Health Net 2013 Annual Report Download - page 5

3
networks to meet this need. These tailored network products use provider networks that share our commitment to
quality health care and affordability. These products also incorporate benefit levels that help ensure our members have
access to the care they need.
We offer tailored network HMO products throughout our Western Region Operations segment. These networks
are structured in a variety of ways, including a tiered provider option based on cost and quality, products tailored to
targeted populations and networks organized in conjunction with a strategic provider partner. For example, our HMO
ExcelCare product offers a network of HMO doctors, specialists and hospitals in ten counties in California. Our Salud
Con Health NetSM product line is a suite of affordable plans targeting the Latino community. In addition, we have
developed tailored network products with strategic provider partners in California, Arizona, Oregon and Washington,
and we have developed customized products for key employer groups with a large geographic distribution within a
particular state. We believe our strength in tailored network products will be an important factor as all of our exchange
and off-exchange HMO plans utilized tailored networks.
We assume both underwriting and administrative expense risk in return for the premium revenue we receive from
our HMO, POS, PPO and EPO products.
In California, we generally utilize a “capitation” payment model. Under a capitation payment model, we pay a
provider group a fixed amount per member on a regular basis, usually monthly, and the provider group accepts the risk
of the frequency and cost of member utilization of professional services. Captitation payment models incentivize
providers to focus on preventive care and cost management. Under these payment models, we believe members are
more likely than in a fee-for-service model to receive a comprehensive array of appropriate and timely preventive
services, thereby improving members’ health and lowering the rate of growth of health care costs. With its focus on
improving patient care through shared risk amongst providers and health insurers, the capitation payment model, widely
used in California for a number of years, shares certain similarities to the Accountable Care Organization (“ACO”)
model that is one of the ACA’s primary initiatives for improving the quality and efficiency of health care delivery
systems. See “—Provider Relationships” for additional information about our capitation fee arrangements and “Item
1A. Risk Factors—If we fail to develop and maintain satisfactory relationships on competitive terms with the hospitals,
provider groups and other providers that provide services to our members, our profitability could be adversely affected”
for additional information on the challenges we face with providers in the changing health care environment. As of
December 31, 2013, approximately 76% of our California commercial membership was enrolled in capitated medical
groups. In addition, approximately 69% of our Medicare and 78% of our Medicaid businesses are linked to capitated
provider groups.
As of December 31, 2013, with respect to our Western Region Operations segment, 56% of our commercial
members were covered by conventional HMO products, 41% were covered by POS and PPO products, and 3% were
covered by other related products.
Membership in our tailored network products was approximately 38% of total commercial risk membership as of
December 31, 2013, compared with 35% as of December 31, 2012. As of December 31, 2013, approximately 57% of
our California commercial capitated membership was enrolled in tailored network products.
The following table contains membership information relating to our commercial large group (generally defined
as an employer group with more than 50 employees) members, commercial small group (defined as employer groups
with 2 to 50 employees) and individual members, Medicare Advantage members, and Medicaid members as of
December 31, 2013 (our Medicare and Medicaid businesses are discussed below under “—Medicare Products” and “—
Medicaid and Related Products”):
Commercial—Large Group 651,657 (a)
Commercial—Small Group & Individual 433,546 (b), (c)
Medicare Advantage 244,424
Medicaid 1,116,613
___________
(a) Includes 421,961 HMO members, 123,384 POS members, 75,638 PPO members, 9,192 EPO members and
21,482 members in other related products.
(b) Includes 190,121 HMO members, 29,130 POS members, 213,325 PPO members, 967 EPO members and 3
members in other related products.
(c) Includes 114,616 individual members.