Health Net 2009 Annual Report Download - page 69

Government Contracts Segment Results
The following table summarizes the operating results for Government Contracts for the last three fiscal
years:
Year Ended December 31,
2009 2008 2007
(Dollars in millions)
Government Contracts segment:
Revenues .................................................... $3,104.7 $2,835.3 $2,501.7
Costs ....................................................... 2,939.7 2,702.6 2,307.6
Pretax income ................................................ $ 165.0 $ 132.7 $ 194.1
Government contracts ratio ...................................... 94.7% 95.3% 92.2%
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Government contracts revenues increased by $269.4 million, or 10%, for the year ended December 31, 2009
as compared to the same period in 2008. Government contracts costs increased by $237.1 million or 9% for the
year ended December 31, 2009 as compared to the same period in 2008. The increases were primarily due to an
increase in health care services provided under a new option year in the TRICARE contract, Option Period 6, and
growth in the family counseling business with the DoD.
Our TRICARE contract for the North Region includes a target cost and price for reimbursed health care
costs, which is negotiated annually during the term of the contract with underruns and overruns of our target cost
borne 80% by the government and 20% by us. In the normal course of contracting with the federal government,
we recognize changes in our estimate for the target cost underruns and overruns (Target Estimate) when the
amounts become determinable, supportable, and the collectibility is reasonably assured. As a result of changes in
the Target Estimate during the year ended December 31, 2009, we recognized an increase in revenue of $40
million compared to an increase in revenue of $17 million in the year ended December 31, 2008. As a result of
changes in the Target Estimate during the year ended December 31, 2009, we recognized an increase in cost of
$49 million compared to an increase in cost of $22 million in the year ended December 31, 2008. The
administrative price is paid on a monthly basis, one month in arrears and certain components of the
administrative price are subject to volume-based adjustments.
The Government contracts ratio decreased by 60 basis points for the year ended December 31, 2009 as
compared to the same period in 2008 primarily due to growth in the family counseling business with the DoD
and lower health care cost trends in the fourth quarter of 2009.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Government contracts revenues increased by $333.6 million, or 13%, for the year ended December 31, 2008
as compared to the same period in 2007. Government contracts costs increased by $395.0 million or 17% for the
year ended December 31, 2008 as compared to the same period in 2007. The increases were primarily due to an
increase in health care services provided under a new option year in the TRICARE contract, Option Period 5,
which began April 1, 2008, and growth in the family counseling business with the DoD.
As a result of changes in the Target Estimate during the year ended December 31, 2008, we recognized an
increase in revenue of $17 million compared to a decrease in revenue of $58 million in the year ended
December 31, 2007. As a result of changes in the Target Estimate during the year ended December 31, 2008, we
recognized an increase in cost of $22 million compared to a decrease in cost of $75 million in the year ended
December 31, 2007. The administrative price is paid on a monthly basis, one month in arrears and certain
components of the administrative price are subject to volume-based adjustments.
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