Health Net 2015 Annual Report Download - page 7

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was 41,652 including 9,373 tailored network members, as of December 31, 2015. Our commercial membership in
Washington was 7,874 as of December 31, 2015. Our Medicare Advantage membership in Oregon and Washington was
64,814 as of December 31, 2015. We did not have any Medicaid members in Oregon or Washington as of December 31,
2015.
Medicaid and Related Products
We are one of the two largest Medicaid managed care health plans in California based on membership as of
December 31, 2015. We continued to experience significant growth in our Medicaid business during 2015, primarily the
result of Medicaid expansion under the ACA, which is discussed in further detail below under the heading “—Medicaid
Expansion and Recent State Legislation.” As of December 31, 2015, we had 1,826,531 members enrolled in Medi-Cal
and other California state health programs, and we had 64,728 Medicaid members enrolled in Arizona.
California
To enroll in our Medi-Cal products, an individual must be eligible for Medicaid benefits in accordance with
California's regulatory requirements. The State of California's Department of Health Care Services (“DHCS”) pays us a
monthly fee for the coverage of our Medi-Cal members. The monthly fee is based on prepaid payment rates that are
required by federal law to be actuarially sound, and ultimately determined by the State. The State considers a
combination of various factors in setting these rates, including, without limitation, geographic area, a member's health
status, age, gender, county or region, benefit mix and member eligibility category. See “Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Western Region
Operations Reportable Segment—Western Region Operations Segment Membership” for detailed information
regarding our Medicaid enrollment.
Medi-Cal is a public health insurance program that provides health care services for low-income individuals
residing in California, and is financed by the state of California and the federal government. As of December 31, 2015,
through HNCS, we had Medi-Cal operations in 12 California counties: Fresno, Kern, Kings, Los Angeles, Madera,
Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, Stanislaus and Tulare. We are the sole commercial
plan contractor with DHCS to provide Medi-Cal services in Los Angeles County, California. As of December 31, 2015,
995,562 of our Medi-Cal members resided in Los Angeles County, representing approximately 55% of our Medi-Cal
membership.
In November 2012, we entered into a state-sponsored health plans rate settlement agreement (the "Agreement")
with DHCS to settle certain rate disputes related to prior years. Under 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
existing expiration dates. As a result, our agreement to provide Medi-Cal services in Los Angeles County is currently
scheduled to expire by its terms on March 31, 2019. The Agreement also established an account to track retrospective
premium adjustments on all of our state-sponsored health care programs, including Medi-Cal, which includes our
seniors and persons with disabilities population—also referred to as the aged, blind and disabled, our participation in
the dual eligibles demonstration portion of the CCI that began in April 2014 and Medi-Cal expansion that also began in
2014. These retrospective premium adjustments are designed to help maintain minimum pretax margins with respect to
our Medi-Cal operations. For additional information on the Agreement, see Note 2 to our consolidated financial
statements, under the heading "Health Plan Services Revenue Recognition," included as part of this Annual Report on
Form 10-K.
Arizona
In March 2013, we were awarded a contract by the Arizona Health Care Cost Containment System ("AHCCCS")
to administer Medicaid benefits in Maricopa County, Arizona, beginning on October 1, 2013. AHCCCS uses federal,
state and county funds to provide health care coverage to the State’s acute and long-term care Medicaid populations,
low income groups and small businesses. Since 1982, when it became the first statewide Medicaid managed care
system in the nation, AHCCCS has operated under a federal Section 1115 Medicaid waiver authority that allows for the
operation of a total managed care model. AHCCCS contracts for acute care services in seven geographic service areas
that include 15 Arizona counties. Our contract for Maricopa County has an initial term of three years with two
additional one-year extensions. In accordance with AHCCCS contractual requirements, we established a subsidiary,
Health Net Access, Inc., whose sole activity is to perform the obligations under the AHCCCS contract.
AHCCCS makes monthly prospective capitation payments to contracted health plans responsible for the delivery
of care to members. As with our monthly fee under Medi-Cal, the monthly fee is based on prepaid payment rates that