Health Net 2007 Annual Report Download - page 145

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On August 2, 2005 and November 4, 2005, a total of three separate judgments were entered against us in
connection with a lawsuit arising from the 1999 sale of three of our health plan subsidiaries to Amcareco, Inc.
The aggregate amount of the judgments was $108.7 million. During the three months ended June 30, 2005, we
recorded a pretax charge of $15.9 million representing total estimated legal defense costs related to this litigation.
As of December 31, 2007, no modifications have been made to the original estimated cost. The Company did not
accrue any amount for the compensatory or punitive damages awards as of December 31, 2005 and intends to
vigorously appeal this judgment.
See Note 12 for additional information on these two litigation matters.
Note 15—Segment Information
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. Our Government Contracts segment administers one large, multi-year managed health care
government contract and other health care related government contracts.
Our two reportable segments are determined by applying the aggregation criteria in SFAS No. 131,
“Disclosures About Segments of An Enterprise and Related Information.” The financial results of our two
reportable segments are reviewed on a monthly basis by our executive operating team which comprises the chief
operating decision maker (CODM). We continuously monitor our reportable segments to ensure that they reflect
how our CODM manages our company. The operating segments within our Health Plan Services reportable
segment all have similar economic characteristics and they meet the additional following five aggregation
criteria:
• Similar managed health care products and services including HMO, PPO and POS,
• Similar production process as they support similar customer groups and products,
• Same type of customers, individuals within large and small employer groups and senior and
commercial individuals,
• Similar distribution channels primarily consisting of insurance brokers, and
• Similar regulatory environment in that the health care industry is highly regulated at both the federal
and state levels.
We evaluate performance and allocate resources based on segment pretax income. The accounting policies
of the reportable segments are the same as those described in the summary of significant accounting policies (see
Note 2), except that intersegment transactions are not eliminated. We include investment income, administrative
services fees and other income and expenses associated with our corporate shared services and other costs in
determining Health Plan Services segment’s pretax income to reflect the fact that these revenues and expenses
are primarily used to support Health Plan Services reportable segment. We currently manage our assets on
consolidated basis. Accordingly, asset information by reportable segments have not been disclosed.
The debt refinancing charge and litigation, severance and related benefit costs are excluded from our
measurement of segment performance since they are not managed within either of our reportable segments.
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