Health Net 2013 Annual Report Download - page 123

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-19
Year Amount
2014........................................................................................................................................... $ 2.8
2015........................................................................................................................................... 2.6
2016........................................................................................................................................... 2.0
2017........................................................................................................................................... 2.0
2018........................................................................................................................................... 2.0
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
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 or individuals, 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 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. See Note 13 for additional details.
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.
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. In both 2013 and
2012, our 10 largest employer group premiums receivable balances within each of our plans accounted for 14% of our
total premiums receivable. Our Medicare receivable from CMS represented 21% of total receivables as of
December 31, 2013 compared with 25% as of December 31, 2012. Our 10 largest employer group premiums within
each of our plans accounted for 16%, 17% and 18% of our health plan services premium revenues for the years ended
December 31, 2013, 2012 and 2011, respectively. The federal government is the primary customer of our Government
Contracts reportable segment representing approximately 95% of our Government Contracts revenue. In addition, the
federal government is a significant customer of our Western Region Operations segment as a result of our contract with
CMS for coverage of Medicare-eligible individuals. Medicare revenues accounted for 27%, 27% and 25% of our health
plan premium revenues in 2013, 2012 and 2011, respectively. Our Medicaid revenue is derived in California through
our contracts with the DHCS, and, beginning in the fourth quarter of 2013, in Arizona through our contract with the
Arizona Health Care Cost Containment System ("AHCCCS"). We are the sole commercial plan contractor with DHCS
to provide Medi-Cal services in Los Angeles County, California. In 2013 and 2012, revenue from our Medi-Cal contract
in Los Angeles County was approximately 46% and 44% of our total Medicaid premium revenue, respectively, and
approximately 11% and 8% of total health plan premium revenue, respectively. In May 2005, we renewed our contract
with DHCS to provide Medi-Cal service in Los Angeles County. On March 29, 2010, DHCS executed an amendment to