Health Net 2014 Annual Report Download - page 12

10
programs, or if we experience a significant reduction in revenues from these government programs, it could have a
material adverse effect on our business, financial condition or results of operations.”
TRICARE
Our wholly owned subsidiary, Health Net Federal Services, LLC (“HNFS”), is a Managed Care Support
Contractor in the North Region for the DoD TRICARE program. We have been serving the DoD since 1988 under the
TRICARE program and its predecessor programs, and we believe we have established a solid history of operating
performance in this line of business. We believe there will continue to be further opportunities to serve the DoD and
other governmental organizations, such as the VA, in the future.
We began providing services under the T-3 contract on April 1, 2011. The T-3 contract for the North Region
covers Connecticut, Delaware, Illinois, Indiana, Kentucky (except Fort Campbell), Maine, Maryland, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Vermont,
Virginia, West Virginia, Wisconsin and the District of Columbia. In addition, the contract covers portions of the states of
Iowa and Missouri.
As a Managed Care Support Contractor for the T-3 contract for the TRICARE North Region, we provide
administrative services to approximately 2.8 million Military Health System (“MHS”) eligible beneficiaries. Eligible
active duty service members and their families, retired service members and their families, survivors of retired service
members, and qualified former spouses are able to choose from a variety of TRICARE program options, including
TRICARE Prime, which is similar to a conventional HMO plan. Non-active duty service members can select, on a case-
by-case basis, to utilize TRICARE Extra, which is similar to a conventional PPO plan, or TRICARE Standard, which is
similar to a conventional indemnity plan.
Under TRICARE Prime, enrollees pay an enrollment fee (which is zero for active duty service members and their
families) and select a primary care physician from our contracted provider network. The primary care physicians are
responsible for making referrals to specialists and hospitals. Active duty service members and their families enrolled in
TRICARE Prime have no copayments. However, all other TRICARE Prime enrollees are subject to copayments for
medical services. TRICARE Prime enrollees may opt, on a case-by-case basis, for a Point-of-Service option in which
they are allowed to self-refer to a network or non-network provider, but incur a deductible and a cost-share. The Point
of Service option is not available for active duty service members.
Under TRICARE Extra, eligible beneficiaries receive services from a TRICARE network provider but incur a
deductible and cost-share that may be greater than the TRICARE Prime copayment. Beneficiaries utilizing TRICARE
Extra realize a five percent cost-share savings over TRICARE Standard. Under TRICARE Standard, eligible
beneficiaries receive services from a TRICARE authorized provider, either participating or non-participating, but incur
a deductible and higher cost-share than under TRICARE Prime or TRICARE Extra. In addition, TRICARE offers
premium-based health plans for eligible beneficiaries. Qualified Selected Reserve members may purchase TRICARE
Reserve Select (“TRS”), which is a TRICARE Standard benefit. TRS members have the same costs as active duty
family members. Qualified retired Reserve members may purchase TRICARE Retired Reserve (“TRR”), also a
TRICARE Standard benefit. TRR members have the same costs as retired service members. TRICARE Young Adult
(“TYA”) is available for purchase by eligible young adults under age 26. TRICARE currently offers a TYA Standard
plan and a TYA Prime plan.
The T-3 contract has five one-year option periods. We are currently in option period 5, which commenced on
April 1, 2014 and is scheduled to end on March 31, 2015. In June 2014, at the request of the DoD, we submitted a
proposal to add three additional one-year option periods to the T-3 contract. We currently expect negotiations relating to
this proposal to conclude on or prior to March 31, 2015. If the negotiations conclude as expected, we expect the DoD to
exercise the first of the three one-year options by that date. If all three one-year option periods are ultimately exercised,
the T-3 contract would conclude on March 31, 2018. The DoD intends to re-procure managed care support services for
the TRICARE program for the period beginning in 2017, and, to that end, released a draft Request for Proposals on
November 3, 2014. The T-3 contract services are currently 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 contract
for the North Region, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations” and “Item 1A. Risk Factors—Government programs represent an increasing share of our revenues. If we
are unable to effectively administer these programs, if we do not effectively adapt to changes to these programs, or if we
experience a significant reduction in revenues from these government programs, it could have a material adverse effect
on our business, financial condition or results of operations.”