Health Net 2007 Annual Report Download - page 144

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 13—Related Parties
One current executive officer of the Company is a director of an industry-related association, of which the
Company is a member and we paid dues of $1.1 million, $1.1 million and $1.0 million in 2007, 2006 and 2005,
respectively.
As of December 31, 2007, there were no employee loans outstanding.
Note 14—Litigation, Severance and Related Benefit Costs
The following sets forth the principal components of litigation, severance and related benefit costs for the
years ended December 31:
2006 2005
(Dollars in millions)
Litigation ............................................................ $37.1 $81.6
Severance and related benefit costs ........................................ — 1.7
Total ............................................................... $37.1 $83.3
2006 Charges
We recorded the $37.1 million litigation charge in the fourth quarter of 2006 in connection with recent
developments in the Wachtel v. Health Net, Inc. et al. and McCoy v. Health Net, Inc. et al. cases. These two
lawsuits are styled as nationwide class actions and are pending in the United States District Court for the District
of New Jersey on behalf of a class of subscribers in a number of our large and small employer group plans. The
litigation charge was recorded in anticipation of the Company’s on-going litigation defense expenses in these
matters. These lawsuits were settled in the third quarter of 2007. See Note 12 for additional information on this
litigation matter.
2005 Charges
On May 3, 2005, we and the representatives of approximately 900,000 physicians and state and other
medical societies announced that we had signed an agreement (Class Action Settlement Agreement) settling the
lead physician provider track action in the multidistrict class action lawsuit, which is more fully described in
Note 12. The Class Action Settlement Agreement requires us to pay $40 million to general settlement funds and
$20 million for plaintiffs’ legal fees. During the three months ended March 31, 2005, we recorded a pretax
charge of approximately $65.6 million in connection with the Class Action Settlement Agreement, legal expenses
and other expenses which we believe is our best estimate of our loss exposure related to this litigation. Four
physicians appealed the order approving the settlement, but each of the physicians moved to dismiss their
appeals, and all of the appeals were dismissed by the Eleventh Circuit by June 20, 2006. Consequently, the Class
Action Settlement Agreement became effective on July 1, 2006, and on July 6, 2006, we made payments,
including accrued interest, totaling approximately $61.9 million as required by that agreement. The payment had
no material impact to our results of operations for the year ended December 31, 2006, as the cost had been fully
accrued in the prior year. The payments were funded by cash flows from operations. As a result of the physician
settlement agreement, the dismissals of various appeals, and the filing of an agreed motions to dismiss the tag
along actions involving physician providers, all cases and proceedings relating to the physician provider track
actions against us have been resolved.
F-48