Health Net 2013 Annual Report Download - page 76

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As of December 31, 2012, approximately 490,000 of our Medi-Cal members resided in Los Angeles County,
representing approximately 52 percent of our Medi-Cal membership and approximately 51 percent of our membership
in all California state health programs.
California Coordinated Care Initiative
In 2012, the California legislature enacted the Coordinated Care Initiative, or “CCI.” The stated purpose of the
CCI is to provide a more efficient health care delivery system and improved coordination of care to individuals that are
fully eligible for Medicare and Medi-Cal benefits, or "dual eligibles," as well as to all Medi-Cal only beneficiaries who
rely on long-term services and supports, or “LTSS,” which includes institutional long-term care and home and
community-based services and other support services.
In participating counties, the CCI established a voluntary “dual eligibles demonstration,” also referred to as the
“Cal MediConnect” program, to coordinate medical, behavioral health, long-term institutional, and home- and
community-based services for dual eligibles through a single health plan, and will require that all Medi-Cal
beneficiaries in participating counties join a Medi-Cal managed care health plan to receive their Medi-Cal benefits,
including LTSS. The DHCS selected eight counties to participate in the CCI, including Los Angeles and San Diego
Counties. On April 4, 2012, DHCS selected us to participate in the dual eligibles demonstration for both Los Angeles
and San Diego Counties. In December 2013, HNCS entered into a three-way agreement with DHCS and CMS, which
was subsequently amended on January 13, 2014 (the “Cal MediConnect Contract”). Among other things, under the Cal
MediConnect Contract we will receive prospective blended capitated payments in an amount to be determined to
provide coverage for dual eligibles in Los Angeles and San Diego Counties.
In April 2012, DHCS initially selected Health Net and the local initiative plan, L.A. Care Health Plan (“L.A.
Care”), for the dual eligibles demonstration in Los Angeles County, and selected Health Net and three other health plans
for the dual eligibles demonstration in San Diego County. Los Angeles County is a “two-plan model” County whereby
Medi-Cal benefits are provided by a commercial plan, Health Net, and a local initiative plan, L.A. Care. L.A. Care is a
public agency that serves low-income persons in Los Angeles County through health coverage programs such as Medi-
Cal. In February 2014, DHCS announced that three other health plans will be offered in addition to L.A. Care. The
selection of these plans to participate alongside L.A. Care will not materially impact our membership allocation in the
dual eligibles demonstration. In January 2014, CMS and DHCS informed us that based on its readiness assessments, we
are able to enroll members beginning April 1, 2014, and can begin marketing for the dual eligibles demonstration in
accordance with the guidelines and timeframes for each county.
The dual eligibles demonstration is scheduled to begin in 2014, with active enrollment in Los Angeles and San
Diego Counties to start on April 1, 2014, and is scheduled to conclude at the end of 2017. During the active enrollment
period, dual eligibles in Los Angeles County will be able to either choose among us, L.A. Care or one of the three
newly announced health plans for benefits under the dual eligibles demonstration. Beginning July 1, 2014, DHCS is
scheduled to begin automatically enrolling dual eligibles in Los Angeles County who have not selected a health plan,
which we refer to as “passive enrollment.” Dual eligibles may also choose to “opt out” of the demonstration. Such dual
eligibles will then continue to receive fee-for-service Medicare benefits but will receive Medi-Cal benefits through a
managed care health plan under the CCI. During active enrollment in San Diego County dual eligibles will be able to
select to receive benefits from any one of four health plan options, including us, or “opt out” of the demonstration.
Passive enrollment in San Diego County is scheduled to begin in May 2014. The methodology for allocating passively
enrolled dual eligibles across the participating health plans has not yet been finalized, although it is estimated that
Health Net will receive approximately 47% and 20–25% of the passively enrolled dual eligibles in Los Angeles County
and San Diego County, respectively.
The financial performance of the Cal MediConnect Contract is included in the calculation of the settlement
account that was established pursuant to the terms of the Settlement Agreement entered into by DHCS, HNCS and
Health Net of California, Inc. on November 2, 2012, which is further discussed above under the heading “Western
Region Operations Segment-Medicaid and Related Products.”
Health Net’s participation in the CCI, and the dual eligibles demonstration in particular, represents a significant
new business opportunity for us, but is subject to a number of risks inherent in untested health care initiatives. For
example, the CCI, and the duals demonstration program in particular, is a model of providing health care that is new to
regulatory authorities and health plans in the State of California. Our participation and success in the duals
demonstration will be subject to a number of risks inherent in untested health care initiatives and new populations with
limited cost experience. For additional information regarding our participation in the duals program see “Item 1.
Business—Segment Information—Western Region Operations Segment—California Coordinated Care Initiative" and
for a discussion of additional risks related to the duals program, see “Item 1A. Risk Factors—Our participation in the