Health Net 2011 Annual Report Download - page 111

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of Business
Health Net, Inc. (referred to herein as Health Net, the Company, we, us, our or HNT) is a publicly traded
managed care organization that delivers managed health care services. Our health plans and government
contracts subsidiaries provide health benefits through our health maintenance organizations (HMOs), 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 of Defense (Department of
Defense or DoD), including TRICARE, and Veterans Affairs programs. On January 9, 2012, we announced that
we had entered into an agreement to sell our Medicare stand-alone Prescription Drug Plan (PDP) business. See
Note 19 for a discussion of this subsequent event. Our subsidiaries also offer managed health care products
related to behavioral health and prescription drugs. We also own health and life insurance companies licensed to
sell exclusive provider organization (EPO), PPO, POS and indemnity products.
We operate within three reportable segments: Western Region Operations, Government Contracts and
Northeast Operations, each of which is described below. As a result of entering into a definitive agreement in
January 2012 to sell our Medicare PDP business (see Note 19), we will undertake a review of our reportable
segments in the first quarter of 2012 to determine if there should be any changes to our reportable segments.
Our health plan services are provided under our Western Region Operations reportable segment, which
includes the operations of our commercial, Medicare and Medicaid health plans, as well as the operations of our
health and life insurance companies primarily in Arizona, California, Oregon and Washington, and our
behavioral health and pharmaceutical services subsidiaries in several states including Arizona, California and
Oregon.
Our Government Contracts reportable segment includes our government-sponsored managed care federal
contract with the DoD under the TRICARE program in the North Region and other health care, mental health and
behavioral health government contracts. On April 1, 2011, we began delivering administrative services under the
new Managed Care Support Contract (T-3) for the TRICARE North Region. The T-3 contract was awarded to us
on May 13, 2010. We were the managed care contractor for the DoD’s previous TRICARE contract in the North
Region, which ended on March 31, 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 and a small portion of Tennessee, Missouri and Iowa. The Company provides
administrative services to approximately 3.0 million Military Health System (MHS) eligible individuals under
the T-3 contract. The T-3 contract has five one-year option periods; however, on March 15, 2011, the DoD
exercised option period 2 (without exercising option period 1), due to a delay of approximately one year in the
government’s initial award of the T-3 contract. Accordingly, option period 2 commenced on April 1, 2011, and if
all remaining option periods are exercised, the T-3 contract would conclude on March 31, 2015. See Note 2 for
additional information on our T-3 contract for the North Region.
On December 11, 2009, we completed the sale (the Northeast Sale) of all of the outstanding shares of capital
stock of our health plan subsidiaries that were domiciled in Connecticut, New Jersey, New York and Bermuda
(Acquired Companies) that had conducted businesses in our Northeast Operations segment (see Note 14) to
UnitedHealth Group Incorporated (United). The sale was made pursuant to a Stock Purchase Agreement (Stock
Purchase Agreement), dated as of July 20, 2009, by and among the Company, Health Net of the Northeast, Inc.,
Oxford Health Plans, LLC (Buyer) and, solely for the purposes of guaranteeing Buyer’s obligations thereunder,
United. At the closing of the Northeast Sale, affiliates of United also acquired membership renewal rights for
certain commercial health care business conducted by our subsidiary, Health Net Life Insurance Company
(Health Net Life) in the states of Connecticut and New Jersey (the Transitioning HNL Members). We were
F-7