Health Net 2015 Annual Report Download - page 70

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premiums annually. Certain of the states in which we operate include similar rebate provisions. For example, a medical
loss ratio corridor for the California Department of Health Care Services ("DHCS") adult Medicaid expansion members
under the Medicaid program in California ("Medi-Cal") requires rebate payments to or from DHCS depending on
MLRs for this population. As of December 31, 2015 and December 31, 2014, respectively, we had accrued $345.0
million and $200.6 million, respectively, in accounts payable and other liabilities, and accrued $58.1 million and $0,
respectively, in other noncurrent liabilities for an MLR rebate with respect to our adult Medicaid expansion population
payable to DHCS. Accordingly, for 2015 and 2014, health plan services premium revenues were reduced by $202.5
million and $200.6 million, respectively. Our Medicaid contract with the state of Arizona contains profit-sharing
provisions. Because our Arizona Medicaid profits were in excess of the amount we are allowed to fully retain, we
reduced health plan services premium revenue by $63.7 million and $24.7 million for the years ended December 31,
2015 and December 31, 2014, respectively. With respect to our Arizona Medicaid contract, the profit corridor balance
included in other noncurrent assets as of December 31, 2015 was $0 and the profit corridor payable balance included in
accounts payable and other liabilities as of December 31, 2015 was $49.7 million. The profit corridor payable balance
included in other noncurrent liabilities as of December 31, 2015 was $2.4 million. In 2015, the Arizona Health Care
Cost Containment System ("AHCCCS") withheld $36.2 million in connection with the profit corridor payable from our
capitation payment. See Note 2 to our consolidated financial statements under the heading "Health Plan Services
Revenue Recognition," for further discussion on these MLR provisions.
We and other health insurance companies continue to face uncertainty and execution risk due to the multiple,
complex ACA implementations that were and continue to be required in abbreviated time frames in new markets.
Additionally, in many cases, our operational and strategic initiatives have been implemented in evolving regulatory
environments and without the benefit of established market data. In addition, the limited operating experience in these
relatively new marketplaces for insurers and, in certain cases, providers and consumers, has fostered a dynamic
marketplace that may require us to continuously adjust our operating and strategic initiatives over time, and there is no
assurance that insurers, including us, will be able to successfully make these adjustments on an ongoing basis. Our
execution risk encapsulates, among other things, our simultaneous participation in the exchanges, Medicaid expansion
and CCI. These initiatives involved the incorporation of new and expanded populations and, among other things, have
required that we restructure our provider network in response, and will require us to remain diligent in monitoring the
market to, among other things, effectively and efficiently adapt to our dynamic environment. Any delay or failure by us
to successfully execute our operational and strategic initiatives with respect to health care reform or otherwise
appropriately react to the legislation, implementing regulations, actions of our competitors and the changing
marketplace could result in operational disruptions, disputes with our providers or members, increased exposure to
litigation, regulatory issues, damage to our existing or potential member relationships or other adverse consequences
that could have an adverse impact on our business, financial condition, cash flows and results of operations.
2015 Financial Performance Summary
Selected elements of our financial performance in 2015 are as follows:
• In the year ended December 31, 2015, we reported net income of $185.7 million or $2.37 per diluted share
as compared to net income of $145.6 million or $1.80 per diluted share, for the same period in 2014.
• Western Region Operations enrollment was approximately 3.3 million as of December 31, 2015, an
increase of 4.5 percent compared with enrollment at December 31, 2014.
• Total revenues for the year ended December 31, 2015 increased by approximately 16.0 percent to $16.2
billion from the same period in 2014.
• Western Region Operations segment pretax income increased to $547.4 million in 2015 compared to $315.6
million in 2014.
• Government Contracts segment pretax income decreased to $25.4 million in 2015 compared to $69.5
million in 2014.
• Net cash provided by operating activities totaled $431.1 million for the year ended December 31, 2015
compared to $776.0 million for the same period in 2014.
• Our operating results for the year ended December 31, 2015 were impacted by:
Fees imposed under the ACA, including $233.0 million for the health insurer fee and $85.5 million
in other ACA fees. See Note 2 to our consolidated financial statements under the heading
"Accounting for Certain Provisions of the ACA" for additional information.