Health Net 2014 Annual Report Download - page 130

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-20
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. Our 10 largest employer group premiums receivable
balances within each of our plans accounted for 5% and 14% of our total premiums receivable as of December 31, 2014
and 2013, respectively. Our Medicare receivable from CMS represented 9% of total receivables as of December 31,
2014 compared with 21% as of December 31, 2013. Our Medicaid receivable, due primarily from DHCS, represented
approximately 84% and 63% of premiums receivable as of December 31, 2014 and 2013, respectively. Our premiums
receivable from Medicare and Medicaid programs are subject to timing of cash receipts from the federal and state
governmental agencies. Our 10 largest employer group premiums within each of our plans accounted for 11%, 16% and
17% of our health plan services premium revenues for the years ended December 31, 2014, 2013 and 2012,
respectively.
The federal government is the primary customer of our Government Contracts reportable segment representing
approximately 96% 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 23%, 27% and 27% of our health plan premium revenues in 2014, 2013
and 2012, 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"). Medicaid premium revenues accounted for 36%, 23%, and 19% of our health plan
services premium revenues for the years ended December 31, 2014, 2013, and 2012, respectively. We are the sole
commercial plan contractor with DHCS to provide Medi-Cal services in Los Angeles County, California. In 2014 and
2013, revenue from our Medi-Cal contract in Los Angeles County was approximately 55% and 46% of our total
Medicaid premium revenue, respectively, and approximately 19% and 11% 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 extend our contract for a second 24-month extension period ending
March 31, 2012. On December 1, 2011, our contract with DHCS was extended for a third 24-month period ending
March 31, 2014. On November 2, 2012, our wholly owned subsidiaries, Health Net of California, Inc. and Health Net
Community Solutions, Inc., entered into a settlement agreement ("the Agreement") with the DHCS. As part of the
Agreement, DHCS agreed, among other things, to the extension of all of our Medi-Cal managed care contracts existing
on the date of the Agreement, including our contract with DHCS to provide Medi-Cal services in Los Angeles County,
for an additional five years from their then existing expiration dates, subject to customary provisions for termination.
Accordingly, our Medi-Cal contract for Los Angeles County is scheduled to expire in April 2019. For additional
information on our Agreement with DHCS, see "Health Plan Services Revenue Recognition" above in this Note 2.
Earnings Per Share
Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of
common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted average
shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that could occur if
stock options were exercised and restricted stock units ("RSUs") and performance share units ("PSUs") were vested)
outstanding during the periods presented.
The inclusion or exclusion of common stock equivalents arising from stock options, RSUs and PSUs in the
computation of diluted earnings per share is determined using the treasury stock method. For the years ended
December 31, 2014, 2013 and 2012, respectively, 1,175,000 shares, 949,000 shares and 954,000 shares of dilutive
common stock equivalents were outstanding and were included in the computation of diluted earnings per share.