Health Net 2011 Annual Report Download - page 12

Under TRICARE Extra, eligible beneficiaries may utilize a TRICARE network provider but incur a
deductible and co-payment which is greater than the TRICARE Prime co-payment. Under TRICARE Standard,
eligible beneficiaries may utilize a TRICARE authorized provider who is not a network provider but pay a higher
co-payment than under TRICARE Prime or TRICARE Extra. As of December 31, 2011, there were
approximately 1.5 million TRICARE eligible beneficiaries enrolled in TRICARE Prime under our T-3 contract.
The T-3 contract has five one-year option periods, however, the Department of Defense exercised option
period 2 (without exercising option period 1), due to the delay of approximately one year in the government’s
initial award of the T-3 North Region contract. Accordingly, option period 2 commenced on April 1, 2011, and if
all remaining option periods are exercised, the T-3 North Region contract would conclude on March 31, 2015.
The T-3 contract services are structured as 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 and the T-3
North Region contract, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and “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.”
Other Department of Defense Contracts
In 2007, the Department of Defense awarded MHN the Military and Family Life Consultant Program
(“MFLC”), a five-year contract to develop, administer and monitor the non-medical counseling program for
service members. The program is designed to deliver short-term situational problem solving counseling,
primarily with regard to stress factors inherent in the military lifestyle. Services under the MFLC contract began
on April 1, 2007 and the contract period was to continue into February 2012. A recent contract modification
extends our provision of contracted services through July 25, 2012. On December 13, 2010, the Department of
Defense issued a Request for Proposals for the follow-on MFLC contract, with services expected to commence in
February 2012. Proposals were due and submitted to the government in March 2011. Pursuant to later requests by
the government, all offerors’ proposals were subsequently extended through March 31, 2012. Further discussions
between offerors and the Department of Defense were conducted in February 2012. We anticipate that the
Department of Defense will request that final proposal revisions be submitted in March 2012, with a contract
award by the second quarter of 2012. The services provided under the MFLC contract are not TRICARE benefits
and are provided independently from the services provided under our T-3 contract. For the year ended
December 31, 2011, our revenues from the MFLC contract were $259 million. For additional information on the
risks associated with our MFLC contract and the pending re-competition of the contract, 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.”
Veterans Affairs
During 2011, HNFS administered ten contracts with the Department of Veterans Affairs to manage
community-based outpatient clinics in eight states. HNFS also administered or supported six other contracts with
the Department of Veterans Affairs for 152 Veterans Affairs medical centers for claims repricing and audit
services. Total revenues for our Veterans Affairs business were approximately $33.6 million for the year ended
December 31, 2011. These revenues are derived from service fees received and have no insurance risk associated
with them.
Northeast Operations Segment
On December 11, 2009, we completed the sale (the “Northeast Sale”) to UnitedHealth Group Incorporated
(“United”) of all of the outstanding shares of capital stock of our health plan subsidiaries that were domiciled in
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