Health Net 2005 Annual Report Download - page 6

decrease of approximately 11% since December 31, 2004. This decrease was primarily due to the implementation
of higher premiums during 2005. Our Medicare membership in Connecticut was 26,523 as of December 31,
2005, which represented a decrease of approximately 0.3% during 2005, and our Medicaid membership in
Connecticut was 88,328 as of December 31, 2005, which represented a decrease of approximately 6% during
2005.
We believe our New Jersey operations make us the fifth largest managed care provider in New Jersey in
terms of membership and size of provider network. Our commercial membership in New Jersey was 126,904 as
of December 31, 2005 (including 74,196 members under The Guardian arrangement), which represented a
decrease of approximately 39% during 2005. This decrease was primarily due to the implementation of higher
premiums during 2005. Our Medicaid membership in New Jersey was 43,876 as of December 31, 2005, which
represented an increase of approximately 4% during 2005. We did not have any Medicare members in New
Jersey as of December 31, 2005 or 2004.
We believe our New York operations make us the fifth largest managed care provider in New York in terms
of membership and size of provider network. In New York, we had 217,859 commercial members as of
December 31, 2005, which represented a decrease of approximately 14% during 2005. This decrease was
primarily due to the implementation of higher premiums during 2005. Such membership included 101,692
members under The Guardian arrangement. Our Medicare membership in New York was 6,797 as of
December 31, 2005, which represented an increase of 18% during 2005. We did not have any Medicaid members
in New York as of December 31, 2005 or 2004.
Medicare Products
We offer our Medicare products directly to individuals and through employer groups. To enroll in one of
our Medicare plans, covered persons must be eligible for Medicare. We provide or arrange health care services
normally covered by Medicare, plus a broad range of health care services not covered by traditional Medicare
programs. The federal Centers for Medicare & Medicaid Services (“CMS”) pays us a monthly amount for each
enrolled member based, in part, upon the “Adjusted Average Per Capita Cost,” as determined by CMS’ analysis
of fee-for-service costs related to beneficiary demographics and other factors. Depending on plan design and
geographic area, we may charge a monthly premium. We also provide Medicare supplemental coverage to
37,691 members through either individual Medicare supplement policies or employer group sponsored coverage.
See “—Government Regulation—Federal Legislation and Regulation—Medicare Legislation” and “Item 1A.
Risk Factors—Our efforts to capitalize on Medicare business opportunities could prove to be unsuccessful” for
additional information regarding the Medicare legislation.
We believe we are the nation’s fifth-largest Medicare Advantage contractor based on membership with
174,040 members in 43 counties in five states as of December 31, 2005 compared to membership of 170,943 as
of December 31, 2004. In connection with the passage of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (“MMA”), we have significantly expanded our Medicare health plans. For example,
in 2005, we extended our participation in Medicare Advantage by adding new service areas and increasing
participation in regional and local PPOs. As a result of this expansion we are now offering 98 new plans and are
a major participant in the new “Part D” stand-alone drug benefit. On January 1, 2006, we began offering the new
Part D prescription drug benefit to seniors in 10 states. U.S. citizens who are at least 65 years old, or who are
disabled, or who are dual-eligible members in both Medicare and Medicaid are able to enroll in our Part D
coverage plans.
The new Medicare Advantage plans focus on simplicity, so that members can sign up and use the new drug
benefit with minimal paperwork, and coverage that starts immediately upon enrollment. We believe we offer
some of the most cost-effective prescription drug plans with premiums below the national average cost. We now
offer prescription drug coverage under Medicare Advantage in Arizona, California, Connecticut, New York and
Oregon, states where we had already been offering Medicare services. Medicare Advantage members in these
states are generally permitted to sign up for the new benefit and receive prescription drug medications at no
4