Health Net 2014 Annual Report Download - page 119

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-9
of our Medicare PDP business, our Divested Operations and Services reportable segment included the operations of our
businesses that provided administrative and run-out support services to an affiliate of UnitedHealth Group Incorporated
("United") and its affiliates under administrative services and claims servicing agreements in connection with the sale
of all of the outstanding shares of capital stock of our health plan subsidiaries that were domiciled and had conducted
businesses in Connecticut, New Jersey, New York and Bermuda to United (the "Northeast Sale"). Beginning in the first
quarter of 2012, this segment also included the transition-related expenses of our divested Medicare PDP business. As
of December 31, 2012, we had substantially completed the administration and run-out of our divested businesses. See
Note 2 for additional information on our Divested Operations and Services and Note 3 for more information on the
Cognizant Transaction, the sale of our Medicare PDP business and the Northeast Sale.
Note 2—Summary of Significant Accounting Policies
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All intercompany transactions have been eliminated in consolidation.
On November 2, 2014, we signed a definitive master services agreement with Cognizant to provide certain
services to us. In connection with this agreement, we have also entered into an asset purchase agreement pursuant to
which we have agreed to sell certain software assets and related intellectual property we own to Cognizant. The
Cognizant Transaction is subject to receipt of required regulatory approvals. As of December 31, 2014, we have
classified $50.0 million, at fair value less cost to sell, in assets as assets held for sale in connection with the Cognizant
Transaction.
On April 1, 2012, we completed the sale of the business operations of our Medicare PDP business to CVS
Caremark. As a result of the sale, the operating results of our Medicare PDP business have been classified as
discontinued operations in our consolidated statements of operations for the year ended December 31, 2012.
See Note 3 for more information on the Cognizant Transaction and the sale of our Medicare PDP business.
Use of Estimates
The preparation of financial statements in conformity with United States Generally Accepted Accounting
Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities through the date of the issuance of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the
Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of
matters that are inherently uncertain and will likely change in subsequent periods. Actual results could differ materially
from those estimates. Principal areas requiring the use of estimates include revenue recognition, including rebates,
health care costs, including incurred but not yet reported ("IBNR") amounts, amounts receivable or payable under the
premium stabilization programs enacted by the ACA (see "Accounting for Certain Provisions of the ACA—3Rs:
Reinsurance, Risk Adjustment and Risk Corridor" section below), reserves for contingent liabilities, amounts receivable
or payable under government contracts, goodwill and other intangible assets, recoverability of long-lived assets and
investments, and income taxes.
Health Plan Services Revenue Recognition
Health plan services premium revenues generally include HMO, PPO, EPO and POS premiums from employer
groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which
premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide care to
Medicaid recipients, revenue under Medicare risk contracts to provide care to enrolled Medicare recipients and revenue
under our dual eligible members who are participating in the CCI. Revenue is recognized in the month in which the
related enrollees are entitled to health care services. Premiums collected in advance of the month in which enrollees are
entitled to health care services are recorded as unearned premiums.