Health Net 2001 Annual Report Download - page 3

Note 15 in the Notes to Consolidated Financial Statements contained in our 2001 Annual Report to
Stockholders.
The Company was incorporated in 1990. Our current operations are the result of the April 1, 1997
merger transaction (the ‘‘FHS Combination’’) involving Health Systems International, Inc. (‘‘HSI’’) and
Foundation Health Corporation (‘‘FHC’’). Pursuant to the Agreement and Plan of Merger (the
‘‘Merger Agreement’’) that evidenced the FHS Combination, FH Acquisition Corp., a wholly-owned
subsidiary of HSI, merged with and into FHC and FHC survived as a wholly-owned subsidiary of HSI,
which changed its name to Foundation Health Systems, Inc. In November 2000, we changed our name
from Foundation Health Systems, Inc. to Health Net, Inc.
Prior to the FHS Combination, the Company was the successor to the business conducted by
Health Net of California, Inc., now our HMO subsidiary in California, which became a subsidiary of
the Company in 1992, and HMO and PPO networks operated by QualMed, Inc. (‘‘QualMed’’), which
combined with the Company in 1994 to create HSI. FHC was incorporated in Delaware in 1984.
Our executive offices are located at 21650 Oxnard Street, Woodland Hills, CA 91367. Except as
the context otherwise requires, the term ‘‘Company’’, ‘‘we’’, ‘‘us’’ and ‘‘our’’ refers to Health Net, Inc.
and its subsidiaries.
HEALTH PLAN SERVICES SEGMENT
MANAGED HEALTH CARE OPERATIONS. We offer a full spectrum of managed health care
products. The Company’s strategy is to offer to employers a wide range of managed health care
products and services that provide quality care, encourage wellness and assist in containing health care
costs. While a majority of our members are covered by conventional HMO products, we are continuing
to expand our other product lines, thereby enabling us to offer flexibility to an employer and to tailor
our products to an employer’s particular needs.
Our health plan subsidiaries offer members a comprehensive range of health care services,
including ambulatory and outpatient physician care, hospital care, pharmacy services, eye care,
behavioral health and ancillary diagnostic and therapeutic services. The integrated health care programs
offered by our subsidiaries include products offered through both traditional Network Model HMOs (in
which the HMOs contract with individual physicians, physician groups and independent or individual
practice associations (‘‘IPAs’’)) and IPA Model HMOs (in which the HMOs contract with one or more
IPAs that in turn subcontract with individual physicians to provide HMO patient services). Our health
plan subsidiaries offer quality care, cost containment and comprehensive coverage; a matrix package
which allows employees to select their desired coverage from alternatives that have interchangeable
outpatient and inpatient co-payment levels; point-of-service (‘‘POS’’) programs which offer a multi-tier
design that provides both conventional HMO and indemnity-like (in-network and out-of-network) tiers;
a PPO-like tier which allows members to self-refer to the network physician of their choice; and a
managed indemnity plan which is provided for employees who reside outside of their HMO service
areas.
The pricing of our products is designed to provide incentives to both employers and employees to
select and enroll in the products with greater managed health care and cost containment elements. In
general, our HMO subsidiaries provide comprehensive health care coverage for a fixed fee or premium
that does not vary with the extent or frequency of medical services actually received by the member.
PPO enrollees choose their medical care from among the various contracting providers or choose a
non-contracting provider and are reimbursed on a traditional indemnity plan basis after reaching an
annual deductible. POS enrollees choose, each time they receive care, from conventional HMO or
indemnity-like (in-network and out-of-network) coverage, with payments and/or reimbursement
depending on the coverage chosen. We assume both underwriting and administrative expense risk in
return for the premium revenue we receive from our HMO, POS and PPO products. Our subsidiaries
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