Health Net 2003 Annual Report Download - page 80

Notes to Consolidated Financial Statements
Note 1—Description of Business
Health Net, Inc. (referred to herein as the Company, we, us, our or HNT) is an integrated managed care organization
that delivers managed health care services. We are among the nation’s largest publicly traded managed health care
companies. Our health plans and government contracts subsidiaries provide health benefits through our health
maintenance organizations (HMOs), preferred provider organizations (PPOs) and point of service (POS) plans to
approximately 5.3 million individuals in 14 states through group, individual, Medicare, Medicaid and TRICARE
programs. Our subsidiaries also offer managed health care products related to behavioral health and prescription drugs.
We also own health and life insurance companies licensed to sell exclusive provider organization (EPO), PPO, POS and
indemnity products, as well as auxiliary non-health products such as life and accidental death and disability insurance in
36 states and the District of Columbia.
We currently operate within two reportable segments: Health Plan Services and Government Contracts. Our current
Health Plan Services reportable segment includes the operations of our health plans in the states of Arizona, California,
Connecticut, New Jersey, New York and Oregon, the operations of our health and life insurance companies and our
behavioral health and pharmaceutical services subsidiaries. We have approximately 3.7 million at-risk and 0.1 million
administrative services only (ASO) members in our Health Plan Services reportable segment. As of December 31, 2003,
we no longer offer coverage for our health plan in the Commonwealth of Pennsylvania. We had offered dental and vision
services through our dental and vision plans until the sale of the plans on October 31, 2003. See Note 3 for a discussion of
the sale of our dental and vision plans. We had offered workers’ compensation managed care cost containment services
directly to customers until the sale of our employer services group subsidiary on October 31, 2003. See Note 3 for a
discussion of the sale of our employer services group subsidiary. Revenues from our employer services group division
were included in “Other income.”
Our Government Contracts reportable segment includes government-sponsored managed care plans through the
TRICARE program and other government contracts. The Government Contracts reportable segment administers large,
multi-year managed health care government contracts. Certain components of these contracts are subcontracted to
unrelated third parties. The Company administers health care programs covering approximately 1.5 million eligible
individuals under TRICARE. The Company currently has three TRICARE contracts that cover Alaska, Arkansas,
California, Hawaii, Oklahoma, Oregon, Washington and parts of Arizona, Idaho, Louisiana and Texas. These contracts
will expire in 2004. In August 2003, we were awarded a new five year contract for the TRICARE North Region that
supports nearly 2.8 million Military Health System (MHS) eligible beneficiaries, including the provision of health care
and administrative services for 1.7 million TRICARE eligibles and the provision of administrative services only for 1.1
million other MHS-eligible beneficiaries (active duty personnel and TRICARE/Medicare dual eligible beneficiaries). This
contract covers Connecticut, Delaware, Illinois, Indiana, Kentucky, 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 a small portion of Tennessee, Missouri
and Iowa. Health care delivery is expected to begin on the new North Region contract on July 1, 2004 for the area that was
previously Regions 2 and 5 and September 1, 2004 for the area that was previously Region 1.
Note 2—Summary of Significant Accounting Policies
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-
owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principal areas requiring the use of estimates include the determination of allowances for doubtful accounts, reserves for
claims and other settlements, reserves for professional and general liabilities (including litigation and workers’
compensation reserves), amounts receivable or payable under government contracts, remaining reserves for restructuring
and other charges, and assumptions when determining net realizable values on long-lived assets.
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