Health Net 2002 Annual Report Download - page 68

66 | HEALTH NET, INC.
The Florida health plan, excluding the $76.1 million
loss on net assets held for sale, had premium revenues of
$339.7 million and a net loss of $11.5 million and
premium revenues of $505.3 million and a net loss of
$33.4 million for the years ended December 31, 2001 and
2000, respectively. At the date of sale, the Florida health
plan had $41.5 million in net equity. The Florida health
plan was reported as part of our Health Plan Services
reportable segment.
2000 Transactions
We sold a property in California and received cash
proceeds of $3.5 million and recognized a gain of $1.1
million, before taxes.
During 1999, we completed the sale of our HMO
operations in Washington. As part of the final sales true-up
adjustment, we recorded a loss on the sale of our
Washington HMO operations of $1.5 million, before
taxes, during 2000.
In 1995, we entered into a five-year tax retention oper-
ating lease for the construction of various health care centers
and a corporate facility. Upon expiration in May 2000, the
lease was extended for four months through September 2000
whereupon we settled our obligations under the agreement
and purchased the leased properties which were comprised of
three rental health care centers and a corporate facility for
$35.4 million. The health care centers are held as investment
rental properties and are included in other noncurrent assets.
The corporate facility building used by our Florida health
plan was sold to DGE Properties LLC concurrent with the
sale of our Florida health plan. The buildings are being
depreciated over a remaining useful life of 35 years.
Beginning in 2000, we provided funding in the
amount of approximately $13.4 million in exchange for
preferred stock and notes in MedUnite, Inc., an indepen-
dent company, funded and organized by seven major
managed health care companies. MedUnite, Inc. provides
online internet provider connectivity services including
eligibility information, referrals, authorizations, claims
submission and payment. The funded amounts were
included in other noncurrent assets. Effective December
31, 2002, MedUnite, Inc. was sold. As a result of the sale,
our original investments were exchanged for $1 million in
cash and $2.6 million in notes. Accordingly, we wrote off
the original investments of $13.4 million less the $1 million
cash received and recognized an impairment charge of
$12.4 million on December 31, 2002 which included an
allowance against the full value of the notes (see Note 14).
■10% for the six-month period commencing on
February 1, 2002;
■15% for the six-month period commencing on
August 1, 2002.
If the baseline medical loss ratio is less than 90% at
the end of the six-month period commencing on August 1,
2002, Health Net is entitled to recover medical and
hospital expenses below the 90% threshold up to an
amount to not exceed 1% of the total premiums for those
members still covered during the six-month period under
the Reinsurance Agreement.
The maximum liability under the Reinsurance Agreement
of $28 million was reported as part of loss on assets held for
sale as of June 30, 2001, since this was our best estimate of
our probable obligation under this arrangement. As the rein-
sured claims are submitted to FHAC, the liability is reduced
by the amount of claims paid. As of December 31, 2002, we
have paid out $20.3 million under this agreement.
The SPA included an indemnification obligation for all
pending and threatened litigation as of the closing date
and certain specific provider contract interpretation or
settlement disputes. During the year ended December 31,
2002, we paid $5.7 million in settlements on certain
indemnified items. At this time, we believe that the esti-
mated liability related to the remaining indemnified obliga-
tions on any pending or threatened litigation and the
specific provider contract disputes will not have a material
impact to the financial condition of the Company.
The SPA provides for the following three true-up
adjustments that could result in an adjustment to the loss
on the sale of the Plan:
■A retrospective post-closing settlement of statutory
equity based on subsequent adjustments to the closing
balance sheet for the Plan.
■A settlement of unpaid provider claims as of the closing
date based on claim payments occurring during a one-
year period after the closing date.
■A settlement of the reinsured claims in excess of certain
baseline medical loss ratios. Final settlement is not sched-
uled to occur until the latter part of 2003. The develop-
ment of claims and claims related metrics and
information provided by Florida Health Plan Holdings
II, L.L.C. have not resulted in any revisions to the
maximum $28 million liability we originally estimated.
The true-up process has not been finalized and we do
not have sufficient information regarding the true-up
adjustments to assess probability or estimate any adjust-
ment to the recorded loss on the sale of the Plan as of
December 31, 2002.