Health Net 2011 Annual Report Download - page 80

include health care costs and related reimbursements in our consolidated statement of operations. The contract
also includes various performance-based incentives and penalties. For each of the incentives or penalties, we
adjust revenue accordingly based on the amount that we have earned or incurred at each interim date and are
legally entitled to in the event of a contract termination. See Note 2 to our consolidated financial statements
under the heading “T-3 TRICARE Contract” for additional information on the T-3 contract.
Government Contracts Segment Membership
2011 2010 2009
(Membership in thousands)
Membership under T-3 TRICARE contract and North Region TRICARE
contract .................................................... 3,004 3,090 3,067
Under the T-3 contract for the TRICARE North Region, we provide administrative services to
approximately 3.0 million MHS eligible beneficiaries as of December 31, 2011.
As a result of the award of the T-3 contract for the TRICARE South Region, responsibility for the delivery
of services for the Fort Campbell area of Kentucky and Tennessee was realigned from the TRICARE North
Region to the TRICARE South Region. This realignment was expected and, as a result, 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. We do not believe the impact of this realignment will be material to our
consolidated results of operations.
As of December 31, 2010 and 2009, under our previous TRICARE contract for the North Region (which
expired on March 31, 2011), we provided health care services to approximately 3.1 million MHS eligible
beneficiaries. Included in the 3.1 million eligible beneficiaries were 1.8 million TRICARE eligible beneficiaries
for whom we provided health care and administrative services and 1.3 million other MHS eligible beneficiaries
for whom we provided administrative services only.
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 under the DoD MFLC
contract. Services under the MFLC contract began on April 1, 2007 and are contracted through July 25, 2012. On
December 13, 2010, the Department of Defense issued a Request for Proposals for the follow-on MFLC contract.
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. Revenues from the MFLC contract were $259
million for the year ended December 31, 2011. 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.”
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