Health Net 2014 Annual Report Download - page 136

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-26
The financial statement impact of the section 1202 reimbursement methodology change is summarized in the
table below.
Recorded In
Year Ended
December
31, 2013
Year Ended December 31, 2014
(Dollars in millions) No Risk No Risk Full Risk
Health plan services premiums........................................ $ 4.4 $ — $ 154.7
Health plan services expenses ......................................... — — 144.0
General and administrative expenses .............................. 4.4 — —
Administrative services fees and other income............... 6.5 1.4 (7.9)
Pretax income.................................................................. $ 6.5 $ 1.4 $ 2.8
Recently Issued Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) No.
2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09). ASU 2014-09 will supersede existing
revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g.,
an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should
recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced
disclosures will be required. Companies can adopt the new standard either using the full retrospective approach, a
modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU
2014-09 will become effective for annual and interim reporting periods beginning after December 15, 2016. Early
adoption is not permitted. We are currently evaluating the effect of the new revenue recognition guidance.
Note 3—Assets Held For Sale, Sale of Medicare PDP Business and Northeast Business
Assets Held for Sale
On November 2, 2014, we signed a definitive seven-year master services agreement with Cognizant to provide
consulting, technology and administrative services to us in the following areas: claims management, membership and
benefits configuration, customer contact center services, information technology, quality assurance, appeals and
grievance services and non-clinical medical management support. In addition, we have entered into an asset purchase
agreement with Cognizant for the sale of certain of our software system assets to Cognizant for $50 million. The
transaction, including the related asset purchase (the "Cognizant Transaction"), is expected to close in the first half of
2015, subject to the receipt of required regulatory approvals.
We have determined that the sale of these software system assets constitutes a sale of a business as defined under
GAAP, and the requirements to classify these software system assets as held-for-sale were met as of September 30,
2014. Assets held for sale are measured at the lower of carrying value or fair value less cost to sell. Accordingly, we
have classified $50.0 million in assets as assets held for sale as of December 31, 2014.