Health Net 2015 Annual Report Download - page 82

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2014 was primarily due to increases in premium taxes and ACA-related fees, including the health insurer fee. Such
increases in premium taxes and ACA-related fees increased the total G&A expense ratio by approximately 200 basis
points for the year ended December 31, 2014 as compared to the prior year.
Selling expense in our Western Region Operations segment was $262.3 million for the year ended December 31,
2014 compared with $239.4 million for the year ended December 31, 2013. The selling costs ratio was 2.0 percent for
the year ended December 31, 2014 compared with 2.3 percent for the year ended December 31, 2013. This decrease in
our selling costs ratio was primarily due to the change in the mix of our business from the impact of ACA and state
exchanges.
Interest expense in our Western Region Operations segment decreased to $31.4 million for the year ended
December 31, 2013 from $32.6 million for the year ended December 31, 2013 primarily due to lower interest rates.
Government Contracts Reportable Segment
On April 1, 2011, we began delivery of administrative services under our T-3 contract. The T-3 contract was
awarded to us on May 13, 2010, and included five one-year option periods. In March 2015, the DoD modified our T-3
contract to add three additional one-year option periods and awarded us the first of the three option periods, which
allows us to continue providing access to health care services to TRICARE beneficiaries through March 31, 2016. If all
three one-year option periods are ultimately exercised, our T-3 contract would conclude on March 31, 2018. On
February 1, 2016, we received preliminary written notice of the Government’s intent to exercise the second one-year
option period concluding March 31, 2017. The T-3 contract services are currently structured as cost reimbursement
arrangements for health care costs plus administrative fees received in the form of fixed prices, fixed unit prices, and
contingent fees and payments based on various incentives and penalties. On April 24, 2015, the DoD issued its final
request for proposal for the next generation TRICARE contract (the "T-2017 contracts"), which will reduce the three
existing TRICARE regions to two. On July 23, 2015, we responded to the DoD's request for proposal, and on February
16, 2016, we submitted a revised response to the DoD’s request for proposal. The DoD has indicated that it expects to
award the T-2017 contracts in the first half of 2016, with health care delivery expected to commence on April 1, 2017.
If we are not successful in securing a contract on favorable terms during the rebidding process, our business, results of
operations, cash flows and financial condition could be adversely impacted. See "Item 1A. Risk Factors" for additional
discussion of this and certain other risks related to our participation in TRICARE and other government programs.
Under the T-3 contract for the TRICARE North Region, we provided administrative services to approximately 2.8
million MHS eligible beneficiaries as of December 31, 2015. For a description of the T-3 contract, see "—Overview—
How We Measure Our Profitability,” and Note 2 to our consolidated financial statements under the heading
“Government Contracts” for additional information.
On August 15, 2012, our wholly owned subsidiary, MHN Government Services, Inc. entered into a contract to
provide counseling services to military service members and their families under the MFLC program with a five-year
term that includes a 12-month base period and four 12-month option periods. MHN Government Services, Inc. is one of
three contractors selected to participate in the MFLC program under the MFLC contract.
In September 2013, VA awarded us a contract under its new PC3 Program. The PC3 Program provides eligible
veterans coordinated, timely access to care through a comprehensive network of non-VA providers who meet VA quality
standards when a local VA medical center cannot readily provide the care. We support VA in providing care to veterans
in three of the six PC3 Program regions. These three regions, Regions 1, 2 and 4, encompass all or portions of 37 states,
the District of Columbia, Puerto Rico and the Virgin Islands. The PC3 Program contract term includes a base period of
performance through September 30, 2014 and four one-year option periods that may be exercised by VA. In addition to
the one-year option periods, VA will have the ability to extend the PC3 Program contract an additional two years and six
months based on VA's needs. In August 2014, VA expanded our PC3 Program contract to include primary care services
for veterans who are unable to obtain primary care at a VA medical center in the three PC3 regions in which we operate.
In addition, in November 2014, we modified our PC3 Program contract to further expand our services with 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. See Note 2 to our consolidated financial statements under the
heading “Government Contracts” for additional information.
In addition, we administer contracts with VA to manage community-based outpatient clinics in one state covering
approximately 4,083 enrollees.