Health Net 2015 Annual Report Download - page 180

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-19
Reserves for Contingent Liabilities
In the course of our operations, we are involved on a routine basis in various disputes with members, health care
providers, and other entities or individuals, as well as audits or investigations by government agencies and elected
officials that relate to our services and/or business practices that expose us to potential losses.
We recognize an estimated loss, which may represent damages, assessment of regulatory fines or penalties,
settlement costs, future legal expenses or a combination of the foregoing, as appropriate, from such loss contingencies
when it is both probable that a loss will be incurred and the amount of the loss can be reasonably estimated. Our loss
estimates are based in part on an analysis of potential results, the stage of the proceedings, consultation with outside
counsel and any other relevant information available. See Note 13 for additional details.
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 7% and 5% of our total premiums receivable as of December 31, 2015
and 2014, respectively. Our Medicare receivable from CMS represented 9% of total receivables as of December 31,
2015 compared with 9% as of December 31, 2014. Our Medicaid receivable, due primarily from DHCS, represented
approximately 80% and 84% of premiums receivable as of December 31, 2015 and 2014, 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 9%, 11% and
16% of our health plan services premium revenues for the years ended December 31, 2015, 2014 and 2013,
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 20%, 23% and 27% of our health plan premium revenues in 2015, 2014
and 2013, 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 41%, 36%, and 23% of our health plan
services premium revenues for the years ended December 31, 2015, 2014, and 2013, respectively. We are the sole
commercial plan contractor with DHCS to provide Medi-Cal services in Los Angeles County, California. In 2015 and
2014, revenue from our Medi-Cal contract in Los Angeles County was approximately 58% and 55% of our total
Medicaid premium revenue, respectively, and approximately 24% and 19% 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.