Health Net 2015 Annual Report Download - page 65

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
General
We are a publicly traded managed care organization that delivers managed health care services through health
plans and government-sponsored managed care plans. Our mission is to help people be healthy, secure and comfortable.
We provide and administer health benefits to approximately 6.1 million individuals across the country through group,
individual, Medicare (including the Medicare prescription drug benefit commonly referred to as "Part D"), Medicaid
and dual eligible programs, as well as programs with the U.S. Department of Defense (“Department of Defense” or
“DoD”), and U.S. Department of Veterans Affairs ("VA") programs. We also offer behavioral health, substance abuse
and employee assistance programs and managed health care products related to prescription drugs.
On July 2, 2015, the Company entered into the Merger Agreement with Centene. The completion of the Merger is
subject to the satisfaction or waiver of customary closing conditions, including, without limitation, certain approval,
notice or similar requirements with applicable regulatory authorities. The Merger is expected to close in the first quarter
of 2016, subject to the receipt of the remaining required regulatory approvals and satisfaction or waiver of other closing
conditions. On November 2, 2014, we entered into a master services agreement (as subsequently amended and restated,
the "Master Services Agreement") with Cognizant Healthcare Services, LLC to provide certain services to us. However,
in connection with the announcement of the Merger with Centene, we agreed with Cognizant to suspend efforts toward,
and defer the commencement of services under the master services agreement. See Notes 1 and 3 to our consolidated
financial statements for additional information.
How We Report Our Results
Our reportable segments are comprised of Western Region Operations and Government Contracts, each of which
is described below. See Note 14 to our consolidated financial statements for more information regarding our reportable
segments.
Our health plan services are provided under our Western Region Operations reportable segment, which includes
the operations primarily conducted in California, Arizona, Oregon and Washington for our commercial, Medicare,
Medicaid and dual eligibles health plans, our health and life insurance companies, our pharmaceutical services
subsidiary and certain operations of our behavioral health subsidiaries. As of December 31, 2015, we had approximately
3.3 million medical members in our Western Region Operations reportable segment.
Our Government Contracts segment includes our government-sponsored managed care contract with the DoD
under the TRICARE program in the North Region, our Military and Family Life Counseling, formerly Military and
Family Life Consultant (“MFLC”) contract with DoD and other health care related government contracts, including the
Patient Centered Community Care program (“PC3 Program”) contract we have with VA. Our PC3 Program contract has
been expanded further to provide additional services for the VA in support of the Veterans Access, Choice and
Accountability Act of 2014 ("VACAA"). The VACAA modification to our PC3 contract expires no later than September
30, 2017. On April 1, 2011, we began delivery of administrative services under a new Managed Care Support Contract
(“T-3 contract”) for the TRICARE North Region. Under the T-3 contract for the TRICARE North Region, we provide
administrative services to approximately 2.8 million Military Health System (“MHS”) eligible beneficiaries. For
additional information on our T-3, MFLC and PC3 Program contracts, see Note 2 to our consolidated financial
statements under the heading "Government Contracts" and "—Results of Operations—Government Contracts
Reportable Segment."
How We Measure Our Profitability
Our profitability depends in large part on our ability to, among other things, effectively price our health care
products; accurately predict and effectively manage health care and pharmacy costs; effectively contract with health
care providers; attract and retain members; and manage our general and administrative (“G&A”) and selling expenses.
In addition, factors such as state and federal health care reform legislation and regulation, competition and general
economic conditions affect our operations and profitability. The effect of escalating health care costs, as well as any
changes in our ability to negotiate competitive rates with our providers, may impose further risks to our ability to
profitably underwrite our business. Each of these factors may have a material impact on our business, financial
condition or results of operations.