Health Net 2014 Annual Report Download - page 10

8
Advantage products directly to Medicare beneficiaries and through employer and union groups. We provide or arrange
health care benefits for services normally covered by Medicare, plus a broad range of health care benefits for services
not covered by traditional Medicare, usually in exchange for a fixed monthly premium per member from CMS that
varies by the county in which the member resides, demographic factors of the member such as age, gender and
institutionalized status, and the health status of the member. Any benefits that are not covered by Medicare may result in
an additional monthly premium charged to the enrollee or through portions of payments received from CMS that may
be allocated to these benefits, according to CMS regulations and guidance. Many of our Medicare Advantage members
pay no monthly premium to us for these additional benefits.
Our portfolio of Medicare Advantage plans focuses on simplicity so that members can use benefits with minimal
paperwork and receive coverage that starts immediately upon enrollment. We also provide Medicare supplemental
coverage to 28,801 members as of December 31, 2014 through either individual Medicare supplement policies or
employer group sponsored coverage.
We provide Medicare Advantage plans in select counties in Arizona, California, Oregon and Washington, and
provide prescription drug benefits in most of our Medicare Advantage plan offerings. We also provide multiple types of
Medicare Advantage Special Needs Plans, including dual eligible Special Needs Plans (designed for low income
Medicare beneficiaries) in Arizona and California, chronic condition Special Needs Plans (designed for beneficiaries
with congestive heart failure and diabetes) in California, Oregon and Arizona. These plans provide access to additional
health care and prescription drug coverage.
CMS developed the Medicare Advantage Star Ratings system to help consumers choose among competing plans,
awarding between one and five stars to Medicare Advantage plans based on performance in certain measures of quality.
The Star Ratings are used by CMS to award quality bonus payments to Medicare Advantage plans. Beginning with the
2014 Star Rating (calculated in 2013), Medicare Advantage plans were required to achieve a minimum of 4 Stars to
qualify for a quality bonus payment in 2015. The methodology and measures included in the Star Ratings system can be
modified by CMS annually and Star Ratings thresholds are based on performance of Medicare Advantage plans
nationally.
For the 2015 Star rating (calculated in 2014 for the 2016 payment year), our California HMO and Oregon HMO
and PPO contracts with CMS were measured at 4.0 Stars, our Arizona HMO contract was measured at 3.5 Stars and our
California PPO contract was measured at 3.0 Stars. See "Item 1A. Risk Factors—Medicare programs represent a
significant portion of our business and are subject to risk" for additional information on our star ratings.
Indemnity Insurance Products
We offer insured PPO, EPO and indemnity products as “stand-alone” products and as part of multiple option
products in various markets. These products are offered by our health and life insurance subsidiaries, which are licensed
to sell insurance in 49 states and the District of Columbia. Through these subsidiaries, we also offer auxiliary non-
health products such as life, accidental death and dismemberment, dental, vision and behavioral health insurance. Our
health and life insurance products are provided throughout most of our service areas.
Other Specialty Services and Products
We offer pharmacy benefits, behavioral health, dental and vision products and services (mostly through strategic
relationships with third parties), as well as managed care products related to cost containment for hospitals, health plans
and other entities as part of our Western Region Operations segment.
Pharmacy Benefit Management
We provide pharmacy benefit management (“PBM”) services to Health Net members through our subsidiary,
Health Net Pharmaceutical Services (“HNPS”). As of December 31, 2014, HNPS provided integrated PBM services to
approximately 3.0 million Health Net members who have pharmacy benefits, including approximately 269,000 of our
Medicare members and approximately 16,000 of our dual eligibles members.
HNPS manages these benefits in an effort to achieve the highest quality outcomes at the lowest cost for Health
Net members. HNPS contracts with national health care providers, vendors, drug manufacturers and pharmacy
distribution networks (directly and indirectly through a third party vendor), oversees pharmacy claims and
administration, reviews and evaluates new FDA-approved drugs for safety and efficacy and manages data collection
efforts to facilitate our health plans' disease management programs. In addition, HNPS provides affiliated health plans
various services including development of benefit designs, cost and trend management, sales and marketing support,