Health Net 2009 Annual Report Download - page 111

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The amortization expense was $10.7 million, $20.0 million and $12.7 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Estimated annual pretax amortization expense for other intangible assets for each of the next five years
ending December 31 is as follows (dollars in millions):
Year Amount
2010 .............................................................. $3.8
2011 .............................................................. 3.5
2012 .............................................................. 3.4
2013 .............................................................. 3.4
2014 .............................................................. 2.8
Policy Acquisition Costs
Policy acquisition costs are those variable costs that relate to the acquisition of new and renewal commercial
health insurance business. Such costs include broker commissions, costs of policy issuance and underwriting, and
other costs we incur to acquire new commercial business or renew existing business. Our commercial health
insurance business typically has a one-year term and may be canceled upon a 30-day notice. We expense these
costs as incurred in accordance with the Health Care Organization Audit and Accounting Guide and report them
as selling expenses in our consolidated statements of operations.
Reserves for Contingent Liabilities
In the course of our operations, we are involved on a routine basis in various disputes with members, health
care providers, and other entities, as well as audits or investigations by government agencies and elected officials
that relate to our services and/or business practices that expose us to potential losses.
We recognize an estimated loss, which may represent damages, assessment of regulatory fines or penalties,
settlement costs, future legal expenses or a combination of the foregoing, as appropriate, from such loss
contingencies when it is both probable that a loss will be incurred and that the amount of the loss can be
reasonably estimated. Our loss estimates are based in part on an analysis of potential results, the stage of the
proceedings, consultation with outside counsel and any other relevant information available.
Insurance Programs
The Company is insured for various errors and omissions, property, casualty and other risks. The Company
maintains various self-insured retention amounts, or “deductibles,” on such insurance coverage. The Company
also maintains litigation reserves to cover those self-insured retention amounts for errors and omissions claims
based on historical claims filed, as well as estimates of claims incurred but not reported.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash
equivalents, investments and premiums receivable. All cash equivalents and investments are managed within
established guidelines, which provide us diversity among issuers. Concentrations of credit risk with respect to
premiums receivable are limited due to the large number of payers comprising our customer base. Our 10 largest
employer group premiums receivable balances within each of our plans accounted for 20% and 48% of our total
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