Health Net 2015 Annual Report Download - page 213

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-52
We maintain a liability for unrecognized tax benefits that includes the estimated amount of contingent
adjustments that may be sustained by taxing authorities upon examination. A reconciliation of the beginning and ending
amount of unrecognized tax benefits, exclusive of related interest, is as follows:
2015 2014 2013
(Dollars in millions)
Gross unrecognized tax benefits at beginning of year ............................. $ 61.5 $ 55.6 $ 57.3
Increases in unrecognized tax benefits related to the
current year......................................................................................... 3.1 25.5 4.4
Increases in unrecognized tax benefits related to prior years................... 9.5 — —
Decreases in unrecognized tax benefits related to a prior year................ —(17.5)(0.2)
Settlements with taxing authorities .......................................................... (3.8) — (1.9)
Lapse in statute of limitation for assessment ........................................... (22.2)(2.1)(4.0)
Gross unrecognized tax benefits at end of year........................................ $ 48.1 $ 61.5 $ 55.6
Of the $51.0 million total liability at December 31, 2015 for unrecognized tax benefits, including interest and
penalties, approximately $30.6 million would, if recognized, impact the Company’s effective tax rate. The remaining
$20.4 million would impact deferred tax assets. Of the $64.9 million total liability at December 31, 2014 for
unrecognized tax benefits, including interest and penalties, approximately $19.6 million would, if recognized, impact
the Company’s effective tax rate. The remaining $45.3 million would impact deferred tax assets.
We recognized interest and any applicable penalties which could be assessed related to unrecognized tax benefits
in income tax provision expense. Accrued interest and penalties are included within the related tax liability in the
consolidated balance sheet. During 2015, 2014 and 2013, $0.1 million, ($1.9) million and ($0.3) million, respectively,
of interest was recorded as income tax provision (benefit). We reported interest accruals of $1.6 million, $1.8 million
and $3.7 million at December 31, 2015, 2014 and 2013, respectively. Provision expense and accruals for penalties were
immaterial in all reporting periods.
We file tax returns in the federal as well as several state tax jurisdictions. As of December 31, 2015, tax years
subject to examination in the federal jurisdiction are 2012 and forward. The most significant state tax jurisdiction for us
is California, and tax years subject to examination by that jurisdiction are 2011 and forward. Presently we are under
examination by various state taxing authorities. We do not believe that any ongoing examination will have a material
impact on our consolidated balance sheet and results of operations.
In the next twelve months, it is reasonably possible that our unrecognized tax benefits, that are currently subject
to uncertainty, would not change.
Note 12—Regulatory Requirements
All of our health plans as well as our insurance subsidiaries ("regulated subsidiaries") are required to maintain
minimum capital standards and certain restricted accounts or assets, in accordance with legal and regulatory
requirements. For example, under the Knox-Keene Health Care Service Plan Act of 1975, as amended, our California
health plans are regulated by the California Department of Managed Health Care ("DMHC") and must comply with
certain minimum capital or tangible net equity requirements. Our non-California health plans as well as our insurance
subsidiaries must comply with their respective state's minimum regulatory capital requirements. As necessary, we make
contributions to and issue standby letters of credit on behalf of our regulated subsidiaries to meet risk based capital
("RBC") or other statutory capital requirements under various state laws and regulations, and to meet the capital
standards of credit rating agencies. In addition, in California and in certain other jurisdictions, our regulated subsidiaries
are required to maintain minimum investment amounts for the restricted use of the regulators in certain limited
circumstances. See the “Restricted Assets” section in Note 2 for additional information.
Certain of our subsidiaries report their accounts in conformity with accounting practices prescribed or permitted
by state insurance regulatory authorities, or statutory accounting. These subsidiaries are domiciled in various