Health Net 2011 Annual Report Download - page 81

Government Contracts Segment Results
The following table summarizes the operating results for the Government Contracts segment for the last
three fiscal years:
Year Ended December 31,
2011 2010 2009
(Dollars in thousands)
Government contracts revenues ..................... $1,416,619 $3,344,483 $3,104,700
Government contracts costs ........................ 1,231,388 3,165,747 2,936,090
Income from operations before income taxes ........... 185,231 178,736 168,610
Income tax provision .............................. 75,092 73,197 69,102
Net income ..................................... $ 110,139 $ 105,539 $ 99,508
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Government contracts revenues decreased by $1,927.9 million, or 57.6 percent, for the year ended
December 31, 2011 as compared to the same period in 2010. Government contracts costs decreased by $1,934.4
million or 61.1 percent for the year ended December 31, 2011 as compared to the same period in 2010. These
declines were primarily due to the impact of the new T-3 contract for the TRICARE North Region, under which
health care costs and related reimbursements are excluded from our consolidated statement of operations as a
result of moving from a risk-based contract to a cost reimbursement plus fixed fee contract.
Our previous TRICARE contract for the North Region included a target cost and underwriting fee for
reimbursed health care costs, which was negotiated annually during the term of the contract with underruns and
overruns of our target cost borne 80% by the government and 20% by us. In the normal course of contracting
with the federal government, we recognized changes in our estimate for the target cost underruns and overruns
when the amounts become determinable, supportable, and the collectibility is reasonably assured. As a result of
changes in the estimate during the year ended December 31, 2011, we recognized a decrease in revenue of $42
million and a decrease in cost of $52 million. As a result of changes in the estimate during the year ended
December 31, 2010, we recognized a decrease in revenue of $51 million and a decrease in cost of $64 million.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Government contracts revenues increased by $239.8 million, or 7.7 percent, for the year ended
December 31, 2010 as compared to the same period in 2009. Government contracts costs increased by $229.7
million or 7.8 percent for the year ended December 31, 2010 as compared to the same period in 2009. The
increases were primarily due to an increase in health care services provided under a new option year in the
TRICARE contract and growth in the family counseling business with the DoD. As a result of changes in the
estimate during the year ended December 31, 2009, we recognized an increase in revenue of $40 million and an
increase in cost of $49 million.
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