Health Net 2015 Annual Report Download - page 85

83
acquisitions and other strategic transactions, to address legislative or regulatory changes such as the ACA, and for
business expansion opportunities, such as Medicaid expansion and exchange participation under the ACA. We may
elect to raise additional funds for these and other purposes, either through issuance of debt or equity, the sale of
investment securities or otherwise, as appropriate. In addition, we may strategically pursue refinancing opportunities to
extend maturities and/or improve terms of our indebtedness if we believe such opportunities are favorable to us. Based
on the composition and quality of our investment portfolio, our expected ability to liquidate our investment portfolio as
needed, and our expected operating and financing cash flows, we do not anticipate any liquidity constraints in the near
term. However, turbulence in U.S. and international markets and certain costs associated with health care reform
legislation and its implementation, Medicaid expansion under the ACA, information technology and systems
improvements and our preparation for the Centene Transaction, among other things, could adversely affect our liquidity.
In addition, as a holding company, our subsidiaries conduct substantially all of our consolidated operations and own
substantially all of our consolidated assets. Consequently, our cash flow and our ability to pay our debt depends, in part,
on the amount of cash that we receive from our subsidiaries. We are dependent upon dividends and management fees
from our regulated subsidiaries, most of which are subject to regulatory restrictions. For a discussion of these and other
risks that impact our liquidity, see "Item 1A. Risk Factors."
Our cash flow from operating activities is impacted by, among other things, the timing of collections on our
amounts receivable from and amounts payable to state and federal governments and agencies. For example, our
receivables from DHCS and AHCCCS related to our California and Arizona Medicaid businesses totaled $754.5 million
as of December 31, 2015 and $801.7 million as of December 31, 2014. As of December 31, 2015, we had amounts
payable to DHCS of $607 million related to premium overpayments that we received for the California Medi-Cal
business. The receivable from CMS related to our Medicare business was $124.8 million as of December 31, 2015 and
$119.1 million as of December 31, 2014. Our Government Contracts receivable, including receivables from the DoD
relating to our current and prior contracts for the TRICARE North Region, was $267.7 million and $150.5 million as of
December 31, 2015 and December 31, 2014, respectively. The timing of collection of such receivables from the federal
and state governments and agencies is impacted by government audits as well as government appropriations, allocation
and funding processes, among other things, and can extend for periods beyond a year. Our cash flow from operating
activities is also impacted by the timing of payments on our amounts payable to state governments and agencies as a
result of the Medicaid expansion. For example, our payable to DHCS related to medical loss ratio rebates was $403
million as of December 31, 2015.
In addition, our cash flow has been and will continue to be impacted, among other things, by the timing of
payments related to the ACA. For example, the largest of the ACA taxes and fees is the health insurer fee. Our allocable
share of the health insurer fee payable in 2015, based upon 2014 premiums, was $233.0 million and was paid in a single
lump sum payment in September 2015. Our cash flow is also impacted by the determination and settlement of amounts
related to the premium stabilization provisions in the ACA. Our receivable balance for the reinsurance program related
to the premium stabilization provisions of the ACA was $214.1 million and $234.0 million as of December 31, 2015
and December 31, 2014, respectively. If the per capita premiums/contributions paid by all insurers, including self-
funded plans, are insufficient to fund all recoverable amounts, then this will result in pro-rata reduction of recoverable
amounts for insurers for the following year.
Our net receivable balance for the risk corridor program related to the premium stabilization provisions of the
ACA was $214.3 million and $86.8 million as of December 31, 2015 and December 31, 2014, respectively. HHS has
recognized that it is obligated to make the risk corridors program payments without regard to budget neutrality in both
regulations and guidance. On October 1, 2015, HHS acknowledged a shortfall in the payments for program year 2014,
and stated that it would be making payments to insurers of approximately 12.6 percent of their requested amounts at
this time. HHS confirmed its previously stated intention to fulfill its remaining 2014 risk corridor obligations with funds
collected for program year 2015 and, if necessary, 2016 collections. On October 13, 2015, HHS reiterated its continuing
obligation to make full payment of its risk corridors liabilities and stated that HHS recognizes that the ACA requires the
Secretary to make full payments to issuers. HHS further stated that it is recording those amounts that remain unpaid
following its 12.6 percent prorated payment this winter as fiscal year 2015 obligations of the United States Government
for which full payment is required. In the fourth quarter of 2015, we received substantially all of the originally
estimated $12.4 million, which represented 12.6 percent of our 2014 risk corridor receivables.
This payment structure would be consistent with the Consolidated and Further Continuing Appropriations Act,
2015, which is also referred to as the “2015 Budget Act" or "Cromnibus." Additionally, HHS has stated that in the event
of a shortfall between the amounts collected from issuers and the payments to issuers, HHS will use other sources of
funding for the risk corridors payments, subject to the availability of appropriations. This use of alternative funding is
consistent with general principles of federal program budgeting and appropriations. Notwithstanding any restrictions
imposed by the 2015 Budget Act, which restrictions were repeated in identical language in the 2016 Budget Act, HHS