Health Net 2006 Annual Report Download - page 101

HEALTH NET, INC.
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), insured preferred provider organizations (PPOs) and
point of service (POS) plans to approximately 6.6 million individuals in 27 states and the District of Columbia
through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as
“Part D”), 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 dismemberment, dental, vision, behavioral health and disability
insurance.
We currently operate within two reportable segments: Health Plan Services and Government Contracts. Our
Health Plan Services reportable segment includes the operations of our commercial, Medicare (including Part D)
and Medicaid health plans, the operations of our health and life insurance companies and our behavioral health
and pharmaceutical services subsidiaries.
Our Government Contracts reportable segment includes government-sponsored managed care plans through
the TRICARE program and other health care-related government contracts, including our behavioral health
contracts with the Department of Defense. The Government Contracts reportable segment administers a large
managed care contract with the U.S. Department of Defense under the TRICARE program in the North Region.
The North Region 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 and a small portion of Tennessee,
Missouri and Iowa. The Company administers health care programs covering approximately 2.9 million eligible
individuals in the Military Health System under the TRICARE contract.
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
subsidiaries. All intercompany transactions have been eliminated in consolidation. Certain amounts in the
consolidated financial statements and notes thereto for the years ended December 31, 2005 and 2004 have been
reclassified to conform to the presentation for the year ended December 31, 2006.
We provide administrative services only (ASO) products to large employer groups in California,
Connecticut, New Jersey and New York. Under these arrangements, we provide claims processing, customer
services, medical management, provider network access and other administrative services. Effective in 2006, we
reported revenues from our ASO business in a separate line item titled “Administrative services fees and other
income” on our consolidated statements of operations. The reclassified amounts were $46.7 million and $42.7
million for the years ended December 31, 2005 and 2004, respectively. Historically, ASO revenue was reported
as part of health plan services premiums. In recent periods, these revenues have increased to a level at which we
believe that reporting them in a separate line item provides useful insight on our operations. These
reclassifications have no impact on our net earnings, balance sheets or cash flow statements as previously
reported.
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