Health Net 2011 Annual Report Download - page 117

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
recorded $40.8 million and $42.0 million as an adjustment to the loss on sale of the Northeast health plan subsidiaries
in the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, after the final true-up, an
immaterial amount was due to United in connection with contingent membership renewals.
With the termination of the United Administrative Services Agreements on July 1, 2011, we estimated and
recorded QNP of $50.8 million for the six months ended June 30, 2011. This amount was later revised during the
fourth quarter of 2011 to $45.9 million. At this time, we have completed the QNP review process. Under the
Stock Purchase Agreement for the Northeast Sale, we are required to indemnify the Buyer and its affiliates for all
pre-closing liabilities of the acquired business and for a broad range of excluded liabilities, including liabilities
arising out of the acquired business incurred through the winding-up and running-out period of the acquired
business.
Upon the termination of the United Administrative Services Agreements, we entered into Claims Servicing
Agreements with United and certain of its affiliates pursuant to which we continue to adjudicate run out claims
and perform limited other administrative services. The Claims Servicing Agreements will be in effect until the
last run out claim under the applicable Claims Servicing Agreement has been adjudicated.
Medicare Part D
We provide the Medicare Part D benefit as a fully insured product to our existing Medicare members. The
Part D benefit consists of pharmacy benefits for Medicare beneficiaries. Part D renewal occurs annually, but it is
not a guaranteed renewable product. We report Part D as part of our Western Region Operations reportable
segment. On January 9, 2012, we announced that we entered into an agreement to sell our Medicare PDP
business. The sale is expected to close in the second quarter of 2012. See Note 19 for a discussion of this
subsequent event.
We offer two types of Part D plans: PDP and Medicare Advantage Plus Prescription Drug (MAPD). PDP
covers only prescription drugs and can be combined with traditional Medicare, certain 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
Part D enrollees. The CMS contract covers the portion of the revenue for benefits that will be paid for by CMS.
The enrollee contract covers the portion of the revenue for benefits to be paid by the enrollees. The insurance
contracts are directly underwritten with the enrollees, not CMS, and therefore there is a direct insurance
relationship with the enrollees. The premiums are received directly from the enrollees and from CMS for
low-income subsidy members.
The revenue recognition of the revenue and cost reimbursement components under Part D is described
below:
CMS Premium Direct Subsidy—Health Net receives a monthly premium from CMS based on an original bid
amount. This payment for each individual is a fixed amount per member for the entire plan year and is based
upon that individual’s risk score status. The CMS premium is recognized evenly over the contract period and
reported as part of health plan services premium revenue.
Member Premium—Health Net receives a monthly premium from members based on the original bid
submitted to CMS. The member premium, which is fixed for the entire plan year is recognized evenly over the
contract period and reported as part of health plan services premium revenue.
F-13