Health Net 2011 Annual Report Download - page 11

service, clinical support service, and claims processing. In 2011, we also provided assistance in the transition into
the T-3 contract.
Our Government Contracts segment also includes other health care, mental health and behavioral health
government contracts that we administer for the Department of Defense and the U.S. Department of Veterans
Affairs. Certain components of these contracts are subcontracted to unrelated third parties.
Under government-funded health programs, the government payor typically determines beneficiary fees and
provider reimbursement levels. Contracts under these programs are generally subject to frequent change,
including changes that may reduce or increase the number of persons enrolled or eligible, or the revenue received
by us for our administrative services. The amount of government receivables set forth in our consolidated
financial statements represents our best estimate of the government’s liability to us under TRICARE and other
government contracts. In general, government receivables are estimates and are subject to government audit and
negotiation. See “Item 1A. Risk Factors—A significant reduction in revenues from the government programs in
which we participate could have an adverse effect on our business, financial condition or results of operations.”
TRICARE
Our wholly-owned subsidiary, Health Net Federal Services, LLC (“HNFS”), administers the T-3 contract
with the Department of Defense under the TRICARE program in the North Region. We have been serving the
Department of Defense since 1988 under the TRICARE program and its predecessor programs. We believe we
have established a solid history of operating performance under our contracts with the Department of Defense.
We believe there will be further opportunities to serve the Department of Defense and other governmental
organizations, such as the Department of Veterans Affairs, in the future.
The T-3 contract for the TRICARE North Region was awarded to us by the Department of Defense on
May 13, 2010 under the TRICARE Program. The transition-in period for the T-3 contract commenced on
May 13, 2010, and we began providing services under the T-3 contract on April 1, 2011. The T-3 contract for the
North Region covers Connecticut, Delaware, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island,
Vermont, Virginia, West Virginia, Wisconsin and the District of Columbia. In addition, the contract covers a
small portion of each of Iowa, Missouri and Tennessee. The Fort Campbell area of Kentucky and Tennessee was
added to our T-3 North Region contract for the period during which the T-3 contract for the TRICARE South
Region had not yet been awarded. As a result of the award of the T-3 contract for the TRICARE South Region,
effective April 1, 2012 we will no longer be responsible for servicing the approximately 116,000 eligible
beneficiaries in the Fort Campbell area under our T-3 contract.
Under the T-3 contract for the TRICARE North Region, we provide administrative services to
approximately 3.0 million Military Health System (“MHS”) eligible beneficiaries. Eligible beneficiaries in the
TRICARE program are able to choose from a variety of program options. They can choose to enroll in
TRICARE Prime, which is similar to a conventional HMO plan, or they can select, on a case-by-case basis, to
utilize TRICARE Extra, which is similar to a conventional PPO plan, or TRICARE Standard, which is similar to
a conventional indemnity plan.
Under TRICARE Prime, enrollees pay an enrollment fee (which is zero for active duty participants and their
dependents) and select a primary care physician from a designated 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 Prime enrollees may opt, on a case-by-case basis, for a
point-of-service option in which they are allowed to self-refer but incur a deductible and a co-payment.
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