Health Net 2014 Annual Report Download - page 166

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-56
We have entered into an agreement with Cognizant Technology Solutions U.S. Corporation ("Cognizant") to
outsource our software applications development and management activities to Cognizant. Under the terms of the
agreement, Cognizant, among other things, provides us with services including the following: application development,
testing and monitoring services, application maintenance and support services, project management services and cross
functional services. In 2014, we extended the agreement, and as of December 31, 2014, the remaining term of this
contract was approximately four years, and the total estimated future commitments under the agreement were
approximately $288.1 million.
We have also entered into another agreement with Cognizant to outsource a substantial portion of our claims
processing activities to Cognizant. Under the terms of the agreement, Cognizant, among other things, provides us with
claims adjudication, adjustment, audit and process improvement services. As of December 31, 2014, the remaining term
of this contract was approximately two years, and the total estimated future commitments under the agreement were
approximately $25.4 million.
We have also entered into contracts with our health care providers and facilities, the federal government, other IT
service companies and other parties within the normal course of our business for the purpose of providing health care
services. Certain of these contracts are cancelable with substantial penalties.
As of December 31, 2014, future minimum commitments for operating leases and long-term purchase obligations
for the years ending December 31 are as follows:
Operating
Leases
Long-Term
Purchase
Obligations
(Dollars in millions)
2015......................................................................................... $55.5 $314.4
2016......................................................................................... 49.8 244.1
2017......................................................................................... 38.2 110.8
2018......................................................................................... 26.1 77.6
2019......................................................................................... 21.3 —
Thereafter ................................................................................ 46.5 —
Total minimum commitments.................................................. $237.4 $746.9
Lease expense totaled $44.8 million, $45.1 million and $47.8 million for the years ended December 31, 2014,
2013 and 2012, respectively. Long-term purchase obligation expenses totaled $250.2 million, $217.2 million and
$214.9 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Surety Bonds
Under our Arizona Medicaid contract with the AHCCCS, we are required to provide a financial guarantee for the
payment of claims. We have elected to satisfy the financial guarantee by purchasing a performance bond. The bond
requirement is based on the expected monthly capitation to be received from the state of Arizona. The estimated
calculation is based on historical capitation rates applied to forecasted membership and adjusted on an as needed basis
during the year. As of December 31, 2014, the performance bond amount was $24 million. It was increased to $28
million effective January 1, 2015.
Under this performance bond if we were to fail to pay claims, the issuers of the performance bond would make
payments in an amount required by the AHCCCS up to the bond amount. We would, in turn, be responsible for
reimbursing the issuing insurance carrier for any payments it made on our behalf. To the extent the Company incurs
liabilities as a result of the arrangements under the performance bond, such liabilities would be included on the
Company's consolidated balance sheet.