Health Net 2006 Annual Report Download - page 63

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Government Contracts Segment Results
The following table summarizes the operating results for Government Contracts for the last three fiscal
years:
Year Ended December 31,
2006 2005 2004
(Dollars in millions)
Government contracts segment:
Revenues ......................................... $2,376.0 $2,307.5 $2,021.9
Costs ............................................ 2,234.5 2,211.3 1,927.6
Pretax income ..................................... $ 141.5 $ 96.2 $ 94.3
Government Contracts Ratio .......................... 94.0% 95.8% 95.3%
Government Contracts Revenues
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Government contracts revenues increased by $68.5 million, or 3%, for the year ended December 31, 2006 as
compared to the same period in 2005. The increase was primarily due to an increase in health care services
provided under a new option year in the TRICARE contract, Option 3, which began April 1, 2006 and a new
behavioral health contract with the Department of Defense for counseling services to active military personnel on
an ASO basis.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Government contracts revenues increased by $285.6 million, or 14%, for the year ended December 31, 2005
as compared to the same period in 2004. The increase in Government Contracts revenues was primarily due to an
increase in health care services provided under our TRICARE contract for the North Region resulting from a rise
in demand for private sector services as a direct result of continued heightened military activity.
Government Contracts Costs
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Government contracts costs increased by $23.3 million or 1% for the year ended December 31, 2006 as
compared to the same period in 2005, primarily due to higher costs from providing services under our Option 3
TRICARE contract.
The Government contracts ratio decreased by 180 basis points for the year ended December 31, 2006 as
compared to the same period in 2005 primarily due to improved health care performance in each successive
option period of the TRICARE contract for the North Region, particularly the Option 3 period which began on
April 1, 2006 and moderating health care cost trends.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Government contracts costs increased by $283.7 million or 15% for the year ended December 31, 2005 as
compared to the same period in 2004, primarily due to higher costs under the TRICARE contract for the North
Region resulting from a rise in demand for private sector services as a direct result of continued heightened
military activity.
The Government contracts ratio increased by 50 basis points for the year ended December 31, 2005 as
compared to the same period in 2004 due to change in the business mix of the TRICARE contracts as we fully
transitioned to the North Region contract in 2005.
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