Health Net 2014 Annual Report Download - page 81
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79
understanding of the passive enrollment methodology, we estimate that Health Net will receive approximately 47% and
20–25% of the passively enrolled dual eligibles in Los Angeles County and San Diego County, respectively.
The financial performance of the Cal MediConnect Contract is included in the calculation of the settlement
account that was established pursuant to the terms of the settlement agreement entered into by DHCS, HNCS and
Health Net of California, Inc. on November 2, 2012, which is further discussed in Note 2 to our consolidated financial
statements under the heading "Health Plan Services Revenue Recognition.”
Health Net’s participation in the CCI, and the dual eligibles demonstration in particular, represents a significant
new business opportunity for us, but is subject to a number of risks inherent in untested health care initiatives,
particularly those that involve new populations with limited cost experience. Moreover, the CCI and the dual eligibles
demonstration program in particular, is a model of providing health care that is new to regulatory authorities and health
plans in the state of California, and involves risks generally associated with government programs. For example, larger
than expected numbers of dual eligibles have opted out of the demonstration since passive enrollment began in Los
Angeles and San Diego counties on July 1, 2014 and May 1, 2014, respectively, which impacted our expected
enrollment for 2014. If this opt out trend continues or significantly increases over the passive enrollment period, our
profitability with respect to our participation in the CCI may be lower than originally anticipated. Due to these and
other risks associated with the CCI, including, without limitation, that the dual eligibles demonstration is a pilot
program, there can be no assurance that the business opportunity presented by the CCI, including the dual eligibles
demonstration, will prove to be successful. Our failure to successfully adapt to the requirements of the CCI could have
an adverse effect on our business, financial condition and results of operation. For additional information regarding our
participation in the duals program see “Item 1. Business—Segment Information—Western Region Operations Segment
—California Coordinated Care Initiative" and for a discussion of additional risks related to the duals program, see “Item
1A. Risk Factors—Our participation in the dual eligibles demonstration portion of the California Coordinated Care
Initiative in Los Angeles and San Diego Counties may prove to be unsuccessful for a number of reasons.”