Health Net 2015 Annual Report Download - page 218

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-57
Surety Bonds
Under our Arizona Medicaid contract with the AHCCCS, we are required to provide a financial guarantee for the
payment of claims. We 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, 2015, the performance bond amount was $28 million.
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.
At this time, we do not believe we will be required to fund or draw down any amounts related to the performance
bond. Accordingly, no liability related to the performance bond has been recognized in the Company's financial
statements as of December 31, 2015.
Note 14—Segment Information
Our reportable segments are comprised of Western Region Operations and Government Contracts. Our Western
Region Operations reportable segment includes the operations of our commercial, Medicare, Medicaid and dual
eligibles health plans, our health and life insurance companies, our pharmaceutical services subsidiaries and certain
operations of our behavioral health subsidiaries. These operations are conducted primarily in California, Arizona,
Oregon and Washington. Our Government Contracts reportable segment includes government-sponsored managed care
and administrative services contracts through the TRICARE program, the Department of Defense Military and Family
Life Counseling program, the U.S. Department of Veterans Affairs Patient Centered Community Care program and
certain other health care-related government contracts. In connection with the Cognizant Transaction, we reviewed our
reportable segments and determined that no changes to our reportable segments were necessary. See Note 3 for
additional information regarding the Cognizant Transaction.
The financial results of our reportable segments are reviewed on a monthly basis by our chief operating decision
maker ("CODM"). We continuously monitor our reportable segments to ensure that they reflect how our CODM
manages our company.
We evaluate performance and allocate resources based on segment pretax income. Our assets are managed
centrally and viewed by our CODM on consolidated basis; therefore, they are not allocated to our segments and our
segments are not evaluated for performance based on assets. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies (see Note 2), except that intersegment
transactions are not eliminated. We include investment income, administrative services fees and other income and
expenses associated with our corporate shared services and other costs in determining our Western Region Operations
and Divested Operations and Services reportable segments’ pretax income to reflect the fact that these revenues and
expenses are primarily used to support our Western Region Operations and Divested Operations and Services.
We also have a Corporate/Other segment that is not a business operating segment. It is added to our reportable
segments to provide a reconciliation to our consolidated results. The Corporate/Other segment includes costs that are
excluded from the calculation of segment pretax income because they are not managed within the segments and are not
directly identified with a particular operating segment. Accordingly, these costs are not included in the performance
evaluation of our reportable segments by our CODM. In addition, certain charges, including but not limited to those
related to our continuing efforts to address scale issues, as well as asset impairments, are reported as part of Corporate/
Other.