock Unit Agreement in such consideration as determined by the Board...

  • Page 290
    To the Recipient at: To the Company at: Address on record at Health Net, Inc. as of the date any notice is to be delivered. Health Net, Inc. 21650 Oxnard Street Woodland Hills, California 91367 Attention: General Counsel or to such other address as any party may have furnished to the other in ...

  • Page 291
    ... that the Recipient has a right to provide or continue to provide services as an officer, director, employee or consultant of the Company for any period of time or at any specific rate of compensation. Nothing in the Plan or in this Restricted Stock Unit Agreement shall confer upon the Recipient the...

  • Page 292
    ...as defined under the Health Net, Inc. Specified Employee Policy, or, in the absence of such policy, within the meaning of Code Section 409A) with respect to the Company at the time of a "separation from service" and the Restricted Stock Units are subject to Code Section 409A and become distributable...

  • Page 293
    ... WHEREOF, the parties hereto have executed and delivered this Restricted Stock Unit Agreement on the day and year first above written. Health Net, Inc. Name: Title: The undersigned hereby accepts and agrees to all of the terms and provisions of the foregoing Restricted Stock Unit Agreement and to...

  • Page 294
    ...and maintains the Health Net, Inc. 401(k) Savings Plan (the "Plan") for the benefit of its eligible employees of the Company and certain of its affiliates; and WHEREAS, the Company desires to make certain changes to the Plan to clarify permissible investment transfers, investment elections and loans...

  • Page 295
    ... 6.2(a). A Participant may, however, elect to make a transfer from the Company Stock Fund to the investment funds maintained pursuant to Section 6.2(a). 4. Effective as of April 1, 2011, Section 8.2(c)(1)(H) of the Plan is hereby amended in its entirety to read as follows: (H) any other payments of...

  • Page 296
    IN WITNESS WHEREOF, Health Net, Inc. has caused this instrument to be executed by its duly authorized officer this 8th day of November, 2011. HEALTH NET, INC. By: /s/ Karin D. Mayhew Karin D. Mayhew Its: Senior Vice President, Organization Effectiveness 3

  • Page 297
    ... as Health Net, Inc.) and Union Bank of California, N.A. to provide a source of funds for the Employer to satisfy its liabilities under the Plan and other plans listed in Exhibit A to the Trust Agreement; and WHEREAS, the Employer desires to amend the Trust Agreement to conform to certain changes to...

  • Page 298
    ... of HNI; (b) Control Purchase. The purchase by any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Employer or any employee benefit plan sponsored by an Employer) of any Common Stock (or securities convertible into...

  • Page 299
    ... provided in Sections 2.3 and 4.2(c), at no time prior to the Employer's Insolvency, as defined in Article XI, or the satisfaction of all liabilities of the Employer under the Plans listed on Exhibit A (as such exhibit may be amended from time to time) in respect of all Participants having Accounts...

  • Page 300
    ... at any time prior to the earliest of (i) the Employer's Insolvency, as defined in Article XI, (ii) the satisfaction of all liabilities under the Plans listed on Exhibit A (as such exhibit may be amended from time to time), as described in Section 9.1, and (iii) the Employer's request pursuant to...

  • Page 301
    ..., Health Net, Inc. has caused this amendment to be exercised by its duly authorized officer this first day of January, 2001. UNION BANK OF CALIFORNIA, N.A. Trustee By: /s/ Angela Hamilton By: /s/ John Fulton HEALTH NET, INC. By: /s/ Karin D. Mayhew Karin D. Mayhew SVP, Organization Effectiveness

  • Page 302
    ... unless otherwise indicated) • Health Net of California, Inc. (CA) (95-4402957 Health Net Life Insurance Company (CA) (73-0654885) Health Net Life Reinsurance Company (Cayman Islands) (98-0409907) Health Net Community Solutions, Inc. (CA) (54-2174068) Health Net of California Real Estate Holdings...

  • Page 303
    ...-1301249) • • QualMed Plans for Health of Pennsylvania, 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...

  • Page 304
    ... statement schedule of Health Net Inc. and 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, 2011. /s/ DELOITTE & TOUCHE LLP Los Angeles, California...

  • Page 305
    ... Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, 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...

  • Page 306
    ....2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 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...

  • Page 307
    ...Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Health Net, Inc. (the "Company") on Form 10-K for the year ended December 31, 2011 as filed with the...