Health Net 2014 Annual Report Download - page 125

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-15
benefits as part of our Medicare Advantage offerings. Our Medicare Advantage Plus Prescription Drug ("MAPD") plans
cover both prescription drugs and medical care.
Health Net has two primary categories of contracts under Part D, one with CMS and one with the individual Part
D enrollees. The CMS contract covers the portion of the revenue for benefits that will be paid by CMS. The enrollee
contract covers the portion of the revenue for benefits to be paid by the enrollees and are directly underwritten with the
enrollees, not CMS, and therefore there is a direct insurance relationship with the enrollees. The premiums for the
enrollee contracts are received directly from the enrollees and from CMS for low-income subsidy members.
The revenue recognition of the revenue and cost reimbursement components under Part D is described below:
CMS Premium Direct Subsidy—Health Net receives a monthly premium from CMS based on an original bid
amount. This payment for each individual is a fixed amount per member for the entire plan year and is based upon that
individual’s risk score status. The CMS premium is recognized evenly over the contract period and reported as part of
health plan services premium revenue.
Member Premium—Health Net receives a monthly premium from members based on the original bid submitted
to CMS. The member premium, which is fixed for the entire plan year is recognized evenly over the contract period and
reported as part of health plan services premium revenue.
Low-Income Premium Subsidy—For qualifying low-income members, CMS will reimburse Health Net, on the
member’s behalf, some or all of the monthly member premium depending on the member’s income level in relation to
the Federal Poverty Level. The low-income premium subsidy is recognized evenly over the contract period and
reported as part of health plan services premium revenue.
Catastrophic Reinsurance Subsidy—CMS will reimburse Health Net for 80% of the drug costs after a member
reaches his or her out of pocket catastrophic threshold of $4,550, $4,750 and $4,700 for the years ended December 31,
2014, 2013 and 2012, respectively. The CMS prospective payment (a flat per member per month ("PMPM") cost
reimbursement estimate) is received monthly based on the original CMS bid. After the year is complete, a settlement is
made based on actual experience. The catastrophic reinsurance subsidy is accounted for as deposit accounting.
Low-Income Member Cost Sharing Subsidy—For qualifying low-income members, CMS will reimburse us, on
the member’s behalf, some or all of a member’s cost sharing amounts (e.g., deductible, co-pay/coinsurance). The
amount paid for the member by CMS is dependent on the member’s income level in relation to the Federal Poverty
Level. We receive prospective payments on a monthly basis, and they represent a cost reimbursement that is finalized
and settled after the end of the year. The low-income member cost sharing subsidy is accounted for as deposit
accounting.
Coverage Gap Discount—The Medicare Coverage Gap Discount is a program that began in 2011 under which
drug manufacturers are required to provide a 50% discount on brand name drugs purchased in the Medicare Part D
coverage gap by non-LIS ("Low Income Subsidy") Part D members. The amount of the discount is included in the
accumulation of the members' out-of-pocket costs. Under the Medicare Coverage Gap Discount Program, we receive
monthly prospective payments from CMS for advancing the gap discounts at the point of sale. CMS coordinates the
collection of discount payments from pharmaceutical manufacturers and payments to Health Net based on prescription
drug event data.
CMS Risk Share—Premiums from CMS are subject to risk corridor provisions which compare costs targeted in
our annual bids to actual prescription drug costs, limited to actual costs that would have been incurred under the
standard coverage as defined by CMS. Variances of more than 5% above or below the original bid submitted by us may
result in CMS making additional payments to us or require us to refund to CMS a portion of the premiums we received.
We estimate and recognize an adjustment to premium revenues related to the risk corridor payment settlement based
upon pharmacy claims experience. The estimate of the settlement associated with these risk corridor provisions requires
us to consider factors that may not be certain, including member eligibility status differences with CMS. The risk-share
adjustment, if any, is recorded as an adjustment to premium revenues and premiums receivable.