10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________________

FORM 10-Q

____________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-12718

____________________

HEALTH NET, INC.

(Exact name of registrant as specified in its charter)

____________________

Delaware	95-4288333
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
21650 Oxnard Street, Woodland Hills, CA	91367
(Address of principal executive offices)	(Zip Code)

(818) 676-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes   o No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  

x Large accelerated filer o  Accelerated filer o  Non-accelerated filer o Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

The number of shares outstanding of the registrant’s Common Stock as of October 29, 2014 was 77,919,424 (excluding 74,368,703 shares held as treasury stock).

HEALTH NET, INC.

INDEX TO FORM 10-Q

	Page
Part I—FINANCIAL INFORMATION
Item 1—Financial Statements (Unaudited)	3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013	3
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013	4
Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	5
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2014 and 2013	6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	7
Condensed Notes to Consolidated Financial Statements	8
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3—Quantitative and Qualitative Disclosures About Market Risk	61
Item 4—Controls and Procedures	61
Part II—OTHER INFORMATION
Item 1—Legal Proceedings	63
Item 1A—Risk Factors	63
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3—Defaults Upon Senior Securities	64
Item 4—Mine Safety Disclosures	64
Item 5—Other Information	64
Item 6—Exhibits	65
Signatures	66

2

PART I. FINANCIAL INFORMATION

Item  1. Financial Statements

HEALTH NET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

 (Unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2014			2013		2014			2013
Revenues
Health plan services premiums	$	3,631,617		$	2,606,754	$	9,774,840		$	7,817,697
Government contracts	146,183			149,342		444,356			423,796
Net investment income	10,964			11,276		34,109			57,970
Administrative services fees and other income	1,106			7,659		(3,108		)	11,036
Total revenues	3,789,870			2,775,031		10,250,197			8,310,499
Expenses
Health plan services (excluding depreciation and amortization)	3,104,010			2,196,561		8,269,531			6,657,215
Government contracts	124,403			125,334		389,585			378,209
General and administrative	373,623			267,683		1,079,380			804,355
Selling	66,111			59,498		194,265			175,828
Depreciation and amortization	6,500			9,402		25,804			28,355
Interest	7,810			7,973		23,457			24,626
Asset impairment	84,690			—		84,690			—
Total expenses	3,767,147			2,666,451		10,066,712			8,068,588
Income from operations before income taxes	22,723			108,580		183,485			241,911
Income tax provision	31,662			41,740		42,770			91,538
Net (loss) income	$	(8,939	)	$	66,840	$	140,715		$	150,373
Net (loss) income per share:
Basic	$	(0.11	)	$	0.84	$	1.76		$	1.89
Diluted	$	(0.11	)	$	0.83	$	1.73		$	1.87
Weighted average shares outstanding:
Basic	80,235			79,432		80,096			79,436
Diluted	80,235			80,441		81,218			80,339

See accompanying condensed notes to consolidated financial statements.

3

HEALTH NET, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Net (loss) income	$	(8,939	)	$	66,840		$	140,715		$	150,373
Other comprehensive income (loss) before tax:
Unrealized gains (losses) on investments available-for-sale:
Unrealized holding gains (losses) arising during the period	2,103			1,074			54,011			(73,779		)
Less: Reclassification adjustments for gains included in earnings	(346		)	(370		)	(2,582		)	(23,306		)
Unrealized gains (losses) on investments available-for-sale, net	1,757			704			51,429			(97,085		)
Defined benefit pension plans:
Prior service cost arising during the period	—			—			—			—
Net loss arising during the period	—			—			—			—
Less: Amortization of prior service cost and net loss included in net periodic pension cost	150			643			450			1,929
Defined benefit pension plans, net	150			643			450			1,929
Other comprehensive income (loss) before tax	1,907			1,347			51,879			(95,156		)
Income tax expense (benefit) related to components of other comprehensive income	680			433			18,236			(33,477		)
Other comprehensive income (loss), net of tax	1,227			914			33,643			(61,679		)
Comprehensive (loss) income	$	(7,712	)	$	67,754		$	174,358		$	88,694

See accompanying condensed notes to consolidated financial statements.

4

HEALTH NET, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

(Unaudited)

	September 30,			December 31,
	2014			2013
ASSETS
Current Assets:
Cash and cash equivalents	$	1,114,558		$	433,155
Investments-available-for-sale (amortized cost: 2014-$1,656,529, 2013-$1,602,456)	1,664,830			1,567,020
Premiums receivable, net of allowance for doubtful accounts (2014-$1,279, 2013-$643)	579,515			430,012
Amounts receivable under government contracts	143,662			194,041
Other receivables	307,369			68,919
Deferred taxes	71,434			94,060
Assets held for sale	50,000			—
Other assets	157,066			132,683
Total current assets	4,088,434			2,919,890
Property and equipment, net	92,193			201,395
Goodwill	558,886			565,886
Other intangible assets, net	12,526			13,842
Deferred taxes	34,580			5,793
Investments-available-for-sale-noncurrent (amortized cost: 2014-$3,538, 2013-$67,943)	3,055			59,768
Other noncurrent assets	173,230			162,551
Total Assets	$	4,962,904		$	3,929,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Reserves for claims and other settlements	$	1,733,307		$	984,075
Health care and other costs payable under government contracts	62,796			72,098
Unearned premiums	125,363			123,969
Accounts payable and other liabilities	540,968			397,036
Total current liabilities	2,462,434			1,577,178
Senior notes payable	399,453			399,300
Borrowings under revolving credit facility	100,000			100,000
Deferred taxes	—			10,409
Other noncurrent liabilities	235,393			213,427
Total Liabilities	3,197,280			2,300,314
Commitments and contingencies
Stockholders’ Equity:
Preferred stock ($0.001 par value, 10,000 shares authorized, none issued and outstanding)	—			—
Common stock ($0.001 par value, 350,000 shares authorized; issued 2014-152,276 shares; 2013-150,224 shares)	152			150
Additional paid-in capital	1,432,513			1,377,624
Treasury common stock, at cost (2014-72,847 shares of common stock; 2013-70,704 shares of common stock)	(2,272,180		)	(2,179,744		)
Retained earnings	2,604,363			2,463,648
Accumulated other comprehensive loss	776			(32,867		)
Total Stockholders’ Equity	1,765,624			1,628,811
Total Liabilities and Stockholders’ Equity	$	4,962,904		$	3,929,125

See accompanying condensed notes to consolidated financial statements.

5

HEALTH NET, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

	Common Stock			Additional Paid-In Capital			Common Stock Held in Treasury					Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount					Shares		Amount
Balance as of January 1, 2013	148,727	$	149	$	1,329,000		(67,426	)	$	(2,092,625	)	$	2,293,522	$	26,984		$	1,557,030
Net income												150,373					150,373
Other comprehensive loss														(61,679		)	(61,679		)
Exercise of stock options and vesting of restricted stock units	1,466	1		19,950													19,951
Share-based compensation expense				23,388													23,388
Tax detriment related to equity compensation plans				(1,594		)											(1,594		)
Repurchases of common stock							(3,270	)	(86,878		)						(86,878		)
Balance as of September 30, 2013	150,193	$	150	$	1,370,744		(70,696	)	$	(2,179,503	)	$	2,443,895	$	(34,695	)	$	1,600,591
Balance as of January 1, 2014	150,224	$	150	$	1,377,624		(70,704	)	$	(2,179,744	)	$	2,463,648	$	(32,867	)	$	1,628,811
Net income												140,715					140,715
Other comprehensive income														33,643			33,643
Exercise of stock options and vesting of restricted stock units	2,052	2		31,497													31,499
Share-based compensation expense				21,809													21,809
Tax benefit related to equity compensation plans				1,583													1,583
Repurchases of common stock							(2,143	)	(92,436		)						(92,436		)
Balance as of September 30, 2014	152,276	$	152	$	1,432,513		(72,847	)	$	(2,272,180	)	$	2,604,363	$	776		$	1,765,624

See accompanying condensed notes to consolidated financial statements.

6

HEALTH NET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine months ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	140,715		$	150,373
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization and depreciation	25,804			28,355
Asset impairment charges	84,690			—
Share-based compensation expense	21,809			23,388
Deferred income taxes	(34,755		)	18,321
Excess tax benefit on share-based compensation	(1,595		)	(451		)
Net realized (gain) loss on investments	(2,582		)	(23,306		)
Other changes	23,190			23,564
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Premiums receivable and unearned premiums	(148,109		)	7,800
Other current assets, receivables and noncurrent assets	(251,479		)	25,953
Amounts receivable/payable under government contracts	45,966			31,064
Reserves for claims and other settlements	749,232			(47,778		)
Accounts payable and other liabilities	232,777			(69,558		)
Net cash provided by (used in) operating activities	885,663			167,725
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments	296,878			653,786
Maturities of investments	64,743			72,810
Purchases of investments	(361,451		)	(652,044		)
Purchases of property and equipment	(48,395		)	(42,596		)
Sales (purchases) of restricted investments and other	2,762			(4,697		)
Net cash (used in) provided by investing activities	(45,463		)	27,259
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock purchases	21,417			10,642
Excess tax benefit on share-based compensation	1,595			451
Repurchases of common stock	(69,686		)	(77,569		)
Borrowings under financing arrangements	—			323,000
Repayment of borrowings under financing arrangements	—			(323,000		)
Net increase (decrease) in checks outstanding, net of deposits	—			(23,842		)
Customer funds administered	(112,123		)	241,363
Net cash (used in) provided by financing activities	(158,797		)	151,045
Net increase (decrease) in cash and cash equivalents	681,403			346,029
Cash and cash equivalents, beginning of period	433,155			340,110
Cash and cash equivalents, end of period	$	1,114,558		$	686,139
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	$	15,948		$	16,741
Income taxes paid	63,635			46,031

See accompanying condensed notes to consolidated financial statements.

7

HEALTH NET, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Health Net, Inc. prepared the accompanying unaudited consolidated financial statements following the rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting. In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries. As permitted under those rules and regulations, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted if they substantially duplicate the disclosures contained in the annual audited financial statements. The accompanying unaudited consolidated financial statements should be read together with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 ("Form 10-K").

We are responsible for the accompanying unaudited consolidated financial statements. These consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results in accordance with GAAP. In accordance with GAAP, we make certain estimates and assumptions that affect the reported amounts. Actual results could differ from those estimates and assumptions. In addition, revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for the full year.

On November 2, 2014, we signed a definitive master services agreement with Cognizant Healthcare Services, LLC, a wholly owned subsidiary of Cognizant Technology Solutions Corporation ("Cognizant") to provide certain services to us. In connection with this agreement, we have also entered into an asset purchase agreement pursuant to which we have agreed to sell certain software assets and related intellectual property we own to Cognizant. The transaction, including the related asset sale, is subject to receipt of required regulatory approvals. As of September 30, 2014, we have classified $50.0 million, at fair value less cost to sell, in assets as assets held for sale. See Note 3 for additional information about our agreement with Cognizant and the assets held for sale.

2. SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash equivalents include all highly liquid investments with maturity of three months or less when purchased. We had no checks outstanding, net of deposits as of September 30, 2014 and December 31, 2013. Checks outstanding, net of deposits are classified as accounts payable and other liabilities in the consolidated balance sheets and the changes are reflected in the line item net increase (decrease) in checks outstanding, net of deposits within the cash flows from financing activities in the consolidated statements of cash flows.

Investments

Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net of income tax effects. The cost of investments sold is determined in accordance with the specific identification method and realized gains and losses are included in net investment income. We analyze all debt investments that have unrealized losses for impairment consideration and assess the intent to sell such securities. If such intent exists, impaired securities are considered other-than-temporarily impaired. Management also assesses if we may be required to sell the debt investments prior to the recovery of amortized cost, which may also trigger an impairment charge. If securities are considered other-than-temporarily impaired based on intent or ability, we assess whether the amortized costs of the securities can be recovered. If management anticipates recovering an amount less than the amortized cost of the securities, an impairment charge is calculated based on the expected discounted cash flows of the securities. Any deficit between the amortized cost and the expected cash flows is recorded through earnings as a charge. All other temporary impairment changes are recorded through other comprehensive income. During the three and nine months endedSeptember 30, 2014 and 2013, respectively, no losses were recognized from other-than-temporary impairments.

8

Fair Value of Financial Instruments

The estimated fair value amounts of cash equivalents, investments available-for-sale, premiums and other receivables, notes receivable and notes payable have been determined by using available market information and appropriate valuation methodologies. The carrying amounts of cash equivalents approximate fair value due to the short maturity of those instruments. Fair values for debt and equity securities are generally based upon quoted market prices. Where quoted market prices were not readily available, fair values were estimated using valuation methodologies based on available and observable market information. Such valuation methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. The carrying value of premiums and other receivables, long-term notes receivable and nonmarketable securities approximates the fair value of such financial instruments. The fair value of notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt with the same remaining maturities. The fair value of our fixed-rate borrowings was $436.0 million and $434.5 million as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $100.0 million, respectively. The fair value of our fixed-rate borrowings was determined using the quoted market price, which is a Level 1 input in the fair value hierarchy. The fair value of our variable-rate borrowings was estimated to equal the carrying value because the interest rates paid on these borrowings were based on prevailing market rates. Since the pricing inputs are other than quoted prices and fair value is determined using an income approach, our variable-rate borrowings are classified as a Level 2 in the fair value hierarchy. See Notes 7 and 8 for additional information regarding our financing arrangements and fair value measurements, respectively.

Health Plan Services Revenue Recognition

Health plan services premium revenues generally include HMO, POS and PPO premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide care to Medicaid recipients, and revenue underd Medicare risk contracts to provide care to enrolled Medicare recipients. Revenue is recognized in the month in which the related enrollees are entitled to health care services. Premiums collected in advance of the month in which enrollees are entitled to health care services are recorded as unearned premiums.

Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), commercial health plans with medical loss ratios ("MLR") on fully insured products, as calculated as set forth in the ACA, that fall below certain targets are required to rebate ratable portions of their premiums annually. We classify the estimated rebates, if any, as a reduction to Health plan services premiums in our consolidated statement of operations. Estimated rebates for our commercial health plans were $0 for the three and nine months ended September 30, 2014. In addition to the rebates for the commercial health plans under the ACA, there is also a medical loss ratio corridor for the California Department of Health Care Services ("DHCS") adult Medicaid expansion members under the state Medicaid program in California ("Medi-Cal"). If our MLR for this population is below 85%, then we would have to pay DHCS a rebate. If the MLR is above 95%, then DHCS would have to pay us additional premium. As of September 30, 2014, we have accrued $45.3 million for a MLR rebate with respect to this population payable to DHCS. Accordingly, for the three months ended September 30, 2014, we reduced Medicaid premium revenue by $45.3 million, though no amounts will be paid prior to issuance of final regulations on this program. Our Medicaid contract with the state of Arizona contains profit-sharing or profit ceiling provisions. Because our Arizona Medicaid profits were in excess of the amount we are allowed to fully retain, we reduced Medicaid premium revenue by $11.9 million. In addition, certain provisions of the ACA became effective January 1, 2014, including an annual insurance industry premium-based assessment and the establishment of federally facilitated, state and federal partnership or state-based health insurance exchanges coupled with premium stabilization programs. See below in this Note 2 under the heading "Accounting for Certain Provisions of the ACA" for additional information.

Our Medicare Advantage contracts are with the Centers for Medicare & Medicaid Services ("CMS"). CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. This risk adjustment model results in periodic changes in our risk factor adjustment scores for certain diagnostic codes, which then result in changes to our health plan services premium revenues. Because the recorded revenue is based on our best estimate at the time, the actual payment we receive from CMS for risk adjustment reimbursement settlements may be materially different than the amounts we have initially recognized on our financial statements. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2014 decreased health plan services premium revenues by $5.5 million and increased health plan services premium revenues by $14.5 million, respectively. The change in our estimate for the risk

9

adjustment revenue related to prior years in the three and nine months ended September 30, 2013 increased health plan services premium revenues by $1.0 million and decreased health plan services revenues by $8.5 million, respectively.

Our revenue from the Medi-Cal program, including seniors and persons with disabilities ("SPD") programs, and other state-sponsored health programs are subject to certain retroactive rate adjustments based on expected and actual health care costs. For the three and nine months ended September 30, 2014, retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2014 were not significant. For the three and nine months ended September 30, 2013, we recognized $32.1 million and $74.3 million, respectively, of premium revenue as a result of retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2013.

In addition, our state-sponsored health care programs in California, including Medi-Cal, SPD programs, the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medicaid expansion under federal health care reform, are subject to retrospective premium adjustments based on certain risk sharing provisions included in our state-sponsored health plans rate settlement agreement described below. We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets.

On November 2, 2012, we entered into a state-sponsored health plans rate settlement agreement (the "Agreement") with the DHCS to settle historical rate disputes with respect to our participation in the Medi-Cal program, for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS agreed, among other things, to (1) an extension of all of our Medi-Cal managed care contracts existing as of the date of the Agreement for an additional five years from their then existing expiration dates; (2) retrospective premium adjustments on all of our state-sponsored health care programs, including Medi-Cal, SPDs, our participation in the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medi-Cal expansion populations (our “state-sponsored health care programs”), which are tracked in a settlement account as discussed in more detail below; and (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early.

Effective January 1, 2013, the settlement account (the "Account") was established with an initial balance of zero. The balance in the Account is adjusted annually to reflect retrospective premium adjustments for each calendar year (referenced in the Agreement as a "deficit" or "surplus"). A deficit or surplus will result to the extent our actual pretax margin (as defined in the Agreement) on our state-sponsored health care programs is below or above a predetermined pretax margin target. The amount of any deficit or surplus is calculated as described in the Agreement. Cash settlement of the Account will occur on December 31, 2019, except that under certain circumstances the DHCS may extend the final settlement for up to three additional one-year periods (as may be extended, the "Term"). In addition, the DHCS will make an interim partial settlement payment to us if it terminates any of our state-sponsored health care programs contracts early. Upon expiration of the Term, if the Account is in a surplus position, then no monies are owed to either party. If the Account is in a deficit position, then DHCS shall pay the amount of the deficit to us. In no event, however, shall the amount paid by DHCS to us under the Agreement exceed $264 million or be less than an alternative minimum amount as defined in the Agreement.

We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets. As of September 30, 2014, we had calculated a surplus of $7.5 million and reduced our receivable to zero, reflecting our cumulative estimated retrospective premium adjustment to the Account based on our actual pretax margin for the period beginning on January 1, 2013 and ending on September 30, 2014. As a surplus Account position results in no monies due to either party upon expiration of the Term, we have no receivable and no payable recorded as of September 30, 2014 in connection with the Agreement. As of December 31, 2013, we had calculated and recorded a deficit of $62.9 million, net of a valuation discount in the amount of $4.4 million, reflecting our estimated retrospective premium adjustment to the Account based on our actual pretax margin for the year ended December 31, 2013. As a result of the change in the Account balance calculated during the three and nine months ended September 30, 2014, our health plan services premium revenue was reduced by $9.6 million and $62.9 million for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, we had recorded increases in our health plan services premium revenue of $16.3 million and $51.7 million, respectively, as a result of the deficit calculated under the state settlement agreement as of September 30, 2013.

Health Plan Services Health Care Cost

The cost of health care services is recognized in the period in which services are provided and includes an estimate of the cost of services that have been incurred but not yet reported. Such costs include payments to primary

10

care physicians, specialists, hospitals and outpatient care facilities, and the costs associated with managing the extent of such care. Our health care cost also can include from time to time remediation of certain claims as a result of periodic reviews by various regulatory agencies.

We estimate the amount of the provision for health care service costs incurred but not yet reported ("IBNR") in accordance with GAAP and using standard actuarial developmental methodologies based upon historical data including the period between the date services are rendered and the date claims are received and paid, denied claim activity, expected medical cost inflation, seasonality patterns and changes in membership, among other things.

Our IBNR best estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. This provision for adverse deviation is intended to capture the potential adverse development from known environmental factors such as our entry into new geographical markets, changes in our geographic or product mix, the introduction of new customer populations, variation in benefit utilization, disease outbreaks, changes in provider reimbursement, fluctuations in medical cost trend, variation in claim submission patterns and variation in claims processing speed and payment patterns, changes in technology that provide faster access to claims data or change the speed of adjudication and settlement of claims, variability in claims inventory levels, non-standard claims development, and/or exceptional situations that require judgmental adjustments in setting the reserves for claims.

We consistently apply our IBNR estimation methodology from period to period. Our IBNR best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known to us, we adjust our assumptions accordingly to change our estimate of IBNR. Therefore, if moderately adverse conditions do not occur, evidenced by more complete claims information in the following period, then our prior period estimates will be revised downward, resulting in favorable development. However, any favorable prior period reserve development would increase current period net income only to the extent that the current period provision for adverse deviation is less than the benefit recognized from the prior period favorable development. If moderately adverse conditions occur and are more acute than we estimated, then our prior period estimates will be revised upward, resulting in unfavorable development, which would decrease current period net income. For the three months ended September 30, 2014, we had $9.7 million in net unfavorable reserve developments related to prior years. For the nine months ended September 30, 2014, we had $16.9 million in net favorable reserve developments related to prior years. The amount for the three months ended September 30, 2014 consisted of $10.4 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $0.7 million of the provision for adverse deviation held at December 31, 2013. The amount for the nine months ended September 30, 2014 consisted of $34.5 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $51.4 million of the provision for adverse deviation held at December 31, 2013. We believe that the $10.4 million and $34.5 million unfavorable developments for the three and nine months ended September 30, 2014, respectively, were primarily due to unanticipated benefit utilization in our commercial business arising from dates of service in the fourth quarter of 2013 as a result of an uncertain environment related to the ACA. As part of our best estimate for IBNR, the provision for adverse deviation recorded as of September 30, 2014 and December 31, 2013 were $77.0 million and $53.4 million, respectively. For the three and nine months ended September 30, 2013, the reserve developments related to prior years, when considered together with the provision for adverse deviation recorded as of September 30, 2013, did not have a material impact on our operating results or financial condition.

The majority of the IBNR reserve balance held at each quarter-end is associated with the most recent months' incurred services because these are the services for which the fewest claims have been paid. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months' incurred services. Revised estimates for prior periods are determined in each quarter based on the most recent updates of paid claims for prior periods. Estimates for service costs incurred but not yet reported are subject to the impact of changes in the regulatory environment, economic conditions, changes in claims trends, and numerous other factors. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts estimated.

Government Contracts

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. On March 15, 2014, the Department of Defense exercised the last of these options, which extended the T-3 contract through March 31, 2015. On June 27, 2014, at the Department of Defense's request, we submitted a proposal to add three additional one-year option periods to the T-3 contract. The government is reviewing the proposal and if accepted as submitted, the modified T-3 contract would conclude on March 31, 2018.

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Revenues and expenses associated with the T-3 contract are reported as part of government contracts revenues and government contracts expenses in the consolidated statements of operations and included in the Government Contracts reportable segment.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investments and premiums receivable. All cash equivalents and investments are managed within established guidelines, which provide us diversity among issuers. Concentrations of credit risk with respect to premiums receivable are limited due to the large number of payers comprising our customer base. The federal government is the primary customer of our Government Contracts reportable segment with fees and premiums associated with this customer accounting for approximately 96% of our Government Contracts revenue. In addition, the federal government is a significant customer of our Western Region Operations reportable segment as a result of our contract with CMS for coverage of Medicare-eligible individuals. Furthermore, our Medicaid revenue is currently derived from our participation in Medi-Cal through our relationship with DHCS, and beginning in the fourth quarter of 2013, in Arizona through our contract with the Arizona Health Care Cost Containment System ("AHCCCS"). The DHCS is a significant customer of our Western Region Operations reportable segment.

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Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income (loss), net unrealized appreciation (depreciation) after tax on investments available-for-sale and prior service cost and net loss related to our defined benefit pension plan.

Our accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 are as follows:

	Unrealized Gains (Losses) on investments available-for-sale			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (loss)
Three Months Ended September 30:				(Dollars in millions)
Balance as of July 1, 2013	$	(25.4	)	$	(10.2	)	$	(35.6	)
Other comprehensive loss before reclassifications	0.7			—			0.7
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.4			0.2
Other comprehensive (loss) income for the three months ended September 30, 2013	0.5			0.4			0.9
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of July 1, 2014	$	3.9		$	(4.4	)	$	(0.5	)
Other comprehensive income (loss) before reclassifications	1.3			—			1.3
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.1			(0.1		)
Other comprehensive income for the three months ended September 30, 2014	1.1			0.1			1.2
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7
Nine Months Ended September 30:
Balance as of January 1, 2013	$	38.0		$	(11.0	)	$	27.0
Other comprehensive (loss) income before reclassifications	(47.8		)	—			(47.8		)
Amounts reclassified from accumulated other comprehensive income	(15.1		)	1.2			(13.9		)
Other comprehensive (loss) income for the nine months ended September 30, 2013	(62.9		)	1.2			(61.7		)
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of January 1, 2014	$	(28.3	)	$	(4.6	)	$	(32.9	)
Other comprehensive income (loss) before reclassifications	35.0			—			35.0
Amounts reclassified from accumulated other comprehensive income	(1.7		)	0.3			(1.4		)
Other comprehensive income for the nine months ended September 30, 2014	33.3			0.3			33.6
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7

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The following table shows reclassifications out of accumulated other comprehensive income and the affected line items in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013:

	Three months ended September 30,						Nine months ended September 30,						Affected line item in the Consolidated Statements of Operations
	2014			2013			2014			2013
	(Dollars in millions)
Unrealized gains on investments available-for-sale	$	0.3		$	0.3		$	2.6		$	23.3		Net investment income
	0.3			0.3			2.6			23.3			Total before tax
	0.1			0.1			0.9			8.2			Tax expense
	0.2			0.2			1.7			15.1			Net of tax
Amortization of defined benefit pension items:
Prior-service cost	(0.1		)	(0.1		)	(0.3		)	(0.1		)	(a)
Actuarial gains (losses)	(0.1		)	(0.6		)	(0.2		)	(1.9		)	(a)
	(0.2		)	(0.7		)	(0.5		)	(2.0		)	Total before tax
	(0.1		)	(0.3		)	(0.2		)	(0.8		)	Tax benefit
	(0.1		)	(0.4		)	(0.3		)	(1.2		)	Net of tax
Total reclassifications for the period	$	0.1		$	(0.2	)	$	1.4		$	13.9		Net of tax

_________

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Earnings Per Share

Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted average shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that could occur if stock options were exercised and restricted stock units ("RSUs") and performance share units ("PSUs") were vested) outstanding during the periods presented.

The inclusion or exclusion of common stock equivalents arising from stock options, RSUs and PSUs in the computation of diluted earnings per share is determined using the treasury stock method. For the three months ended September 30, 2014, 1,278,000 shares of common stock equivalents were excluded from the computation of loss per share due to their anti-dilutive effect. For the nine months ended September 30, 2014, 1,122,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, 1,009,000 shares and 903,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share.

For the nine months ended September 30, 2014, an aggregate of 779,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, an aggregate of 812,000 shares and 1,019,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. Stock options expire at various times through August 2018.

In May 2011, our Board of Directors authorized a stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (our "stock repurchase program"). On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program. As of December 31, 2013 and September 30,

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2014, the remaining authorization under our stock repurchase program was $280.0 million and $211.0 million respectively. See Note 6 for more information regarding our stock repurchase program.

Goodwill and Other Intangible Assets

We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2014 for our Western Region Operations reporting unit and also re-evaluated the useful lives of our other intangible assets. No goodwill impairment was identified. We also determined that the estimated useful lives of our other intangible assets properly reflected the current estimated useful lives.

The carrying amount of goodwill by reporting unit is as follows:

	Western Region Operations			Total
	(Dollars in millions)
Balance as of December 31, 2013	$	565.9		$	565.9
Goodwill allocated to sale of business (see Note 3)	(7.0		)	(7.0		)
Balance as of September 30, 2014	$	558.9		$	558.9

On November 2, 2014, we signed a definitive master services agreement with Cognizant to provide certain services to us. In connection with this agreement, we have agreed to sell certain software assets and related intellectual property ("software system assets") we own to Cognizant. The transaction, including the related asset sale, is subject to the receipt of required regulatory approvals. See Note 3 for additional information regarding our agreements with Cognizant. Because the sale of these software system assets meets the definition of a sale of a business, as of September 30, 2014, we re-allocated $7 million of goodwill based on fair values of the Western Region Operations reporting unit with and without the impact of the business to be sold. Our measurement of fair values is based on a combination of the discounted total consideration expected to be received in connection with the services and asset sale agreements, income approach based on a discounted cash flow methodology, and replacement cost methodology. After the reallocation of goodwill, we performed a two-step impairment test to determine the existence of any impairment and the amount of the impairment. In the first step, we compared the fair values to the related carrying value and concluded that the carrying value of the business to be sold was impaired; however, we determined that the carrying value of the Western Region Operations reporting unit was not impaired. In the second step, we measured the impairment amount by comparing the implied value of the allocated goodwill to the carrying amount of such goodwill. Based on the results of our Step 2 test, we concluded that the implied value of the goodwill allocated to the business to be sold was zero, which resulted in an impairment charge for the total carrying value of the allocated goodwill of $7 million. See Note 8 for goodwill fair value measurement information.

Due to the many variables inherent in the estimation of a business’s fair value and the relative size of recorded goodwill, changes in assumptions may have a material effect on the results of our impairment test. The discounted cash flows and market participant valuations (and the resulting fair value estimates of the Western Region Operations reporting unit) are sensitive to changes in assumptions including, among others, certain valuation and market assumptions, our ability to adequately incorporate into our premium rates the future costs of premium-based assessments imposed by the ACA, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of California's Coordinated Care Initiative, which includes the dual eligibles demonstration. Changes to any of these assumptions could cause the fair value of our Western Region Operations reporting unit to be below its carrying value. As of September 30, 2014 and June 30, 2013, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 224% and 149%, respectively.

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The intangible assets that continue to be subject to amortization using the straight-line method over their estimated lives are as follows:

	Gross Carrying Amount		Accumulated Amortization			Net Balance		Weighted Average Life (in years)
	(Dollars in millions)
As of September 30, 2014:
Provider networks	$	41.5	$	(36.6	)	$	4.9	18.9
Customer relationships and other	29.5		(21.9		)	7.6		11.1
	$	71.0	$	(58.5	)	$	12.5
As of December 31, 2013:
Provider networks	$	40.5	$	(35.7	)	$	4.8	19.4
Customer relationships and other	29.5		(20.5		)	9.0		11.1
	$	70.0	$	(56.2	)	$	13.8

Estimated annual pretax amortization expense for other intangible assets for each of the next five years ending December 31 is as follows (dollars in millions):

Year	Amount
2014	$	3.0
2015	2.8
2016	2.2
2017	2.2
2018	2.1

Restricted Assets

We and our consolidated subsidiaries are required to set aside certain funds that may only be used for certain purposes pursuant to state regulatory requirements. We have discretion as to whether we invest such funds in cash and cash equivalents or other investments. As of September 30, 2014 and December 31, 2013, the restricted cash and cash equivalents balances totaled $0.3 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $23.7 million and $23.8 million as of September 30, 2014 and December 31, 2013, respectively, and are included in investments available-for-sale.

Accounting for Certain Provisions of the ACA

Premium-based Fee on Health Insurers

The ACA mandated significant reforms to various aspects of the U.S. health insurance industry. Among other things, the ACA imposes an annual premium-based fee on health insurers (the "health insurance industry fee") for each calendar year beginning on or after January 1, 2014 which is not deductible for federal income tax purposes and in many state jurisdictions. The healthy insurance industry fee is levied based on a ratio of an insurer's net health insurance premiums written for the previous calendar year compared to the U.S. health insurance industry total. We are required to estimate a liability for our portion of the health insurance industry fee and record it in full once qualifying insurance coverage is provided in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized ratably to expense over the calendar year that it is payable.

In September 2014, we paid the federal government $141.4 million for our portion of the health insurance industry fee in accordance with the ACA. We had recorded a liability for this fee in other current liabilities with an offsetting deferred cost in other current assets in our consolidated financial statements. Our general and administrative expense for the three and nine months ended September 30, 2014 includes amortization of the deferred cost of $31.9 million and $106.1 million, respectively. The balance of the remaining deferred cost asset was approximately $35.3 million as of September 30, 2014.

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Public Health Insurance Exchanges

The ACA requires the establishment of state-based, state and federal partnership or federally facilitated health insurance exchanges ("exchanges") where individuals and small groups may purchase health insurance coverage under regulations established by U.S. Department of Health and Human Services ("HHS"). We currently participate in exchanges in Arizona, California and Oregon. Effective January 1, 2014, the ACA includes permanent and temporary premium stabilization provisions for transitional reinsurance, permanent risk adjustment, and temporary risk corridors (collectively referred to as the "3Rs"), which are applicable to those insurers participating inside, and in some cases outside, of the exchanges.

Member Related Components

Member Premium—We receive a monthly premium from members. The member premium, which is fixed for the entire plan year, is recognized evenly over the contract period and reported as part of health plan services premium revenue.

Premium Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of the monthly member premium depending on the member’s income level in relation to the Federal Poverty Level. We recognize the premium subsidy evenly over the contract period and report it as part of health plan services premium revenue.

Cost Sharing Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of a member’s cost sharing amounts (e.g., deductible, co-pay/coinsurance). The amount paid for the member by HHS is dependent on the member’s income level in relation to the Federal Poverty Level. We receive prospective payments on a monthly basis, and they represent a cost reimbursement that is finalized and settled after the end of the year. The cost sharing subsidy is accounted for as deposit accounting.

3Rs: Reinsurance, Risk Adjustment and Risk Corridor

Our accounting estimates are impacted as a result of the provisions of the ACA, including the 3Rs. The substantial influx of previously uninsured individuals into the new health insurance exchanges under the ACA could make it more difficult for health insurers, including us, to establish pricing accurately, at least during the early years of the exchanges. The 3Rs are intended to mitigate some of the risks around pricing and lack of information surrounding the previously uninsured. We will experience premium adjustments to our health plan services premium revenues and health plan services expenses based on changes to our estimated amounts related to the 3Rs, which may be significant at times. Such estimated amounts may differ materially from actual amounts ultimately received or paid under the provisions, which may have a material impact on our consolidated results of operations and financial condition.

Reinsurance—The transitional reinsurance program requires us to make reinsurance contributions for calendar years 2014 through 2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the reinsurance entity, only fully-insured non-grandfathered plans in the individual commercial market will be eligible for recoveries if individual claims exceed a specified threshold. Accordingly, we account for transitional reinsurance contributions associated with all commercial medical health plans other than non-grandfathered individual plans as an assessment in general and administrative expenses in our consolidated statement of income. We account for contributions made by individual commercial plans which are subject to recoveries as contra-health plan services premium revenue, and we account for any recoveries as contra-health plan services expense in our consolidated statements of income with a corresponding current or long-term receivable or payable. We recorded $32.0 million and $142.6 million of reinsurance recovery as contra-health plan services expense for the three and nine months ended September 30, 2014, respectively, and the balance included in other receivables as of September 30, 2014 was $142.6 million.

Risk Adjustment—The risk adjustment provision applies to individual and small group business both within and outside the exchange and requires measurement of the relative health status risk of each insurer’s pool of insured enrollees in a given market. The risk adjustment provision then operates to transfer funds from insurers whose pools of insured enrollees have a lower-than-average risk scores to those insurers whose pools have greater-than-average risk scores. Our estimate for the risk adjustment incorporates our pricing and demographic assumptions, the distribution of our newly enrolled membership in terms of geography, metal tiers, and age bands, and what we believe are the market averages in terms of premium and risk scores. As part of our ongoing estimation process, we consider information as it becomes available at interim dates along with our actuarially determined expectations, and we update our estimates incorporating such information as appropriate.

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We estimate and recognize adjustments to our health plan services premium revenue for the risk adjustment provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience. We record receivables and/or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. Our risk adjustment estimate was $17.6 million and $47.7 million for the three and nine months ended September 30, 2014, respectively, and was recorded as a reduction to health plan services premiums. The risk adjustment receivable balance included in other receivables as of September 30, 2014 was $69.9 million and the risk adjustment payable balance included in accounts payable and other liabilities as of September 30, 2014 was $117.6 million.

Risk Corridor—The temporary risk corridor program will be in place for three years and applies to individual and small group business operating both inside and outside of the exchanges. The risk corridor provisions limit health insurers' gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS, and sharing the risk for allowable costs with the federal government. Variances from the target exceeding certain thresholds may result in HHS making additional payments to us or require us to make payments to HHS.

We estimate and recognize adjustments to our health plan services premium revenue for the risk corridor provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience, including changes in risk adjustment and reinsurance recoverables. We record receivables or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. For the three and nine months ended September 30, 2014,we recorded $44.7 million and $72.0 million, respectively, of increases to risk corridor receivable as health plan services premium revenue, and the balance in other noncurrent assets as of September 30, 2014 was $72.0 million.

The final reconciliation and settlement with HHS of the premium and cost sharing subsidies and the amounts related to the 3Rs for the current year will be completed in the following year with HHS.

Section 1202 of ACA

Section 1202 of the ACA mandates increases in Medicaid payment rates for primary care in calendar years 2013 and 2014. The final rule has been in effect since January 1, 2013. The provisions of section 1202 impact our 1.5 million Medi-Cal members in California and 80,000 Medicaid members in Arizona. DHCS, the agency that regulates the Medi-Cal program, initially implemented a reimbursement methodology with no underwriting risk to the managed care plans ("MCPs") in 2013. Subsequently, DHCS changed the reimbursement methodology during the second quarter of 2014, and this change transferred full underwriting risk to the MCPs.

For the periods prior to this reimbursement methodology change, i.e., the year ended December 31, 2013 and the three months ended March 31, 2014, we accounted for the provisions of section 1202 on an administrative services only basis since it transferred no underwriting risk to the MCPs, and recorded the receipts and payments on a net basis.

Following the change in reimbursement methodology, we have full underwriting risk for 2013, including both utilization and unit cost risk. Accordingly, for the second quarter of 2014, with respect to our Medi-Cal business, we had:

• Reversed $7.9 million previously recorded as administrative services fees and other income in 2013 and for the three months ended March 31, 2014.

• Recorded payments on a grossed-up basis by recording Medi-Cal payments received as premium revenue and estimated Medi-Cal claim payments as health care costs (incurred claims), each via retroactive adjustments to premium revenues and health care costs. See the "Three Months Ended June 30, 2014 - Full Risk" column in the table below.

• Recorded retrospective premium revenue adjustments based upon the state settlement agreement (see Note 2 - "Health Plan Services Revenue Recognition" above).

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The financial statement impact of the section 1202 reimbursement methodology change is summarized in the table below.

	Recorded In
	Year Ended December 31, 2013		Three Months Ended March 31, 2014		Three Months Ended June 30, 2014
(Dollars in millions)	No Risk		No Risk		Full Risk
Health plan services premiums	$	4.4	$	—	$	154.7
Health plan services expenses	—		—		144.0
General and administrative expenses	4.4		—		—
Administrative services fees and other income	6.5		1.4		(7.9		)
Pretax income	$	6.5	$	1.4	$	2.8

3. ASSETS HELD FOR SALE

On November 2, 2014, we signed a definitive seven-year master services agreement with Cognizant to provide consulting, technology and administrative services to us in the following areas: claims management, membership and benefits configuration, customer contact center services, information technology, quality assurance, appeals and grievance services and non-clinical medical management support. In addition, we have entered into an asset purchase agreement with Cognizant for the sale of certain of our software system assets to Cognizant for $50 million. The transaction, including the related asset purchase (the "Cognizant Transaction"), is expected to close in the first half of 2015, subject to the receipt of required regulatory approvals.

We have determined that the sale of these software system assets constitutes a sale of a business, and the requirements to classify these software system assets as held-for-sale have been met as of September 30, 2014. Assets held for sale are measured at the lower of carrying value or fair value less cost to sell. Accordingly, we have classified $50.0 million in assets as assets held for sale. The following table presents the major classes of assets included in this amount (dollars in millions):

	Assets Classified as Held for Sale		Impairment Loss			Assets Held for Sale as of September 30, 2014
Property and equipment, net	$	127.7	$	(77.7	)	$	50.0
Goodwill allocated to sale of business	7.0		(7.0		)	—
Assets held for sale	$	134.7	$ (	84.7	)	$	50.0

In connection with the pending sale, we have assessed the recoverability of goodwill and our long-lived assets, including property and equipment. As a result, in the three months ended September 30, 2014, we recorded $84.7 million in total asset impairments, including goodwill impairment of $7.0 million (see Note 2) and impairment of property and equipment of $77.7 million (see Note 8).

4. SEGMENT INFORMATION

In connection with the Cognizant Transaction, we reviewed our reportable segments and determined that there are no changes to our reportable segments. See Note 3 for additional information regarding the Cognizant Transaction.

Our reportable segments are comprised of Western Region Operations and Government Contracts. Our Western Region Operations reportable segment includes the operations of our commercial, Medicare, Medicaid and dual eligibles health plans, our health and life insurance companies, our pharmaceutical services subsidiaries and certain operations of our behavioral health subsidiaries. These operations are conducted primarily in California, Arizona, Oregon and Washington. Our Government Contracts reportable segment includes government-sponsored managed care

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and administrative services contracts through the TRICARE program, the Department of Defense Military and Family Life Counseling ("MFLC") program and certain other health care-related government contracts.

The financial results of our reportable segments are reviewed on a monthly basis by our chief operating decision maker ("CODM"). We continuously monitor our reportable segments to ensure they reflect how our CODM manages our company.

We evaluate performance and allocate resources based on segment pretax income. Our assets are managed centrally and viewed by our CODM on a consolidated basis; therefore, they are not allocated to our segments and our segments are not evaluated for performance based on assets. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 2), except that intersegment transactions are not eliminated.

We also have a Corporate/Other segment that is not a business operating segment. It is added to our reportable segments to provide a reconciliation to our consolidated results. The Corporate/Other segment includes costs that are excluded from the calculation of segment pretax income because they are not managed within the segments and are not directly identified with a particular operating segment. Accordingly, these costs are not included in the performance evaluation of our reportable segments by our CODM. In addition, certain charges, including but not limited to those related to our continuing efforts to address scale issues as well as asset impairments, are reported as part of Corporate/Other.

Our segment information for the three and nine months ended September 30, 2014 and 2013 is as follows:

	Western Region Operations		Government Contracts		Corporate/Other/ Eliminations			Total
	(Dollars in millions)
Three months ended September 30, 2014
Revenues from external sources	$	3,643.7	$	146.2	$	—		$	3,789.9
Intersegment revenues	3.1		—		(3.1		)	—
Segment pretax income (loss)	105.9		22.6		(105.8		)	22.7
Three months ended September 30, 2013
Revenues from external sources	$	2,625.7	$	149.3	$	—		$	2,775.0
Intersegment revenues	2.7		—		(2.7		)	—
Segment pretax income (loss)	85.2		23.5		(0.1		)	108.6
Nine months ended September 30, 2014
Revenues from external sources	$	9,805.8	$	444.4	$	—		$	10,250.2
Intersegment revenues	9.2		—		(9.2		)	—
Segment pretax income (loss)	239.6		57.1		(113.2		)	183.5
Nine months ended September 30, 2013
Revenues from external sources	$	7,886.7	$	423.8	$	—		$	8,310.5
Intersegment revenues	8.4		—		(8.4		)	—
Segment pretax income (loss)	204.3		50.6		(13.0		)	241.9

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Our health plan services premium revenue by line of business is as follows:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
	(Dollars in millions)
Commercial premium revenue	$	1,430.8	$	1,279.8	$	4,072.4	$	3,903.8
Medicare premium revenue	763.3		685.4		2,275.7		2,080.3
Medicaid premium revenue	1,397.7		641.6		3,381.6		1,833.6
Dual Eligibles premium revenue	39.8		—		45.1		—
Total health plan services premiums	$	3,631.6	$	2,606.8	$	9,774.8	$	7,817.7

5. INVESTMENTS

Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net of income tax effects. The cost of investments sold is determined in accordance with the specific identification method, and realized gains and losses are included in net investment income. We periodically assess our investments available-for-sale for other-than-temporary impairment. Any such other-than-temporary impairment loss is recognized as a realized loss, which is recorded through earnings, if related to credit losses.

During the three and nine months ended September 30, 2014 and 2013, we recognized no losses from other-than-temporary impairments of our cash equivalents and available-for-sale investments.

We classified $3.1 million and $59.8 million as investments available-for-sale-noncurrent as of September 30, 2014 and December 31, 2013, respectively, because we did not intend to sell and we believed it may take longer than one year for such impaired securities to recover. This classification does not affect the marketability or the valuation of the investments, which are reflected at their market values as of September 30, 2014 and December 31, 2013.

As of September 30, 2014 and December 31, 2013, the amortized cost, gross unrealized holding gains and losses, and fair value of our current investments available-for-sale and our investments available-for-sale-noncurrent, after giving effect to other-than-temporary impairments, were as follows:

	September 30, 2014
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	400.3	$	2.8	$	(4.2	)	$	398.9
U.S. government and agencies	23.6		—		—			23.6
Obligations of states and other political subdivisions	698.3		13.9		(3.1		)	709.1
Corporate debt securities	534.3		2.7		(3.8		)	533.2
	$	1,656.5	$	19.4	$	(11.1	)	$	1,664.8
Noncurrent:
Asset-backed securities	$	0.8	$	—	$	(0.2	)	$	0.6
Corporate debt securities	2.8		—		(0.3		)	2.5
	$	3.6	$	—	$	(0.5	)	$	3.1

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	December 31, 2013
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	394.7	$	3.4	$	(8.7	)	$	389.4
U.S. government and agencies	23.7		—		—			23.7
Obligations of states and other political subdivisions	734.3		5.9		(30.3		)	709.9
Corporate debt securities	449.8		3.6		(9.4		)	444.0
	$	1,602.5	$	12.9	$	(48.4	)	$	1,567.0
Noncurrent:
Asset-backed securities	$	1.3	$	—	$	(0.2	)	$	1.1
Obligations of states and other political subdivisions	53.4		—		(6.3		)	47.1
Corporate debt securities	13.2		—		(1.6		)	11.6
	$	67.9	$	—	$	(8.1	)	$	59.8

As of September 30, 2014, the contractual maturities of our current investments available-for-sale and our investments available-for-sale-noncurrent were as follows:

	Amortized Cost		Estimated Fair Value
Current:	(Dollars in millions)
Due in one year or less	$	49.1	$	49.2
Due after one year through five years	347.8		349.6
Due after five years through ten years	435.3		438.8
Due after ten years	424.0		428.3
Asset-backed securities	400.3		398.9
Total current investments available-for-sale	$	1,656.5	$	1,664.8
	Amortized Cost		Estimated Fair Value
Noncurrent:	(Dollars in millions)
Due after five years through ten years	2.8		2.5
Asset-backed securities	0.8		0.6
Total noncurrent investments available-for-sale	$	3.6	$	3.1

Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2014 were $104.6 million and $296.9 million, respectively. Gross realized gains and losses totaled $1.0 million and $0.6 million, respectively, for the three months ended September 30, 2014, and $4.4 million and $1.8 million, respectively, for the nine months ended September 30, 2014. Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2013 were $80.4 million and $653.8 million, respectively. Gross realized gains and losses totaled $1.0 million and $0.7 million, respectively, for the three months ended September 30, 2013, and $25.5 million and $2.2 million, respectively, for the nine months ended September 30, 2013.

The following tables show our investments’ fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014 and December 31, 2013. These investments are interest-yielding debt securities of varying maturities. We have determined that the unrealized loss position for these securities is primarily due to market volatility. Generally, in a rising interest rate environment, the estimated fair value of fixed income securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of fixed income securities would be expected to increase. These securities also may be negatively impacted by illiquidity in the market.

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The following table shows our current investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	82.1	$	(0.4	)	$	148.0	$	(3.8	)	$	230.1	$	(4.2	)
Obligations of states and other political subdivisions	7.8		(0.1		)	169.0		(3.0		)	176.8		(3.1		)
Corporate debt securities	223.8		(1.9		)	68.5		(1.9		)	292.3		(3.8		)
	$	313.7	$	(2.4	)	$	385.5	$	(8.7	)	$	699.2	$	(11.1	)

The following table shows our noncurrent investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	—	$	—		$	0.6	$	(0.2	)	$	0.6	$	(0.2	)
Corporate debt securities	0.5		(0.1		)	2.0		(0.2		)	2.5		(0.3		)
	$	0.5	$	(0.1	)	$	2.6	$	(0.4	)	$	3.1	$	(0.5	)

The following table shows the number of our individual securities-current that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	51	58	109
Obligations of states and other political subdivisions	6	85	91
Corporate debt securities	228	75	303
	285	218	503

The following table shows the number of our individual securities-noncurrent that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	—	1	1
Corporate debt securities	1	2	3
	1	3	4

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The following table shows our current investments’ fair values and gross unrealized losses for individual securities that have been in a continuous loss position through December 31, 2013:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	225.3	$	(7.9	)	$	22.5	$	(0.8	)	$	247.8	$	(8.7	)
U.S. government and agencies	4.0		—			—		—			4.0		—
Obligations of states and other political subdivisions	453.5		(23.5		)	79.7		(6.8		)	533.2		(30.3		)
Corporate debt securities	242.8		(9.0		)	6.7		(0.4		)	249.5		(9.4		)
	$	925.6	$	(40.4	)	$	108.9	$	(8.0	)	$	1,034.5	$	(48.4	)

The following table shows the fair values and gross unrealized losses for our individual securities-noncurrent that have been in a continuous loss position through December 31, 2013:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	0.5	$	(0.1	)	$	0.7	$	(0.1	)	$	1.2	$	(0.2	)
Obligations of states and other political subdivisions	17.4		(2.2		)	29.6		(4.1		)	47.0		(6.3		)
Corporate debt securities	7.5		(0.9		)	4.1		(0.7		)	11.6		(1.6		)
	$	25.4	$	(3.2	)	$	34.4	$	(4.9	)	$	59.8	$	(8.1	)

6. STOCK REPURCHASE PROGRAM

On May 2, 2011, our Board of Directors authorized our stock repurchase program pursuant to which a total of $300 million of our outstanding common stock could be repurchased. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program, which, when taken together with the remaining authorization at that time, brought our total authorization up to $400.0 million.

Subject to the approval of our Board of Directors, we may repurchase our common stock under our stock repurchase program from time to time in privately negotiated transactions, through accelerated stock repurchase programs or open market transactions, including pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended. The timing of any repurchases and the actual number of shares of stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the Company’s debt obligations, and other market and economic conditions. Our stock repurchase program may be suspended or discontinued at any time.

During the three months ended September 30, 2013, we made no share repurchases and during the nine months ended September 30, 2013, we repurchased approximately 2.7 million shares of our common stock for aggregate consideration of $70.0 million under our stock repurchase program. As of December 31, 2013, the remaining authorization under our stock repurchase program was $280.0 million. During the three and nine months ended September 30, 2014, we repurchased approximately 1.5 million shares of our common stock for aggregate consideration of $69.0 million under our stock repurchase program. The remaining authorization under our stock repurchase program as of September 30, 2014 was $211.0 million.

7. FINANCING ARRANGEMENTS

Revolving Credit Facility

In October 2011, we entered into a $600 million unsecured revolving credit facility due in October 2016, which includes a $400 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swing line loans (which sublimits may be increased in connection with any increase in the credit facility described below). In

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addition, we have the ability from time to time to increase the credit facility by up to an additional $200 million in the aggregate, subject to the receipt of additional commitments. As of September 30, 2014, $100.0 million was outstanding under our revolving credit facility, and the maximum amount available for borrowing under the revolving credit facility was $491.3 million (see "—Letters of Credit" below).

Amounts outstanding under our revolving credit facility bear interest, at the Company’s option, at either (a) the base rate (which is a rate per annum equal to the greatest of (i) the federal funds rate plus one-half of one percent, (ii) Bank of America, N.A.’s “prime rate” and (iii) the Eurodollar Rate (as such term is defined in the credit facility) for a one-month interest period plus one percent) plus an applicable margin ranging from 45 to 105 basis points or (b) the Eurodollar Rate plus an applicable margin ranging from 145 to 205 basis points. The applicable margins are based on our consolidated leverage ratio, as specified in the credit facility, and are subject to adjustment following the Company’s delivery of a compliance certificate for each fiscal quarter.

Our revolving credit facility includes, among other customary terms and conditions, limitations (subject to specified exclusions) on our and our subsidiaries’ ability to incur debt; create liens; engage in certain mergers, consolidations and acquisitions; sell or transfer assets; enter into agreements that restrict the ability to pay dividends or make or repay loans or advances; make investments, loans, and advances; engage in transactions with affiliates; and make dividends. In addition, we are required to be in compliance at the end of each fiscal quarter with a specified consolidated leverage ratio and consolidated fixed charge coverage ratio. As of September 30, 2014, we were in compliance with all covenants under the revolving credit facility.

Our revolving credit facility contains customary events of default, including nonpayment of principal or other amounts when due; breach of covenants; inaccuracy of representations and warranties; cross-default and/or cross-acceleration to other indebtedness of the Company or our subsidiaries in excess of $50 million; certain ERISA-related events; noncompliance by the Company or any of our subsidiaries with any material term or provision of the HMO Regulations or Insurance Regulations (as each such term is defined in the credit facility) in a manner that could reasonably be expected to result in a material adverse effect; certain voluntary and involuntary bankruptcy events; inability to pay debts; undischarged, uninsured judgments greater than $50 million against us and/or our subsidiaries that are not stayed within 60 days; actual or asserted invalidity of any loan document; and a change of control. If an event of default occurs and is continuing under the revolving credit facility, the lenders thereunder may, among other things, terminate their obligations under the facility and require us to repay all amounts owed thereunder.

Letters of Credit

Pursuant to the terms of our revolving credit facility, we can obtain letters of credit in an aggregate amount of $400 million and the maximum amount available for borrowing is reduced by the dollar amount of any outstanding letters of credit. As of September 30, 2014 and December 31, 2013, we had outstanding letters of credit of $8.7 million and $7.5 million, respectively, resulting in a maximum amount available for borrowing of $491.3 million and $492.5 million, respectively. As of September 30, 2014 and December 31, 2013, no amounts had been drawn on any of these letters of credit.

Senior Notes

In 2007, we issued $400 million in aggregate principal amount of 6.375% Senior Notes due 2017 ("Senior Notes"). The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge or sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified period, we will be required to make an offer to purchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid interest to the date of repurchase. As of September 30, 2014, no default or event of default had occurred under the indenture governing the Senior Notes.

The Senior Notes may be redeemed in whole at any time or in part from time to time, prior to maturity at our option, at a redemption price equal to the greater of:

• 100% of the principal amount of the Senior Notes then outstanding to be redeemed; or

• the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Notes to be redeemed (not including any portion of such payments of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve30-day months) at the applicable treasury rate plus 30 basis points

plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.

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Each of the following will be an Event of Default under the indenture governing the Senior Notes:

• failure to pay interest for 30 days after the date payment is due and payable; provided that an extension of an interest payment period by us in accordance with the terms of the Senior Notes shall not constitute a failure to pay interest;

• failure to pay principal or premium, if any, on any note when due, either at maturity, upon any redemption, by declaration or otherwise;

• failure to perform any other covenant or agreement in the notes or indenture for a period of 60 days after notice that performance was required;

• (A) our failure or the failure of any of our subsidiaries to pay indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, at the later of final maturity and the expiration of any related applicable grace period and such defaulted payment shall not have been made, waived or extended within 30 days after notice or (B) acceleration of the maturity of indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, if that acceleration results from a default under the instrument giving rise to or securing such indebtedness for money borrowed and such indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days after notice; or

• events in bankruptcy, insolvency or reorganization of our Company.

Our Senior Notes payable balances were $399.5 million as of September 30, 2014 and $399.3 million as of December 31, 2013.

8. FAIR VALUE MEASUREMENTS

We record certain assets and liabilities at fair value in the consolidated balance sheets and categorize them based upon the level of judgment associated with the inputs used to measure their fair value and the level of market price observability. We also estimate fair value when the volume and level of activity for the asset or liability have significantly decreased or in those circumstances that indicate when a transaction is not orderly.

Investments measured and reported at fair value using Level inputs are classified and disclosed in one of the following categories:

Level 1—Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 include U.S. Treasury securities and listed equities. We do not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.

Level 2—Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models and/or other valuation methodologies that are based on an income approach. Examples include, but are not limited to, multidimensional relational model, option adjusted spread model, and various matrices. Specific pricing inputs include quoted prices for similar securities in both active and non-active markets, other observable inputs such as interest rates, yield curve volatilities, default rates, and inputs that are derived principally from or corroborated by other observable market data. Investments that are generally included in this category include asset-backed securities, corporate bonds and loans, and state and municipal bonds.

Level 3—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation using assumptions that market participants would use, including assumptions for risk. Level 3 includes an embedded contractual derivative asset and/or liability held by the Company estimated at fair value. Significant inputs used in the derivative valuation model include the estimated growth in Health Net health care expenditures and estimated growth in national health care expenditures. The growth in these expenditures was modeled using a Monte Carlo simulation approach. Level 3 also includes a state-sponsored health plans settlement account deficit asset estimated at fair value based on the income approach. See Note 2 for additional information on our state-sponsored health plans rate settlement agreement.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

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The following tables present information about our assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013, and indicate the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (dollars in millions):

	Level 1		Level 2		Level 2- noncurrent		Level 3		Total
As of September 30, 2014:
Assets:
Cash and cash equivalents	$	1,114.6	$	—	$	—	$	—	$	1,114.6
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	202.9	$	—	$	—	$	202.9
Commercial mortgage-backed securities	—		131.5		0.6		—		132.1
Other asset-backed securities	—		64.5		—		—		64.5
U.S. government and agencies:
U.S. Treasury securities	23.6		—		—		—		23.6
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		709.1		—		—		709.1
Corporate debt securities	—		533.2		2.5		—		535.7
Total investments at fair value	$	23.6	$	1,641.2	$	3.1	$	—	$	1,667.9
Embedded contractual derivative	—		—		—		14.2		14.2
State-sponsored health plans settlement account deficit	—		—		—		—		—
Total assets at fair value	$	1,138.2	$	1,641.2	$	3.1	$	14.2	$	2,796.7

	Level 1		Level 2		Level 2- noncurrent		Level 3		Total
As of December 31, 2013:
Assets:
Cash and cash equivalents	$	433.2	$	—	$	—	$	—	$	433.2
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	203.5	$	0.4	$	—	$	203.9
Commercial mortgage-backed securities	—		144.1		0.7		—		144.8
Other asset-backed securities	—		41.8		—		—		41.8
U.S. government and agencies:
U.S. Treasury securities	23.7		—		—		—		23.7
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		709.9		47.1		—		757.0
Corporate debt securities	—		444.0		11.6		—		455.6
Total investments at fair value	$	23.7	$	1,543.3	$	59.8	$	—	$	1,626.8
Embedded contractual derivative	—		—		—		7.2		7.2
State-sponsored health plans settlement account deficit	—		—		—		62.9		62.9
Total assets at fair value	$	456.9	$	1,543.3	$	59.8	$	70.1	$	2,130.1

We had no financial liabilities fair valued on a recurring basis as of September 30, 2014 and December 31, 2013.

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We had no transfers between Levels 1 and 2 of financial assets or liabilities that are fair valued on a recurring basis during the three and nine months ended September 30, 2014 and 2013. In determining when transfers between levels are recognized, our accounting policy is to recognize the transfers based on the actual date of the event or change in circumstances that caused the transfer.

The changes in the balances of Level 3 financial assets for the three months ended September 30, 2014 and 2013 were as follows (dollars in millions):

	Three months ended September 30,
	2014										2013
	Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit			Total			Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit		Total
Opening balance	$	—	$	13.3	$	9.6		$	22.9		$	—	$	10.8	$	35.4	$	46.2
Transfers into Level 3	—		—		—			—			—		—		—		—
Transfers out of Level 3	—		—		—			—			—		—		—		—
Total gains or losses for the period:
Realized in net income	—		0.9		(9.6		)	(8.7		)	—		1.9		16.3		18.2
Unrealized in accumulated other comprehensive income	—		—		—			—			—		—		—		—
Purchases, issues, sales and settlements:
Purchases/additions	—		—		—			—			—		—		—		—
Issues	—		—		—			—			—		—		—		—
Sales	—		—		—			—			—		—		—		—
Settlements	—		—		—			—			—		—		—		—
Closing balance	$	—	$	14.2	$	—		$	14.2		$	—	$	12.7	$	51.7	$	64.4
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—		$	—		$	—	$	—	$	—	$	—

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The changes in the balances of Level 3 financial assets for the nine months ended September 30, 2014 and 2013 were as follows (dollars in millions):

	Nine months ended September 30,
	2014										2013
	Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit			Total			Available-For-Sale Investments			Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit		Total
Opening balance	$	—	$	7.2	$	62.9		$	70.1		$	0.2		$	11.2	$	—	$	11.4
Transfers into Level 3	—		—		—			—			—			—		—		—
Transfers out of Level 3	—		—		—			—			—			—		—		—
Total gains or losses for the period:
Realized in net income	—		7.0		(62.9		)	(55.9		)	—			1.5		51.7		53.2
Unrealized in accumulated other comprehensive income	—		—		—			—			—			—		—		—
Purchases, issues, sales and settlements:
Purchases/additions	—		—		—			—			—			—		—		—
Issues	—		—		—			—			—			—		—		—
Sales	—		—		—			—			(0.2		)	—		—		(0.2		)
Settlements	—		—		—			—			—			—		—		—
Closing balance	$	—	$	14.2	$	—		$	14.2		$	—		$	12.7	$	51.7	$	64.4
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	—

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The changes in the balances of Level 3 financial liability for the three and nine months ended September 30, 2013 were as follows (dollars in millions):

	Three months ended September 30, 2013			Nine months ended September 30, 2013
	Embedded Contractual Derivative
Opening balance, April 1 and January 1	$	4.8		$	3.2
Transfers into Level 3	—			—
Transfers out of Level 3	—			—
Total gains or losses for the period:
Realized in net income	(4.1		)	(2.5		)
Unrealized in accumulated other comprehensive income	—			—
Purchases, issues, sales and settlements:
Purchases	—			—
Issues	—			—
Sales	—			—
Settlements	—			—
Closing balance	$	0.7		$	0.7

As of September 30, 2014, we classified certain assets as assets held for sale. These assets held for sale are carried at the lower of carrying value or fair value (see Note 2, under the heading "Goodwill and Other Intangibles," and Note 3 for additional information). The following table presents information about our assets classified as held for sale as of September 30, 2014, the hierarchy of the valuation techniques utilized by us to determine such fair values and the related impairment loss for the three months ended September 30, 2014 (dollars in millions):

	Level 3		Total Asset Impairment for the Three Months Ended September 30, 2014
Property and equipment, net	$	50.0	$	77.7
Goodwill allocated to sale of business	—		7.0
Assets held for sale	$	50.0	$	84.7

We had no liabilities fair valued on a non-recurring basis during the three and nine months ended September 30, 2014. We had no assets or liabilities fair valued on a non-recurring basis for the year ended December 31, 2013.

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The following tables present quantitative information about Level 3 Fair Value Measurements as of September 30, 2014 and December 31, 2013 (dollars in millions):

	Fair Value as of September 30, 2014		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative asset	$	14.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-5.70	%	—	6.78%	(1.46%)
				National Health Care Expenditures	-2.01	%	—	8.50%	(2.44%)
Goodwill - Western Region reporting unit	$	558.9	Income Approach	Discount Rate	7.5	%	—	7.5%	(7.5%)
Assets held for sale	$	50.0	Income Approach	Discount Rate	12.0	%	—	12.0%	(12.0%)

	Fair Value as of December 31, 2013		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative asset	$	7.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-3.34	%	—	7.34%	(2.20%)
				National Health Care Expenditures	-0.77	%	—	9.46%	(3.63%)
Goodwill - Western Region reporting unit	$	565.9	Income Approach	Discount Rate	10.0	%	—	10.0%	(10.0%)
State-sponsored health plans settlement account deficit	$	62.9	Income Approach	Discount Rate	1.135	%	—	1.135%	(1.135%)

Valuation policies and procedures are managed by our finance group, which regularly monitors fair value measurements. Fair value measurements, including those categorized within Level 3, are prepared and reviewed on a quarterly basis and any third-party valuations are reviewed for reasonableness and compliance with the Fair Value Measurement Topic of the Accounting Standards Codification. Specifically, we compare prices received from our pricing service to prices reported by the custodian or third-party investment advisers, and we perform a review of the inputs, validating that they are reasonable and observable in the marketplace, if applicable. For our embedded contractual derivative asset and/or liability, we use internal historical and projected health care expenditure data and the national health care expenditures as reflected in the National External Trend Standards, which is published by CMS, to estimate the unobservable inputs. The growth rates in each of these health care expenditures are modeled using the Monte Carlo simulation approach, and the resulting value is discounted to the valuation date. We estimate our recurring Level 3 state-sponsored health plans settlement account deficit asset using the income approach based on discounted cash flows. We estimate our non-recurring Level 3 asset and goodwill for our Western Region Operations reporting unit using the income approach based on discounted cash flows. We estimate our non-recurring Level 3 assets held for sale based on a combination of the discounted total consideration expected to be received in connection with the services and asset sale agreements, income approach based on a discounted cash flow methodology, and replacement cost methodology.

The significant unobservable inputs used in the fair value measurement of our embedded contractual derivative are the estimated growth in Health Net health care expenditures and the estimated growth in national health care expenditures. Significant increases (decreases) in the estimated growth in Health Net health care expenditures or decreases (increases) in the estimated growth in national health expenditures would result in a significantly lower

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(higher) fair value measurement. The significant unobservable input used in the fair value measurement of our state-sponsored health plans settlement account deficit asset is our discount rate. Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement.

9. LEGAL PROCEEDINGS

Overview

We record reserves and accrue costs for certain legal proceedings and regulatory matters to the extent that we determine an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect our best estimate of the probable loss for such matters, our recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to that they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings, each with a wide range of potential outcomes; or result in a change of business practices. Further, there may be various levels of judicial review available to the Company in connection with any such proceeding in the event damages are awarded or a fine or penalty is assessed. As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual period our financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including those described below in this Note 9 under the heading “Military and Family Life Counseling Program Putative Class and Collective Actions,” depending, in part, upon our financial condition, results of operations, cash flow or liquidity in such period, and our reputation may be adversely affected. Except for the regulatory and legal proceedings discussed in this Note 9 under the heading “Military and Family Life Counseling Program Putative Class and Collective Actions,” management believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against us should not have a material adverse effect on our financial condition, results of operations, cash flow and liquidity.

Military and Family Life Counseling Program Putative Class and Collective Actions

We are a defendant in three related litigation matters pending in the United States District Court for the Northern District of California (the “Northern District of California”) relating to the independent contractor classification of counselors (“MFLCs”) who contracted with our subsidiary, MHN Government Services, Inc. (“MHNGS”), to provide short-term, non-medical counseling at U.S. military installations throughout the country under our Military and Family Life Counseling (formerly Military and Family Life Consultants) program.

On June 14, 2011, two former MFLCs filed a putative class action in the Superior Court of the State of Washington for Pierce County against Health Net, Inc., MHNGS, and MHN Services d/b/a MHN Services Corporation (also a subsidiary), on behalf of themselves and a proposed class of current and former MFLCs who have performed services as independent contractors in the state of Washington from June 14, 2008 to the present. Plaintiffs claim that MFLCs were misclassified as independent contractors under Washington law and are entitled to the wages and overtime pay that they would have received had they been classified as non-exempt employees. Plaintiffs seek unpaid wages, overtime pay, statutory penalties, attorneys’ fees and interest. We moved to compel the case to arbitration, and the court denied the motion on September 30, 2011. We appealed the decision. The Washington Supreme Court affirmed the trial court’s decision on August 15, 2013. On February 26, 2014, we removed this case to the United States District Court for the Western District of Washington, pursuant to the Class Action Fairness Act.

On May 15, 2012, the same two MFLCs who filed the Washington action, as well as 12 other named plaintiffs, filed a proposed collective action lawsuit against the same defendants in the United States District Court for the Western District of Washington on behalf of themselves and other current and former MFLCs who have performed services as independent contractors nationwide from May 15, 2009 to the present. They allege misclassification under the federal Fair Labor Standards Act (“FLSA”) and seek unpaid wages, unpaid benefits, overtime pay, statutory penalties, attorneys’ fees and interest. They also seek penalties under California Labor Code section 226.8. The court has since transferred the case to the Northern District of California to relate it to a virtually identical suit filed on October 2, 2012 against MHNGS and Managed Health Network, Inc. (“MHN”) (also a subsidiary).

The third October 2012 suit alleges misclassification under the FLSA on behalf of a nationwide class, as well under several state laws on behalf of MFLCs who worked in California, New Mexico, Hawaii, Kentucky, New York,

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Nevada, and North Carolina. On October 24, 2013, the parties agreed to toll the statutes of limitations for overtime violations in the following states: Alaska, Colorado, Illinois, Maine, Maryland, Massachusetts, Montana, New Jersey, North Dakota, Ohio, and Pennsylvania.

On November 1, 2012, we moved to compel arbitration in the Northern District of California, and the court denied the motion on April 3, 2013. We noticed our appeal of that decision to the United States Court of Appeals for the Ninth Circuit on April 8, 2013. On April 25, 2013, the district court granted Plaintiffs’ motion for conditional FLSA collective action certification to allow notice to be sent to the FLSA collective action members. The court stayed all other proceedings pending an outcome in the Ninth Circuit appeal, which is scheduled for hearing on November 18, 2014.

On March 28, 2014, the original Washington case was transferred to the Northern District of California to relate it to the two FLSA suits pending there. On April 11, 2014, we moved to stay the suit pending the Ninth Circuit appeal. We also filed two alternative motions seeking an order to either compel the case to arbitration or dismiss Plaintiffs’ class claims and California Labor Code section 226.8 claims. On June 3, 2014, the court granted our motion to stay, and denied the later alternative motions without prejudice to renewal after the stay is lifted.

We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to many uncertainties.

Miscellaneous Proceedings

In the ordinary course of our business operations, we are subject to periodic reviews, investigations and audits by various federal and state regulatory agencies, including, without limitation, CMS, DMHC, the Office of Civil Rights of HHS and state departments of insurance, with respect to our compliance with a wide variety of rules and regulations applicable to our business, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, rules relating to pre-authorization penalties, payment of out-of-network claims, timely review of grievances and appeals, and timely and accurate payment of claims, any one of which may result in remediation of certain claims, contract termination, the loss of licensure or the right to participate in certain programs, and the assessment of regulatory fines or penalties, which could be substantial. From time to time, we receive subpoenas and other requests for information from, and are subject to investigations by, such regulatory agencies, as well as from state attorneys general. There also continues to be heightened review by regulatory authorities of, and increased litigation regarding, the health care industry’s business practices, including, without limitation, information privacy, premium rate increases, utilization management, appeal and grievance processing, rescission of insurance coverage and claims payment practices.

In addition, in the ordinary course of our business operations, we are party to various other legal proceedings, including, without limitation, litigation arising out of our general business activities, such as contract disputes, employment litigation, wage and hour claims, including, without limitation, cases involving allegations of misclassification of employees and/or failure to pay for off-the-clock work, real estate and intellectual property claims, claims brought by members or providers seeking coverage or additional reimbursement for services allegedly rendered to our members, but which allegedly were denied, underpaid, not timely paid or not paid, and claims arising out of the acquisition or divestiture of various business units or other assets. We also are subject to claims relating to the performance of contractual obligations to providers, members, employer groups and others, including the alleged failure to properly pay claims and challenges to the manner in which we process claims, and claims alleging that we have engaged in unfair business practices. In addition, we are subject to claims relating to information security incidents and breaches, reinsurance agreements, rescission of coverage and other types of insurance coverage obligations and claims relating to the insurance industry in general. In our role as a federal and state government contractor, we are, and may be in the future, subject to qui tam litigation brought by individuals who seek to sue on behalf of the government for violations of, among other things, state and federal false claims laws. We are, and may be in the future, subject to class action lawsuits brought against various managed care organizations and other class action lawsuits.

We intend to vigorously defend ourselves against the miscellaneous legal and regulatory proceedings to which we are currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against us, substantial non-economic or punitive damages are being sought.

Potential Settlements

We regularly evaluate legal proceedings and regulatory matters pending against us, including those described above in this Note 9, to determine if settlement of such matters would be in the best interests of the Company and its stockholders. The costs associated with any settlement of the various legal proceedings and regulatory matters to which we are or may be subject from time to time, including those described above in this Note 9, could be substantial and, in

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certain cases, could result in a significant earnings charge or impact on our cash flow in any particular quarter in which we enter into a settlement agreement and could have a material adverse effect on our financial condition, results of operations, cash flow and/or liquidity and may affect our reputation.

10. INCOME TAXES

The effective income tax rate from operations was 139.3% and 38.4% for the three months ended September 30, 2014 and 2013, respectively, and 23.3% and 37.8% for the nine months ended September 30, 2014 and 2013, respectively. For the three and nine months ended September 30, 2014, our effective tax rate was impacted by the health insurer fee which became effective under the ACA. Our 2014 health insurance industry fee payment of $141.4 million was not deductible for federal income tax purposes and in many state jurisdictions. The health insurance industry fee is effective for calendar years beginning after December 31, 2013 and was paid in September 2014. See Note 2, under the heading "Accounting for Certain Provisions of the ACA—Premium-based Fee on Health Insurers" for additional information regarding the health insurance industry fee. Other items which cause our effective tax rate to differ from the statutory federal tax rate of 35% for the three and nine months ended September 30, 2014 include state income taxes, tax-exempt interest and non-deductible compensation.

During the three months ended June 30, 2014, we recorded a $72.6 million tax benefit, net of adjustments to our reserve for uncertain tax benefits, as a result of a worthless stock loss. The loss was incurred with respect to the stock of Health Net of the Northeast, Inc., the former parent company of subsidiaries sold to United Health Group in 2009. The amount and character of the loss could be challenged by the taxing authorities, and as such, we increased our reserve for uncertain tax positions by $11.0 million related to this transaction as of June 30, 2014. During the three months ended September 30, 2014, we increased our reserve for uncertain tax positions by an additional $7.3 million due to adjustments to our claims reserves, the deductibility of a portion of which in the period may be challenged by the taxing authorities.

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Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENTS

The following discussion and other portions of this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”) and Section 27A of the Securities Act of 1933 regarding our business, financial condition and results of operations. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. These forward-looking statements involve a number of risks and uncertainties. All statements other than statements of historical information provided or incorporated by reference herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend,” “feels,” “will,” “projects” and other similar expressions are intended to identify forward-looking statements. Managed health care companies operate in a highly competitive, constantly changing environment that is significantly influenced by, among other things, aggressive marketing and pricing practices of competitors and regulatory oversight. Factors that could cause our actual results to differ materially from those reflected in forward-looking statements include, but are not limited to, the factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 ("Form 10-K") and this Quarterly Report on Form 10-Q (this "Form 10-Q") and the other risks discussed in this Form 10-Q and our other filings from time to time with the Securities and Exchange Commission ("SEC").

Any or all forward-looking statements in this Form 10-Q and in any other public filings or statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many of the factors discussed in our filings with the SEC may impact future results. These factors should be considered in conjunction with any discussion of operations or results by us or our representatives, including any forward-looking discussion, as well as information contained in press releases, presentations to securities analysts or investors or other communications by us or our representatives. You should not place undue reliance on any forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date thereof and are subject to changes in circumstances and a number of risks and uncertainties. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that arise after the date such statement was made.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, together with the consolidated financial statements included elsewhere in this report, should be read in their entirety since they contain detailed information that is important to understanding Health Net, Inc. and its subsidiaries’ results of operations and financial condition.

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 5.9 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as "Part D"), Medicaid, U.S. Department of Defense (“Department of Defense” or “DoD”), including TRICARE, and Veterans Affairs programs. We also offer behavioral health, substance abuse and employee assistance programs, managed health care products related to prescription drugs, managed health care product coordination for multi-region employers, and administrative services for medical groups and self-funded benefits programs.

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 4 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 in several states including Arizona, California,

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Oregon and Washington. As of September 30, 2014, we had approximately 3.1 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 and other health care related government contracts. Under the Managed Care Support Contract for the TRICARE North Region ("T-3 contract"), we provide administrative services to approximately 2.8 million Military Health System (“MHS”) eligible beneficiaries. In addition, we also provide behavioral health services to military families under the Department of Defense sponsored Military and Family Life Counseling, formerly Military and Family Life Consultant (“MFLC”) contract, which also is included in our Government Contracts segment. For additional information on our T-3 and MFLC contracts, see "—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; manage health care and pharmacy costs; 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.

We measure our Western Region Operations reportable segment profitability based on pretax income, which is calculated as health plan services premiums and administrative services fees and other income less health plan services expense and G&A and other net expenses, including selling expenses. See “—Results of Operations—Western Region Operations Reportable Segment—Western Region Operations Segment Results” for a calculation of pretax income.

Health plan services premiums generally include health maintenance organization (“HMO”), point of service (“POS”) and preferred provider organization (“PPO”) premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage (which premiums are based on a predetermined prepaid fee), Medicaid revenues based on multi-year contracts to provide care to Medicaid recipients (which includes retroactive and retrospective premium adjustments) and revenue under Medicare risk contracts to provide care to enrolled Medicare recipients. Medicare revenues also can include amounts for risk factor adjustments and additional premiums that we charge in some places to members who purchase our Medicare risk plans. The amount of premiums we earn in a given period is driven by the rates we charge and enrollment levels. Administrative services fees and other income primarily includes revenue for administrative services such as claims processing, customer service, medical management, provider network access and other administrative services. Health plan services expense generally includes medical and related costs for health services provided to our members, including physician services, hospital and related professional services, outpatient care, and pharmacy benefit costs. These expenses are impacted by unit costs and utilization rates. Unit costs represent the health care cost per visit, and the utilization rates represent the volume of health care consumption by our members.

G&A expenses include, among other things, those costs related to employees and benefits, consulting and professional fees, marketing, business expansion initiatives, premium taxes and assessments, Patient Protection and Affordable Care Act and the Health Care Education Reconciliation Act of 2010 (collectively, the "ACA") related fees,occupancy costs and litigation and regulatory-related costs. Such costs are driven by membership levels, introduction of new products or provision of new services, system consolidations, outsourcing activities and compliance requirements for changing regulations, among other things. These expenses also include expenses associated with corporate shared services and other costs to reflect the fact that such expenses are incurred primarily to support health plan services. Selling expenses consist of external broker commission expenses and generally vary with premium volume.

We measure our Government Contracts segment profitability based on pretax income, which is calculated as Government Contracts revenue less Government Contracts cost. See “—Results of Operations—Government Contracts Reportable Segment—Government Contracts Segment Results” for a calculation of the government contracts pretax income.

Under the T-3 contract for the TRICARE North Region (the "T-3 contract"), we provide various types of administrative services including provider network management, referral management, medical management, disease management, enrollment, customer service, clinical support service, and claims processing. These services are structured as cost reimbursement arrangements for health care costs plus administrative fees earned in the form of fixed prices, fixed unit prices, and contingent fees and payments based on various incentives and penalties. We recognize revenue related to administrative services on a straight-line basis over the option period, when the fees become fixed

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and determinable. The TRICARE North Region members are served by our network and out-of-network providers in accordance with the T-3 contract. We pay health care costs related to these services to the providers and are later reimbursed by the DoD for such payments. Under the terms of the T-3 contract, we are not the primary obligor for health care services and accordingly, we do not include health care costs and related reimbursements in our consolidated statements of operations. The T-3 contract also includes various performance-based incentives and penalties. For each of the incentives or penalties, we adjust revenue accordingly based on the amount that we have earned or incurred at each interim date and are legally entitled to in the event of a contract termination.

Recent Development

Cognizant Transaction

On November 2, 2014, we entered into a Master Services Agreement (the "Master Services Agreement") with Cognizant Healthcare Services, LLC, a wholly owned subsidiary of Cognizant Technology Solutions Corporation (collectively, "Cognizant"). Under the terms of the Master Services Agreement, Cognizant will, among other things, provide us with certain consulting, technology and administrative services in the following areas: claims management, membership and benefits configuration, customer contact center services, information technology, quality assurance, appeals and grievance services, and non-clinical medical management support (collectively, the "BP and IT Services"). We will retain responsibility for our security policies and regulatory oversight.

Concurrent with executing the Master Services Agreement, we entered into an asset purchase agreement with Cognizant (the "Asset Purchase Agreement"), through which Cognizant will purchase certain software assets and related intellectual property from us for $50 million. These assets will include one of our claims processing systems, which will be used to perform a portion of the BP and IT Services. The transaction, including the related asset purchase, is expected to close in the first half of 2015, subject to the receipt of required regulatory approvals.

We expect that certain of our employees will become employees of Cognizant or its subcontractors, and that certain positions will be eliminated, as part of the transaction.

The initial term of the Master Services Agreement is seven years, commencing on the latter of (i) ten business days following regulatory approval of the transaction, and (ii) March 1, 2015 (the "Commencement Date"). We have two options to extend the Master Services Agreement for one year each by giving notice to Cognizant no less than three months prior to the then existing end of the term.

We will pay Cognizant for the BP and IT Services through a combination of fixed and variable fees, with the variable fees fluctuating based on our actual need for such services. Based on the currently projected usage of BP and IT Services over the initial term of the Master Services Agreement, we expect to pay Cognizant approximately $2.8 billion, subject to price adjustments described in the Master Services Agreement. The Master Services Agreement is currently expected to generate approximately $150 million to $200 million in annual general and administrative and depreciation expense savings by 2017.

Some of the BP and IT Services will be provided on our premises, while other BP and IT Services will be performed at Cognizant facilities. Cognizant will provide us with transition services required to migrate those activities that will be performed at Cognizant facilities. The anticipated cost of such transition services is included in the expected cost of the BP and IT Services over the initial term described above.

To protect our expectations regarding Cognizant’s performance, the Master Services Agreement has minimum service levels that Cognizant must meet or exceed. Failure to meet these minimum service levels will result in service level credits to us as described in the Master Services Agreement.

We retain the right to terminate the Master Services Agreement, in whole or in part, for, among other things, cause, convenience (including prior to the Commencement Date), certain performance failures, failure to obtain regulatory approvals, changes in law, force majeure, a change in the control of either Cognizant or us, a termination of the associated Business Associate Agreement, an adverse change in Cognizant’s financial condition, if Cognizant becomes a competitor of ours or if damages paid by Cognizant to us pursuant to the Master Services Agreement exceed a certain level. If we terminate the Master Services Agreement prior to the Commencement Date, we shall pay Cognizant a break-up fee of $10 million. If we terminate the Master Service Agreement following the Commencement Date for reasons other than cause, a termination of the associated Business Associate Agreement, a change in the control of Cognizant or Cognizant becoming a competitor of ours, we shall pay Cognizant termination fees calculated on a sliding scale that reduces over time and based on the applicable termination event, and such fees could be material. For example, the maximum termination fee payable by us pursuant to the Master Services Agreement is $300 million, which would be triggered in the event we terminated for convenience during the first year of the term of the Master

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Services Agreement. In addition, in the event we experience a change in control during the first year of the term of the Master Services Agreement, the maximum termination fee payable is $130 million, assuming that we (or our successor) elect to terminate the Master Services Agreement.

We also retain the right to obtain disengagement assistance from Cognizant to facilitate the transition of BP and IT Services from Cognizant, regardless of whether the Master Services Agreement expires or is terminated. We will pay for the disengagement assistance through a combination of pre-determined charges and hourly fees for services for which there is no pre-determined charge. In addition, in the event of termination or expiration of the Master Services Agreement, we also retain the right to license at fair market value the software platform utilized by Cognizant in the performance of the BP and IT Services.

Cognizant has in the past provided, and may provide in the future, services to us under separate agreements. Some of these historical services are included in the BP and IT Services that will be provided by Cognizant under the Master Services Agreement.

Health Care Reform Legislation and Implementation

The ACA transformed the U.S. health care system through a series of complex initiatives. While we have experienced significant growth in our revenues and membership in certain products as a result of the ACA, the measures initiated by the ACA and the associated preparation for and implementation of these measures have had, and will continue to have, an adverse impact on, among other things, the costs of operating our business, and could materially adversely affect our business, cash flows, financial condition and results of operations. Due in part to the scope and complexity of these initiatives, as well as their ongoing implementation, the ultimate impact of the ACA on us remains difficult to predict. Depending in part on its ultimate requirements, the ACA could have a material adverse effect on our business, financial condition, cash flows and results of operations.

For a detailed description of the ACA’s provisions and related health care reform programs, initiatives, rules and regulations, see Item 1. Business-Government Regulation-Health Care Reform Legislation and Implementation in our Form 10-K. For additional discussion of the risks and uncertainties of the ACA with respect to the Company, see Item 1A. Risk Factors in our Form 10-K.

Legal and Legislative Developments

Several recent lawsuits have considered the question of whether the ACA authorizes the IRS to provide premium tax credits to individuals who purchase coverage through a federally-facilitated exchange (“FFE”). These cases are at varying stages in the litigation process, and separate federal courts have reached different conclusions on this issue. At least one district court is still reviewing the issue, and one case has been appealed to the U.S. Supreme Court (although the Supreme Court has not yet ruled on whether it will review the case at this time). As a result, the timeframe for when this question will be settled, and what the ultimate outcome will be, remains unclear. Any significant restriction or prohibition of federal subsidies for coverage obtained through FFEs may impact the affordability of FFE products for low income individuals, which in turn may have a material adverse impact on our exchange membership in Arizona.

On November 4, 2014, voters in California will decide on a ballot initiative ("Proposition 45") that if approved would, among other things, require that the Commissioner of the CDI approve premium rate increases and other charges associated with health insurance coverage offered by both health insurers and HMOs. These proposed changes have in the past and could in the future, among other things, lower the amount of premium increases we receive or extend the amount of time that it takes for us to obtain regulatory approval to implement increases in our premium rates. Our financial condition or results of operations could be adversely affected by limitations on our ability to increase or maintain our premium levels.

On July 7, 2014, California Senate Bill 1446 (“SB 1446”) was signed into law effective immediately. SB 1446 is an emergency measure that allows insurance carriers to continue non-grandfathered and non-ACA compliant small group policies that were in effect as of December 31, 2013 and active as of July 7, 2014 for one additional year through December 31, 2015. We believe that SB 1446 has helped to reduce rate impact for many small groups that have not yet transitioned to ACA-compliant health plans, which we believe has helped to reduce membership turnover in our small group business.

Recent rulings by the U.S. Supreme Court, as well as the potential for continued litigation and federal rulemaking, have created some uncertainty regarding federal regulations that require group health plans to provide coverage for contraceptive services without cost sharing, and also the scope of an accommodation that HHS has previously laid out in regulations for certain organizations that object to providing these services for religious reasons.

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HHS has recently released an interim final rule making changes to the accommodation procedure that it had previously laid out for non-profit organizations, and also a proposed rule potentially extending this accommodation to closely held for profit entities. Both the proposed rule and the interim final rule could be modified in response to comments, and litigation on some aspects of the accommodation is still ongoing. Uncertainty regarding the requirements that apply to health plans in regards to providing or excluding this coverage, or any difficulty in complying with the requirements or systems or other changes needed to comply with the requirements, could increase our costs of doing business.

Public Health Insurance Exchanges

The ACA required the establishment of state-run or federally facilitated “exchanges” where individuals and small groups may purchase health coverage. We currently participate as Qualified Health Plans (“QHPs”) in the exchanges in California, Oregon and Arizona. We currently operate in 11 of 19 rating regions in California on the individual market and in all 19 rating regions in the small business health options program (“SHOP”). The initial open enrollment period for the individual exchanges in California and Arizona ended on April 15, 2014, and in Oregon on April 30, 2014. Open enrollment for the coverage year beginning January 1, 2015 begins on November 15, 2014 and ends on February 15, 2015. We do not expect to offer health plans in the Oregon health insurance exchanges for the coverage year beginning January 1, 2015.

We believe the exchanges represent a significant commercial business opportunity for us and that our tailored network products are particularly well suited to the exchange environment. However, continuing implementation difficulties, various legislative and legal developments and the ongoing evolution of the regulatory framework for the exchanges may alter the economics and structure of our participation in the exchanges, and if we are not able to successfully adapt to any such changes in certain of our markets, our financial condition, cash flows and results of operations may be adversely affected. As an example, some confusion for new enrollees regarding proper eligibility documentation for membership or subsidies has led to individual customers losing their health plan benefits or having their subsidies adjusted or ended. In addition, federal regulators have released regulations and guidance around the renewal process on the federal and state exchanges for 2015, including the process for determining continuing eligibility for subsidies, the development of a “passive renewal” concept designed to promote exchange membership retention and procedures and policies around renewing individuals when the plan or product they are enrolled in will no longer be offered. Both initial enrollment and renewal present novel and complex issues, which will require us to increase our consumer outreach and education efforts and modify our information systems to alleviate consumer confusion and adapt to this evolving marketplace. Any failure to successfully implement these initiatives or modifications in response to developing regulations may have an adverse impact on our exchange membership and profitability. We also have seen additional legislative and legal issues arise for exchange participants as the exchanges mature. For example, as described above, Proposition 45 may, if passed, subject premium rate levels to an additional layer of regulatory review, which may make it difficult for us and other exchange health plans to meet timelines to offer products through Covered California. In addition, recent lawsuits filed by stakeholders on the exchanges have raised questions surrounding provider size, network capacity and the adequacy of communication between health insurers and their consumers with respect to network composition for exchange products. While most of these lawsuits and complaints remain in their preliminary stages, if courts or regulators determine that any of the networks supporting our exchange products need to be expanded or our exchange operations otherwise modified, it may require us to adjust our tailored network exchange strategy or make other material modifications to our business and operations. If we fail to make these adjustments efficiently, our exchange business may be materially adversely affected. For more information on the exchanges and enrollment information, see Note 2 to our consolidated financial statements and “—Western Region Operations Reportable Segment-Western Region Operations Segment Membership (in thousands).”

ACA Fees

Our operating results for the three and nine months ended September 30, 2014 were impacted by fees imposed under the ACA, including $31.9 million and $106.1 million, respectively, of amortization of the deferred cost of the annual non-deductible health insurer fee calculated on 2013 net premiums written (the “health insurer fee”), and $26.6 million and $71.7 million for the three and nine months ended September 30, 2014, respectively, in other ACA fees. In September 2014, we paid the federal government a lump sum of $141.4 million for our portion of the health insurer fee.

In 2014, due to the non-deductibility of the health insurer fee for federal income tax purposes, we expect our full-year effective income tax rate to be adversely affected by approximately 20 to 25 percentage points.

While certain types of entities and benefits are fully or partially exempt from the health insurer fee, including, among others, government entities, certain non-profit insurers and self-funded plans, we are unable to take advantage of any significant exemptions due to our current mix of plans and product offerings. Consequently, the health insurer fee

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represents a higher percentage of our premium revenues than those of our competitors who have business lines that are exempt from the health insurer fee or whose non-profit status results in a reduced health insurer fee. Moreover, some of our competitors may have greater economies of scale or a different mix of business, which, among other things, may lead to lower expense ratios and higher profit margins than we have. Since the health insurer fee is not tax deductible and is based on net health insurance premiums written, rather than profits, it generally will represent a higher percentage of our profits as compared to those competitors. As a result, the health insurer fee likely will impact us to a greater degree than certain of our larger competitors and those of our competitors who may be able to exempt significant portions of their premium base from the health insurer fee allocation, for example. We generally will be unable to match those competitors’ ability to support reduced premiums by virtue of any full or partial exemptions from the health insurer fee, or by virtue of making changes to distribution arrangements, decreasing spending on non-medical product features and services, or otherwise adjusting operating costs and reducing general and administrative expenses, which may have an adverse effect on our profitability and our ability to compete effectively with these competitors. For example, our ability to incorporate the impact of the health insurer fee into our 2015 premium rates, which were set a year in advance in 2014, was limited, in large part due to competitive pressures.

As a whole, the ACA’s fees, assessments, taxes and premium stabilization provisions (described in further detail below) have and will continue to increase the costs of operating our business and make it more difficult for us to estimate our medical and health care costs. In addition, these ACA provisions could potentially lead to larger variance in the estimation of our outstanding liabilities and higher than expected total costs in a particular period. The cumulative impact of the foregoing could materially adversely impact our business, cash flows, financial condition and results of operations. See Note 2 to our consolidated financial statements and “—Results of Operations—Consolidated Results” for additional information on ACA fees.

Premium Stabilization Programs

The ACA also includes premium stabilization provisions designed to apportion risk amongst insurers, including the reinsurance, risk adjustment, and risk corridors programs.

The permanent risk adjustment program is applicable to the individual and small group markets. Risk adjustment became effective at the beginning of 2014 and will shape the economics of health care coverage both within and outside the exchanges. These risk adjustment provisions will effectively transfer funds from health plans with relatively lower risk enrollees to plans with relatively higher risk enrollees to help protect against the consequences of adverse selection. In addition to these permanent risk adjustment provisions, the ACA implements temporary reinsurance and risk corridors programs, which seek to ease the transition into the post-ACA market by helping to stabilize rates and protect against rate uncertainty in the initial years of the ACA.

The individual and small group markets are expected to represent a significant portion of our commercial business and the relevant amounts transferred under applicable premium stabilization provisions may be substantial. To adapt to this new economic framework, we have dedicated significant resources and incurred significant general and administrative costs to implement numerous strategic and operational initiatives both within and outside the exchanges that, among other things, require us to focus on and manage different populations of potential members than we have in the past. Because the final determination and settlement of amounts due or payable from these premium stabilization provisions will not occur until 2015, depending on the amounts due or payable as a result of these provisions, our financial condition, cash flows and results of operations could be materially adversely affected. See Note 2 to our consolidated financial statements and “—Critical Accounting Estimates-Accounting for Certain Provisions of the ACA” for additional information on these premium stabilization programs or "3Rs".

We have made and are continuing to make significant efforts to design and implement a cohesive strategy with respect to the exchanges and these premium stabilization programs, but these programs are subject to risks inherent in untested initiatives, and the relevant regulatory framework for the exchanges remains subject to change and interpretation over time. For example, HHS has indicated that it intends to propose adjustments to the reinsurance payment parameters for 2015, including a lowering of the attachment point, although such adjustments have not yet been finalized. In addition, there have been recent discussions regarding legislation to repeal the risk corridors program, reduce its funding or reduce payments made under the program due, in part, to requirements that the program remain “budget neutral.” Concerns have also been raised as to whether HHS will have the required Congressional appropriations to make risk corridors payments in 2015. Finally, we and other health care marketplace participants will need to operationalize several key components related to these premium stabilization programs and other programs designed to ease transition into the post-ACA marketplace, including the advanced payments of premium tax credits for exchange participants. As an example, the success of these programs will require the completion of reporting processes for health plans and providers to submit required data to regulators in order to accurately measure performance and payments under these programs. If we are unable to obtain and submit complete and accurate data to regulators, or to

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properly reconcile the data collected, our anticipated economic benefits under these programs may be adversely affected. Whether due to regulatory uncertainty or otherwise, if these premium stabilization programs prove ineffective in mitigating our financial risks, including adverse selection risk, or we are unable to successfully adapt our strategy to any future changes in certain of our markets, our financial condition, cash flows and results of operations may be materially adversely affected.

MLRs

Under the ACA, commercial health plans with medical loss ratios ("MLR") on fully insured products, as calculated as set forth in the ACA, that fall below certain targets are required to rebate ratable portions of their 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 our Medicaid program in California ("Medi-Cal") requires rebate payments to or from DHCS depending on MLRs for this population. As of September 30, 2014, we have accrued $45.3 million for a MLR rebate with respect to this population payable to DHCS, and accordingly, for the three months ended September 30, 2014, we reduced Medicaid premium revenue by $45.3 million. In addition, our Medicaid contract with the state of Arizona contains profit sharing or profit ceiling provisions under which we refund amounts to Arizona if our health plan generates profit above a certain specified percentage. Because our Arizona Medicaid profits were in excess of the amount we are allowed to fully retain, we reduced Medicaid premium revenue by $11.9 million. See Note 2 "Health Plan Services Revenue Recognition" section for further discussion on these MLR provisions.

We and other health insurance companies face uncertainty and execution risk due to the multiple, complex ACA implementations that are required in abbreviated time frames in new markets. Additionally, in many cases, our operational and strategic initiatives must be implemented in evolving regulatory environments and without the benefit of established market data. In addition, the lack of operating experience in these new marketplaces for insurers and, in certain cases, providers and consumers, increases the likelihood of a dynamic marketplace that may require us to adjust our operating and strategic initiatives over time, and there is no assurance that insurers, including us, will be able to do so successfully. Our execution risk encapsulates, among other things, our simultaneous participation in the exchanges, Medicaid expansion and the California Coordinated Care Initiative. These initiatives will require us to effectively incorporate new and expanded populations and, among other things, will require us to effectively and efficiently restructure our provider network to, among other things, meet the ACA’s dynamic environment. Any delay or failure by us to 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.

Due to the magnitude, scope, complexity and remaining uncertainties of the ACA, including the continuing modification and interpretation of the ACA rules and the operational risks involved with simultaneous implementation of multiple initiatives in new markets without established market data, we cannot predict the ultimate impact on our business of future regulations and laws, including state laws, implementing the ACA.

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RESULTS OF OPERATIONS

Consolidated Results

The table below and the discussion that follows summarize our results of operations for the three and nine months ended September 30, 2014 and 2013.

	Three months ended September 30,					Nine months ended September 30,
	2014			2013		2014			2013
	(Dollars in thousands, except per share data)
Revenues
Health plan services premiums	$	3,631,617		$	2,606,754	$	9,774,840		$	7,817,697
Government contracts	146,183			149,342		444,356			423,796
Net investment income	10,964			11,276		34,109			57,970
Administrative services fees and other income	1,106			7,659		(3,108		)	11,036
Total revenues	3,789,870			2,775,031		10,250,197			8,310,499
Expenses
Health plan services (excluding depreciation and amortization)	3,104,010			2,196,561		8,269,531			6,657,215
Government contracts	124,403			125,334		389,585			378,209
General and administrative	373,623			267,683		1,079,380			804,355
Selling	66,111			59,498		194,265			175,828
Depreciation and amortization	6,500			9,402		25,804			28,355
Interest	7,810			7,973		23,457			24,626
Asset impairment	84,690			—		84,690			—
Total expenses	3,767,147			2,666,451		10,066,712			8,068,588
Income from operations before income taxes	22,723			108,580		183,485			241,911
Income tax provision	31,662			41,740		42,770			91,538
Net (loss) income	$	(8,939	)	$	66,840	$	140,715		$	150,373
Net (loss) income per share:
Basic	$	(0.11	)	$	0.84	$	1.76		$	1.89
Diluted	$	(0.11	)	$	0.83	$	1.73		$	1.87

For the three and nine months ended September 30, 2014, we reported net loss of $(8.9) million or $(0.11) per share and net income of $140.7 million or $1.73 per diluted share, respectively, as compared to net income of $66.8 million or $0.83 per diluted share and net income of $150.4 million or $1.87 per diluted share, respectively, for the same periods in 2013. Pretax margins were 0.6 percent and 1.8 percent, respectively, for the three and nine months ended September 30, 2014 compared to 3.9 percent and 2.9 percent, respectively, for the same periods in 2013.

Our total revenues increased 36.6 percent for the three months ended September 30, 2014 to approximately $3.8 billion from approximately $2.8 billion in the same period in 2013 and increased 23.3 percent for the nine months ended September 30, 2014 to approximately $10.3 billion from approximately $8.3 billion in the same period in 2013.

Health plan services premium revenues increased by 39.3 percent to approximately $3.6 billion for the three months ended September 30, 2014 compared to approximately $2.6 billion in the same period in 2013, and increased by 25.0 percent to approximately $9.8 billion for the nine months ended September 30, 2014 compared to approximately $7.8 billion in the same period in 2013.

Health plan services expenses increased by 41.3 percent to approximately $3.1 billion for the three months ended September 30, 2014 compared to approximately $2.2 billion in the same period in 2013, and increased by 24.2 percent to approximately $8.3 billion for the nine months ended September 30, 2014 compared to approximately $6.7 billion in the same period in 2013. Investment income decreased to approximately $11.0 million and $34.1 million for the three and nine months ended September 30, 2014, respectively, compared with approximately $11.3 million and $58.0

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million for the three and nine months ended September 30, 2013, respectively, primarily due to lower investment gains realized during the three and nine months ended September 30, 2014 as compared to the same periods in 2013.

Our government contracts revenues decreased by 2.1 percent for the three months ended September 30, 2014 to approximately $146.2 million from approximately $149.3 million in the same period in 2013 and increased by 4.9 percent for the nine months ended September 30, 2014 to approximately $444.4 million from approximately $423.8 million in the same period in 2013. Our government contracts costs decreased by 0.7 percent for the three months endedSeptember 30, 2014 to approximately $124.4 million from approximately $125.3 million in the same period in 2013 and increased by 3.0 percent for the nine months ended September 30, 2014 to approximately $389.6 million from approximately $378.2 million in the same period in 2013. Decreases in government contract revenues for the three months ended September 30, 2014 were primarily due to lower national cost trend incentives on our T-3 contract offset by growth in our family counseling business with the DoD. Decreases in government contract costs for the three months ended September 30, 2014 were primarily due to improvements in general and administrative expense offset by growth in the family counseling business with the DoD. Increases in government contracts revenues and costs for the nine months ended September 30, 2014 were primarily due to growth in the family counseling business with the DoD.

Our operating results for the three and nine months ended September 30, 2014 were impacted by an $84.7 million pretax asset impairment related to our assets held for sale in connection with the Cognizant Transaction. We also incurred approximately $21.1 million and $28.5 million for the three and nine months ended September 30, 2014, respectively, in pretax expenses primarily related to the Cognizant Transaction. See Note 3 to our consolidated financial statements and "—Recent Developments" for additional information regarding assets held for sale and the Cognizant Transaction. Our operating results for the three and nine months ended September 30, 2014 were also impacted by fees imposed under the ACA, including $31.9 million and $106.1 million, respectively, in amortization of deferred costs of the health insurer fee, and $26.6 million and $71.7 million, respectively, 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. The ACA-related fees are included in general and administrative expenses. Our effective tax rate was affected favorably for the nine months ended September 30, 2014 due to a loss on the stock of one of our subsidiaries, Health Net of the Northeast, Inc., which created a tax benefit of $72.6 million, net of adjustments to our reserve for uncertain tax benefits. See Note 10 to our consolidated financial statements for additional information.

Days Claims Payable

Days claims payable ("DCP") for the third quarter of 2014 was 51.4days compared with 41.5days in the third quarter of 2013. Adjusted DCP, which we calculate in accordance with the paragraph below, for the third quarter of 2014 was 65.3days compared with 61.1days in the third quarter of 2013. The increases in our DCP and adjusted DCP are primarily due to the increase in reserves for claims and other settlements related to the ACA and state exchange programs.

Set forth below is a reconciliation of adjusted DCP, a non-GAAP financial measure, to the comparable GAAP financial measure, DCP. DCP is calculated by dividing the amount of reserve for claims and other settlements ("Claims Reserve") by health plan services cost ("Health Plan Costs") during the quarter and multiplying that amount by the number of days in the quarter. In this Quarterly Report on Form 10-Q, the following table presents an adjusted DCP metric that subtracts capitation, provider and other claim settlements and Medicare Advantage Prescription Drug ("MAPD") payables/costs from the Claims Reserve and Health Plan Costs. Management believes that adjusted DCP provides useful information to investors because the adjusted DCP calculation excludes from both Claims Reserve and Health Plan Costs amounts related to health care costs for which no or minimal reserves are maintained. Therefore, management believes that adjusted DCP may present a more accurate reflection of DCP than does GAAP DCP, which includes such amounts. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating the adjusted amounts, you should be aware that we have incurred expenses that are the same as or similar to some of the adjustments in the current presentation and we may incur them again in the future. Our presentation of the adjusted amounts should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

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	Three months ended September 30,
	2014			2013
	(Dollars in millions)
Reconciliation of Adjusted Days Claims Payable:
(1) Reserve for Claims and Other Settlements—GAAP	$	1,733.3		$	990.2
Less: Capitation, Provider and Other Claim Settlements and MAPD Payables	(407.1		)	(80.1		)
(2) Reserve for Claims and Other Settlements—Adjusted	$	1,326.2		$	910.1
(3) Health Plan Services Cost—GAAP	$	3,104.0		$	2,196.6
Less: Capitation, Provider and Other Claim Settlements and MAPD Costs	(1,236.0		)	(827.3		)
(4) Health Plan Services Cost—Adjusted	$	1,868.0		$	1,369.3
(5) Number of Days in Period	92			92
(1) / (3) * (5) Days Claims Payable—GAAP (using end of period reserve amount)	51.4			41.5
(2) / (4) * (5) Days Claims Payable—Adjusted (using end of period reserve amount)	65.3			61.1

Income Tax Provision

Our income tax expense and the effective tax rate for the three and nine months ended September 30, 2014 and 2013 are as follows:

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
	(Dollars in millions)
Income tax expense	$	31.7		$	41.7		$	42.8		$	91.5
Effective income tax rate	139.3		%	38.4		%	23.3		%	37.8		%

For the three and nine months ended September 30, 2014, our effective tax rate was adversely impacted by the health insurer fee required by the ACA. The $141.4 million that we paid for the health insurer fee in 2014 is not deductible for federal income tax purposes and in many state jurisdictions. The impact of the non-deductibility was significant in the three months ended September 30, 2014 as the proportion of the health insurer fee incurred for this period represented a large percentage of our pretax income for such period. The impact of the non-deductibility of the health insurer fee for the nine months ended September 30, 2014 was mitigated as a result of a loss on the stock of one of our subsidiaries that created a tax benefit during the period of $72.6 million, net of adjustments to our reserve for uncertain tax benefits. Other items which caused our effective tax rate to differ from the statutory federal tax rate of 35% for the three and nine months ended September 30, 2014 include state income taxes, tax-exempt interest, and non-deductible compensation. See Note 10 to our consolidated financial statements for additional information.

The effective income tax rate differed from the statutory federal tax rate of 35% for the three and nine months ended September 30, 2013 due to state income taxes, tax-exempt investment income, and non-deductible compensation.

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Western Region Operations Reportable Segment

Our Western Region Operations segment includes the operations of our commercial, Medicare, Medicaid and Dual Eligibles health plans, the operations of our health and life insurance companies primarily in California, Arizona, Oregon and Washington and our pharmaceutical services subsidiary and certain operations of our behavioral health subsidiaries in several states including Arizona, California, Oregon and Washington.

Western Region Operations Segment Membership (in thousands)

	As of September 30, 2014	As of September 30, 2013	Increase/ (Decrease)		% Change
California
Large Group	477	576	(99	)	(17.2	)%
Small Group	243	241	2		0.8	%
Individual	269	105	164		156.2	%
Commercial Risk	989	922	67		7.3	%
Medicare Advantage	169	149	20		13.4	%
Medi-Cal/Medicaid	1,485	1,126	359		31.9	%
Dual Eligibles	9	—	9
Total California	2,652	2,197	455		20.7	%
Arizona
Large Group	45	59	(14	)	(23.7	)%
Small Group	44	40	4		10.0	%
Individual	97	14	83		592.9	%
Commercial Risk	186	113	73		64.6	%
Medicare Advantage	46	43	3		7.0	%
Medicaid	80	—	80
Total Arizona	312	156	156		100.0	%
Northwest
Large Group	28	24	4		16.7	%
Small Group	23	39	(16	)	(41.0	)%
Individual	4	3	1		33.3	%
Commercial Risk	55	66	(11	)	(16.7	)%
Medicare Advantage	56	47	9		19.1	%
Total Northwest	111	113	(2	)	(1.8	)%
Total Health Plan Enrollment
Large Group	550	659	(109	)	(16.5	)%
Small Group	310	320	(10	)	(3.1	)%
Individual	370	122	248		203.3	%
Commercial Risk	1,230	1,101	129		11.7	%
Medicare Advantage	271	239	32		13.4	%
Medi-Cal/Medicaid	1,565	1,126	439		39.0	%
Dual Eligibles	9	—	9
	3,075	2,466	609		24.7	%

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Total Western Region Operations enrollment was approximately 3.1 million members at September 30, 2014, an increase of 24.7 percent compared with enrollment at September 30, 2013. Total enrollment in our California health plans increased by 20.7 percent to approximately 2.7 million members from September 30, 2013 to September 30, 2014.

Western Region Operations commercial enrollment increased by 11.7 percent from September 30, 2013 to approximately 1.2 million members at September 30, 2014, primarily due to an increase in our individual business as a result of new individual members from the ACA exchanges in California and Arizona. Enrollment in our large group business decreased by 16.5 percent, or approximately 109,000 members, from approximately 659,000 members at September 30, 2013 to approximately 550,000 members at September 30, 2014.

Enrollment in our small group business in our Western Region Operations segment decreased by 3.1 percent, from approximately 320,000 members at September 30, 2013 to approximately 310,000 members at September 30, 2014. Enrollment in our individual business in our Western Region Operations segment increased by 203.3 percent, from approximately 122,000 members at September 30, 2013 to approximately 370,000 members at September 30, 2014. As of September 30, 2014, membership in our tailored network products accounted for 51.7 percent of our Western Region Operations commercial enrollment compared with 36.8 percent at September 30, 2013.

Enrollment in our Medicare Advantage plans in our Western Region Operations segment at September 30, 2014 was approximately 271,000 members, an increase of 13.4 percent compared with approximately 239,000 members at September 30, 2013. This increase was due to gains of approximately 20,000 members in California, 9,000 members in the Northwest and 3,000 members in Arizona.

Medicaid enrollment in California increased by approximately 359,000 members, or 31.9 percent, to approximately 1,485,000 members at September 30, 2014 compared with approximately 1,126,000 members at September 30, 2013, primarily as a result of new members added from the expansion of Medicaid eligibility under the ACA to all individuals with incomes up to 133 percent of the Federal Poverty Level. In addition, in October 2013, we began administering Medicaid benefits in Maricopa County, Arizona pursuant to our contract with the Arizona Health Care Cost Containment System ("AHCCCS"). As of September 30, 2014, we had approximately 80,000 Medicaid members in Arizona.

We are the sole commercial plan contractor with DHCS to provide Medi-Cal services in Los Angeles County, California. As of September 30, 2014, approximately 785,000 of our Medi-Cal members resided in Los Angeles County, representing approximately 53 percent of our Medi-Cal membership. As part of our 2012 settlement agreement with DHCS, DHCS agreed, among other things, to the extension of all of our existing Medi-Cal managed care contracts, including our contract with DHCS to provide Medi-Cal services in Los Angeles County, for an additional five years from their then existing expiration dates. Accordingly, our Medi-Cal contract for Los Angeles County is scheduled to expire in April 2019. For additional information on our settlement agreement with DHCS, see Note 2 to our consolidated financial statements under the heading "Health Plan Services Revenue Recognition."

As more fully described below, in 2012, the California legislature enacted the Coordinated Care Initiative, or “CCI.” The DHCS selected eight counties to participate in the CCI, including Los Angeles and San Diego counties. In participating counties, the CCI established a voluntary “dual eligibles demonstration,” and in April 2012, DHCS selected us to participate in the dual eligibles demonstration for both Los Angeles and San Diego counties. Active enrollment in Los Angeles and San Diego counties for the dual eligible demonstrations commenced on April 1, 2014. Passive enrollment in San Diego County began on May 1, 2014, and passive enrollment in Los Angeles County began on July 1, 2014. As of September 30, 2014, we had approximately 9,000 dual eligibles members. See "—California Coordinated Care Initiative," below for more information on the CCI and the dual eligibles.

California Coordinated Care Initiative

In 2012, the California legislature enacted the CCI. The stated purpose of the CCI is to provide a more efficient health care delivery system and improved coordination of care to individuals that are fully eligible for Medicare and Medi-Cal benefits, or "dual eligibles," as well as to all Medi-Cal only beneficiaries who rely on long-term services and supports, or “LTSS,” which includes institutional long-term care and home and community-based services and other support services.

In participating counties, the CCI established a voluntary “dual eligibles demonstration,” also referred to as the “Cal MediConnect” program, to coordinate medical, behavioral health, long-term institutional, and home- and community-based services for dual eligibles through a single health plan, and will require that all Medi-Cal beneficiaries in participating counties join a Medi-Cal managed care health plan to receive their Medi-Cal benefits, including LTSS. The DHCS selected eight counties to participate in the CCI, including Los Angeles and San Diego

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counties. On April 4, 2012, DHCS selected us to participate in the dual eligibles demonstration for both Los Angeles and San Diego counties. In December 2013, Health Net Community Solutions, Inc., our wholly owned subsidiary, entered into a three-way agreement with DHCS and CMS, which was subsequently amended on January 13, 2014 (the “Cal MediConnect Contract”). Among other things, under the Cal MediConnect Contract we will receive prospective blended capitated payments to provide coverage for dual eligibles in Los Angeles and San Diego counties. These blended capitated payments will be determined based on our mix of membership.

In January 2014, CMS and DHCS informed us that based on its readiness assessments, we were able to enroll members beginning April 1, 2014, and could begin marketing for the dual eligibles demonstration in accordance with the guidelines and time frames for Los Angeles and San Diego counties. Active enrollment in Los Angeles and San Diego counties for the dual eligibles demonstrations commenced on April 1, 2014, and is scheduled to conclude at the end of 2017. During the active enrollment period, dual eligibles in Los Angeles County are able to either choose among us, L.A. Care Health Plan, the local health plan initiative, or one of three other health plans for benefits under the dual eligibles demonstration. On July 1, 2014, DHCS began automatically enrolling dual eligibles in Los Angeles County who have not selected a health plan, which we refer to as “passive enrollment.” Dual eligibles also may choose to “opt out” of the demonstration at any time. Such dual eligibles will then continue to receive fee-for-service Medicare benefits but will receive Medi-Cal benefits through a managed care health plan as required under the CCI. During the active enrollment period in San Diego County, dual eligibles are able to select to receive benefits from any one of four health plan options, including us, or “opt out” of the demonstration. Passive enrollment in San Diego County began on May 1, 2014. Based on our understanding of the passive enrollment methodology, we estimate that Health Net will receive approximately 47% and 20–25% of the passively enrolled dual eligibles in Los Angeles County and San Diego County, respectively.

The financial performance of the Cal MediConnect Contract is included in the calculation of the settlement account that was established pursuant to the terms of the Settlement Agreement entered into by DHCS, HNCS and Health Net of California, Inc. on November 2, 2012, which is further discussed in Note 2 to our consolidated financial statements under the heading "Health Plan Services Revenue Recognition.”

Health Net’s participation in the CCI, and the dual eligibles demonstration in particular, represents a significant new business opportunity for us, but is subject to a number of risks inherent in untested health care initiatives, particularly those that involve new populations with limited cost experience. Moreover, the CCI and the dual eligibles demonstration program in particular, is a model of providing health care that is new to regulatory authorities and health plans in the state of California, and involves risks generally associated with government programs. For example, certain stakeholders in the CCI recently filed suit against DHCS in a California Superior Court seeking a preliminary injunction against the dual eligibles demonstration. On August 4, 2014, the court denied the request for a preliminary injunction, but the plaintiffs may seek review by the California Court of Appeal. The plaintiffs subsequently filed a second action in Federal Court, but the action was dismissed by the plaintiffs on October 1, 2014. Nevertheless, there is no assurance that the plaintiffs or others will be precluded from pursuing legal action that impacts this or other novel aspects of the dual eligibles demonstrations. In addition, larger than expected numbers of dual eligibles have opted out of the demonstration since passive enrollment began in Los Angeles and San Diego counties on July 1, 2014 and May 1, 2014, respectively, which has impacted our expected enrollment for 2014. If this opt out trend continues or significantly increases over the passive enrollment period, our profitability with respect to our participation in the CCI may be adversely affected. For a discussion of other risks related to the dual eligibles demonstrations, see the risk factors included in our Form 10-K. Due to these and other risks associated with the CCI, there can be no assurance that the business opportunity presented by the CCI, including the dual eligibles demonstration, will prove to be successful. Our failure to successfully adapt to the requirements of the CCI could have an adverse effect on our business, financial condition and results of operation.

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Western Region Operations Segment Results

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
	(Dollars in thousands, except PMPM data)
Commercial premiums	$	1,430,769		$	1,279,834		$	4,072,406		$	3,903,817
Medicare premiums	763,327			685,340			2,275,679			2,080,317
Medicaid premiums	1,397,732			641,580			3,381,654			1,833,563
Dual Eligibles premiums	39,789			—			45,101			—
Health plan services premiums	3,631,617			2,606,754			9,774,840			7,817,697
Net investment income	10,964			11,276			34,109			57,970
Administrative services fees and other income	1,106			7,659			(3,108		)	11,036
Total revenues	3,643,687			2,625,689			9,805,841			7,886,703
Health plan services	3,104,010			2,196,561			8,269,531			6,657,215
Premium tax	53,417			33,399			127,805			92,759
Health insurer fee	31,947			—			106,084			—
Other ACA fees	26,643			552			71,716			1,694
Administrative expenses	241,352			233,135			747,611			701,981
Total general and administrative	353,359			267,086			1,053,216			796,434
Selling	66,111			59,498			194,265			175,828
Depreciation and amortization	6,500			9,402			25,804			28,355
Interest	7,810			7,973			23,457			24,626
Total expenses	3,537,790			2,540,520			9,566,273			7,682,458
Income from operations before income taxes	105,897			85,169			239,568			204,245
Income tax provision	61,085			32,184			133,330			75,836
Net income	$	44,812		$	52,985		$	106,238		$	128,409
Pretax margin	2.9		%	3.2		%	2.4		%	2.6		%
Commercial premium yield	(0.3		)%	2.6		%	1.0		%	2.5		%
Commercial premium PMPM (d)	$	385.67		$	386.69		$	387.74		$	384.07
Commercial health care cost trend	(0.7		)%	(0.3		)%	(2.2		)%	(2.0		)%
Commercial health care cost PMPM (d)	$	323.43		$	325.62		$	319.57		$	326.60
Commercial medical care ratio (MCR) (e)	83.9		%	84.2		%	82.4		%	85.0		%
Medicare Advantage MCR (e)	90.8		%	89.9		%	91.1		%	90.6		%
Medicaid MCR (e)	84.2		%	79.4		%	82.9		%	79.6		%
Dual Eligibles MCR (e)	87.4		%	—			81.4		%	—
Health plan services MCR (a)	85.5		%	84.3		%	84.6		%	85.2		%
Administrative expense ratio (b)	6.6		%	8.9		%	7.7		%	9.0		%
Total G&A expense ratio (b)	9.7		%	10.2		%	10.8		%	10.2		%
Selling costs ratio (c)	1.8		%	2.3		%	2.0		%	2.2		%

_________________

(a) Health plan services medical care ratio ("MCR") is calculated as health plan services cost divided by health plan services premiums revenue.

(b) Administrative expense and Total G&A expense ratios are computed as either administrative expenses or total general and administrative expense divided by the sum of health plan services premiums revenue and administrative services fees and other income.

(c) The selling costs ratio is computed as selling expenses divided by health plan services premiums revenue.

(d) Per member per month ("PMPM") is calculated based on commercial at-risk member months and excludes administrative services only ("ASO") member months.

(e) Commercial, Medicare Advantage, Medicaid and Dual Eligibles MCR is calculated as commercial, Medicare Advantage, Medicaid or Dual Eligibles health care cost divided by commercial, Medicare, Medicaid or Dual Eligibles premiums, as applicable.

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Revenues

Total revenues in our Western Region Operations segment increased 38.8 percent to approximately $3.6 billion for the three months ended September 30, 2014 and increased 24.3 percent to approximately $9.8 billion for the nine months ended September 30, 2014, compared to the same periods in 2013. Health plan services premium revenues in our Western Region Operations segment increased 39.3 percent to approximately $3.6 billion for the three months ended September 30, 2014 and increased 25.0 percent to approximately $9.8 billion for the nine months ended September 30, 2014 compared to the same periods in 2013.

Our commercial premium revenue increased by $150.9 million, or 11.8 percent, in the three months ended September 30, 2014, compared to the same period in 2013 and increased by $168.6 million, or 4.3 percent, in the nine months ended September 30, 2014, compared to the same period in 2013, primarily due to an 11.7 percent increase in commercial enrollment since September 30, 2013, and the net impact of amounts recorded under the premium stabilization provisions or "3Rs" of the ACA, which are further discussed in Note 2 to our consolidated financial statements under the heading "Accounting for Certain Provisions of the ACA."

Our Medicare premium revenue increased by $78.0 million, or 11.4 percent, in the three months ended September 30, 2014 compared to the same period in 2013, and increased by $195.4 million, or 9.4 percent, in the nine months ended September 30, 2014 compared to the same period in 2013, primarily due to a 13.4 percent increase in Medicare Advantage enrollment since September 30, 2013.

Our Medicaid premium revenue increased by $756.2 million, or 117.9 percent, in the three months ended September 30, 2014 compared to the same period in 2013, and increased by $1,548.1 million, or 84.4 percent, in the nine months ended September 30, 2014 compared to the same period in 2013, primarily due to significant membership growth related to Medicaid expansion under the ACA during the nine months ended September 30, 2014 and our Medicaid contract with Arizona effective October 1, 2013. As of September 30, 2014, we accrued $45.3 million for a MLR rebate payable to DHCS in connection with Medicaid adult expansion members and accrued $11.9 million for excess profit sharing payable to the state of Arizona. Accordingly for the three months ended September 30, 2014, Medicaid premium revenue was reduced by $45.3 million and $11.9 million. (see Note 2 to our consolidated financial statements, under the heading "Health Plan Services Revenue Recognition" for more information).

Active enrollment in Los Angeles and San Diego counties for the dual eligibles demonstrations began on April 1, 2014, and passive enrollment began on July 1, 2014 and May 1, 2014 for Los Angeles County and San Diego County, respectively. As of September 30, 2014, we had approximately 9,000 dual eligible members and for the three and nine months ended September 30, 2014, our dual eligibles premium revenues were $39.8 million and $45.1 million, respectively. See "—California Coordinated Care Initiative," above for more information on the CCI and the dual eligibles.

Investment income in our Western Region Operations segment decreased to $11.0 million for the three months ended September 30, 2014 from $11.3 million and decreased to $34.1 million for the nine months ended September 30, 2014 from $58.0 million for the same periods in 2013 primarily due to lower investment gains realized during the three and nine months ended September 30, 2014 as compared to the same periods in 2013.

Administrative services fees and other income in our Western Region Operations segment decreased to $1.1 million and $(3.1) million for the three and nine months ended September 30, 2014, respectively from $7.7 million and $11.0 million, respectively, for the same periods in 2013. The administrative services fees and other income for the nine months ended September 30, 2014 were negative due to the reversal of certain ACA administrative fee income booked in the first quarter of 2014 and the fourth quarter of 2013 as discussed in Note 2 to the consolidated financial statements under the heading "Accounting for Certain Provisions of the ACA."

Health Plan Services Expenses

Health plan services expenses in our Western Region Operations segment increased by 41.3 percent to $3.1 billion for the three months ended September 30, 2014 and increased by 24.2 percent to $8.3 billion for the nine months ended September 30, 2014 compared to $2.2 billion and $6.7 billion for the three and nine months ended September 30, 2013, respectively, primarily due to increases in individual exchange members as well as the Medicaid expansion under ACA, partially offset by $32.0 million and $142.6 million of reinsurance recoverable included in commercial health plan services costs for the three and nine months ended September 30, 2014, respectively, as discussed in Note 2 to our consolidated financial statements under the heading "Accounting for Certain Provisions of the ACA."

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Commercial Premium Yields and Health Care Cost Trends

In our Western Region Operations segment, commercial premium PMPM decreased by 0.3 percent to approximately $386 for the three months ended September 30, 2014 compared to an increase of 2.6 percent to approximately $387 for the same period in 2013. Commercial premium PMPM for the nine months ended September 30, 2014 was approximately $388, a 1.0 percent increase over the commercial premium PMPM of approximately $384 for the same period in 2013.

Commercial health care costs PMPM in our Western Region Operations segment decreased by 0.7 percent to approximately $323 for the three months ended September 30, 2014 compared to a decrease of 0.3 percent to approximately $326 for the same period of 2013. Commercial health care costs PMPM in our Western Region Operations segment decreased by 2.2 percent to approximately $320 for the nine months ended September 30, 2014 compared to a decrease of 2.0 percent to approximately $327 for the same period of 2013.

Medical Care Ratios

The health plan services MCR in our Western Region Operations segment was 85.5 percent and 84.6 percent for the three and nine months ended September 30, 2014, respectively, compared with 84.3 percent and 85.2 percent for the three and nine months ended September 30, 2013, respectively.

Commercial MCR in our Western Region Operations segment was 83.9 percent and 82.4 percent for the three and nine months ended September 30, 2014, respectively, compared with 84.2 percent and 85.0 percent for the three and nine months ended September 30, 2013, respectively. The improvement of approximately 30 basis points and approximately 260 basis points in our commercial MCR for the three and nine months ended September 30, 2014, respectively, was primarily due to rapid expansion of our individual enrollment and changes in our mix of business, as well as the impact from the pricing for the ACA-related fees in our health plan services premium revenues, and moderate health care cost trends.

The Medicare Advantage MCR in our Western Region Operations segment was 90.8 percent and 91.1 percent for the three and nine months ended September 30, 2014, respectively, compared with 89.9 percent and 90.6 percent for the three and nine months ended September 30, 2013, respectively. The increase in the Medicare MCR was primarily due to a decrease in Medicare premium rates.

The Medicaid MCR in our Western Region Operations segment was 84.2 percent and 82.9 percent for the three and nine months ended September 30, 2014, respectively, compared with 79.4 percent and 79.6 percent for the three and nine months ended September 30, 2013, respectively. The Medicaid MCR increased by approximately 480 basis points for the three months ended September 30, 2014 compared to the same period in 2013. The Medicaid MCR increased by approximately 330 basis points for the nine months ended September 30, 2014 compared to the same period in 2013. The increase in the Medicaid MCR was primarily due to the favorable impact from both Medicaid rate adjustments and reinstated Medicaid premium taxes, including portions that are retroactive, as well as the retrospective adjustments to premium revenues as a result of our rate settlement agreement, all of which benefited the Medicaid MCR in the three and nine months ended September 30, 2013.

The Dual Eligibles MCR in our Western Region Operations segment was 87.4 percent and 81.4 percent for the three and nine months ended September 30, 2014. The Dual Eligibles program became effective for the first time in the second quarter of 2014.

General and Administrative, Selling and Interest Expenses

Total general and administrative expense in our Western Region Operations segment was $353.4 million and $1,053.2 million for the three and nine months ended September 30, 2014, respectively, compared with $267.1 million and $796.4 million for the three and nine months ended September 30, 2013, respectively. The total G&A expense ratio was 9.7 percent and 10.8 percent for the three and nine months ended September 30, 2014, respectively, compared to 10.2 percent and 10.2 percent for the three and nine months ended September 30, 2013, respectively. The increases in our total general and administrative expense for the three and nine months ended September 30, 2014 were primarily due to increases in ACA-related fees, including the health insurer fee and other ACA fees. Such increases in ACA-related fees impacted the total G&A expense ratio by approximately 160 basis points and approximately 180 basis points for the three and nine months ended September 30, 2014, respectively. In addition, increases in our total general and administrative expense for the three and nine months ended September 30, 2014 were impacted by costs related to the implementation of the CCI, including the dual eligibles demonstration, and the ACA, including the exchanges. We expect to continue to incur additional expenses for the remainder of 2014 in connection with our implementation of the CCI, including the dual eligibles demonstration, and the ACA, as well as new business initiatives among other things.

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See Note 2 to our consolidated financial statements, under the heading "Accounting for Certain Provisions of the ACA" for more information regarding ACA-related fees. By 2017, we currently expect that the Cognizant Transaction will generate approximately $150 to $200 million in annual general and administrative and depreciation expense savings. See the discussion under the heading "—Recent Developments" for additional information on the Cognizant Transaction.

Selling expense in our Western Region Operations segment was $66.1 million and $194.3 million for the three and nine months ended September 30, 2014, respectively, compared with $59.5 million and $175.8 million for the three and nine months ended September 30, 2013, respectively. The selling costs ratio was 1.8 percent and 2.0 percent for the three and nine months ended September 30, 2014, respectively, compared with 2.3 percent and 2.2 percent for the three and nine months ended September 30, 2013, respectively. The decrease in the selling costs ratio is 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 was $7.8 million and $23.5 million for the three and nine months ended September 30, 2014, respectively, compared with $8.0 million and $24.6 million for the three and nine months ended September 30, 2013, respectively.

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. On March 15, 2014, the Department of Defense exercised the last of these options, which extended the T-3 contract through March 31, 2015. On June 27, 2014, at the Department of Defense's request, we submitted a proposal to add three additional one-year option periods to the T-3 contract. The government is reviewing our proposal and if accepted as submitted, the modified T-3 contract would conclude on March 31, 2018.

Under the T-3 contract, we provide administrative services to approximately 2.8 million MHS eligible beneficiaries as of September 30, 2014. For a description of the T-3 contract, see "—Overview—How We Measure Our Profitability.”

On August 15, 2012, our wholly owned subsidiary, MHN Government Services, Inc. entered into a new 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 initially selected to participate in the MFLC program under the current MFLC contract. Revenues from the MFLC contracts were $28.4 million and $89.9 million for the three and nine months ended September 30, 2014, respectively, compared to $25.4 million and $75.5 million for the three and nine months ended September 30, 2013, respectively.

Government Contracts Segment Results

The following table summarizes the operating results for the Government Contracts segment for the three and nine months ended September 30, 2014 and 2013:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
	(Dollars in thousands)
Government contracts revenues	$	146,183	$	149,342	$	444,356	$	423,796
Government contracts costs	123,571		125,841		387,275		373,142
Income from operations before income taxes	22,612		23,501		57,081		50,654
Income tax provision	8,918		9,591		23,246		20,752
Net income	$	13,694	$	13,910	$	33,835	$	29,902

Government contracts revenues decreased by $3.2 million, or 2.1 percent, for the three months ended September 30, 2014 and increased by $20.6 million, or 4.9 percent, for the nine months ended September 30, 2014 as compared to the same periods in 2013. Government contracts costs decreased by $2.3 million, or 1.8 percent, for the three months ended September 30, 2014 and increased by $14.1 million, or 3.8 percent, for the nine months ended September 30, 2014 as compared to the same periods in 2013. The decreases in government contract revenues for the three months ended September 30, 2014 were primarily due to lower national cost trend incentives on our T-3 contract

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offset by growth in the family counseling business with the DoD. Decreases in government contract costs for the three months ended September 30, 2014 were primarily due to improvements in G&A expense offset by growth in our family counseling business with the DoD. Increases in government contracts revenues and costs for the nine months ended September 30, 2014 were primarily due to growth in the family counseling business with the DoD.

Corporate/Other

The following table summarizes the Corporate/Other segment for the three and nine months ended September 30, 2014 and 2013:

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Costs included in government contract costs	$	832		$	(507	)	$	2,310		$	5,067
Costs included in G&A	20,264			597			26,164			7,921
Asset impairment	84,690			—			84,690			—
Loss from operations before income taxes	(105,786		)	(90		)	(113,164		)	(12,988		)
Income tax benefit	(38,341		)	(35		)	(113,806		)	(5,050		)
Net (loss) income	$	(67,445	)	$	(55	)	$	642		$	(7,938	)

Our Corporate/Other segment is not a business operating segment. It is added to our reportable segments to reconcile to our consolidated results. The Corporate/Other segment includes costs that are excluded from the calculation of segment pretax income because they are not managed within the reportable segments.

Our operating results in our Corporate/Other segment for the three and nine months ended September 30, 2014 were impacted by an $84.7 million pretax asset impairment related to our assets held for sale in connection with the Cognizant Transaction. See Note 3 to our consolidated financial statement for additional information regarding assets held for sale and the Cognizant Transaction. Our operating results in our Corporate/Other segment for the three months ended September 30, 2014 were impacted primarily by $14.5 million in pretax expenses related to the Cognizant Transaction and $3.9 million in severance expenses related to our continuing efforts to address scale issues. Our operating results in our Corporate/Other segment for the nine months ended September 30, 2014 were impacted primarily by $14.8 million in pretax expenses related to the Cognizant Transaction, $8.8 million in severance expenses related to our continuing efforts to address scale issues and $2.7 million in pretax litigation-related expenses. The results in our Corporate/Other segment for the nine months ended September 30, 2013 were impacted by $13.0 million in pretax costs, primarily severance expense.

In addition, our operating results in our Corporate/Other segment for the nine months ended September 30, 2014 were impacted by a loss on the stock of one of our subsidiaries that created a tax benefit of $72.6 million, net of adjustments to our reserve for uncertain tax benefits. See Note 10 to our consolidated financial statements for additional information.

LIQUIDITY AND CAPITAL RESOURCES

Market and Economic Conditions

Global economic conditions were sluggish in the quarter with economic indicators being mixed, and volatility remaining present in both U.S. and international capital and credit markets. Market conditions could limit our ability to timely replace maturing liabilities, or otherwise access capital markets for liquidity needs, which could adversely affect our business, financial condition and results of operations. Furthermore, if our customer base experiences cash flow problems and other financial difficulties, it could, in turn, adversely impact membership in our plans. For example, our customers may modify, delay or cancel plans to purchase our products, may reduce the number of individuals to whom they provide coverage, or may make changes in the mix of products purchased from us. In addition, if our customers experience financial issues, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. Further, our customers or potential customers may force us to compete more vigorously on factors such as price and service to retain or obtain their business. A significant decline in membership in our plans and the inability of current and/or potential customers to pay their premiums as a result of unfavorable conditions may adversely affect our business, including our revenues, profitability and cash flow.

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Cash and Investments

As of September 30, 2014, the fair value of our investment securities available-for-sale was $1.7 billion, which includes both current and noncurrent investments. Noncurrent investments were $3.1 million as of September 30, 2014. We hold high-quality fixed income securities primarily comprised of corporate bonds, asset-backed securities, mortgage-backed bonds, municipal bonds and bank loans. We evaluate and determine the classification of our investments based on management’s intent. We also closely monitor the fair values of our investment holdings and regularly evaluate them for other-than-temporary impairments.

Our cash flow from investing activities is primarily impacted by the sales, maturities and purchases of our available-for-sale investment securities and restricted investments. Our investment objective is to maintain safety and preservation of principal by investing in a diversified mix of high-quality fixed-income securities, which are largely investment grade, while maintaining liquidity in each portfolio sufficient to meet our cash flow requirements and attaining an expected total return on invested funds.

Our investment holdings are currently primarily comprised of investment grade securities with an average rating of “A+” and “A1” as rated by S&P and/or Moody’s, respectively. At this time, there is no indication of default on interest and/or principal payments under our holdings. We have the ability and current intent to hold to recovery all securities with an unrealized loss position. As of September 30, 2014, our investment portfolio includes $399.5 million, or 24.0% of our portfolio holdings, of mortgage-backed and asset-backed securities. The majority of our mortgage-backed securities are Fannie Mae, Freddie Mac and Ginnie Mae issues, and the average rating of our entire asset-backed securities is AA+/Aa1. However, any failure by Fannie Mae or Freddie Mac to honor the obligations under the securities they have issued or guaranteed could cause a significant decline in the value or cash flow of our mortgage-backed securities. As of September 30, 2014, our investment portfolio also included $709.1 million, or 42.5% of our portfolio holdings, of obligations of states and other political subdivisions and $535.7 million, or 32.1% of our portfolio holdings, of corporate debt securities.

We had gross unrealized losses of $11.6 million as of September 30, 2014, and $56.6 million as of December 31, 2013. Included in the gross unrealized losses as of September 30, 2014 and December 31, 2013 were $0.5 million and $8.1 million, respectively, related to noncurrent investments available-for-sale. We believe that these impairments are temporary and we do not intend to sell these investments. It is not likely that we will be required to sell any security in an unrealized loss position before recovery of its amortized cost basis. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional other-than-temporary impairments, which may be material, may be recorded in future periods. No impairment was recognized during the three and nine months ended September 30, 2014 or 2013.

Liquidity

We believe that expected cash flow from operating activities, existing cash reserves and other working capital and lines of credit are adequate to allow us to fund existing obligations, repurchase shares of our common stock, introduce new products and services, enter into new lines of business and continue to operate and develop health care-related businesses as we may determine to be appropriate at least for the next 12 months. We regularly evaluate cash requirements for, among other things, current operations and commitments, for acquisitions and other strategic transactions, to address legislative or regulatory changes such as the ACA, and for business expansion opportunities, such as the CCI, Medicaid expansion under the ACA and our participation in Arizona's Medicaid program in Maricopa County. We may elect to raise additional funds for these purposes, either through issuance of debt or equity, the sale of investment securities or otherwise, as appropriate. 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 as a result of the current credit environment. However, continued turbulence in U.S. and international markets and certain costs associated with health care reform legislation and its implementation, our participation in the CCI, Medicaid expansion under the ACA and the Medicaid program in Arizona, among other things, could adversely affect our liquidity.

Our cash flow from operating activities is impacted by, among other things, the timing of collections on our amounts receivable from state and federal governments and agencies. For example, our receivable from CMS related to our Medicare business was $95.7 million as of September 30, 2014 and $105.2 million as of December 31, 2013. The receivable from DHCS related to our California Medicaid business was $437 million as of September 30, 2014 and $270.8 million as of December 31, 2013. Our receivable from the DoD relating to our current and prior contracts for the TRICARE North Region was $143.7 million and $194.0 million as of September 30, 2014 and December 31, 2013, respectively. The timing of collection of such receivables 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.

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In addition, we believe that our cash flow in 2014 will be impacted, among other things, by the timing of payments related to the ACA. The largest of the ACA taxes and fees is the health insurer fee. Our allocable share of the 2014 health insurer fee, based upon 2013 premiums, was $141.4 million. We paid that amount in September 2014, which impacted our cash flow from operations for the nine months ended September 30, 2014. Due in large part to the impact of the health insurer fee, which is non-deductible for federal income tax purposes and in many state jurisdictions, we expect that our full-year effective income tax rate for 2014 will be significantly higher than the 35% statutory federal tax rate and will exceed 50%, excluding unusual charges or benefits. Our cash flow also will be impacted by the determination and settlement of amounts related to the premium stabilization provisions in the ACA, including reinsurance recoverable, risk corridor receivable and a net payable for the risk adjustment, for which we recorded $142.6 million, $72.0 million and $47.7 million, respectively, as of September 30, 2014. 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. The final determination and settlement of amounts due or payable from these premium stabilization provisions is not expected to occur until June 2015. See Note 2, under the heading "Accounting for Certain Provisions of the ACA" for additional information regarding ACA-related fees and premium stabilization provisions. Depending on the amounts due or payable as a result of these provisions, our financial condition, cash flows and results of operations could be materially adversely affected.

Operating Activities

Our net cash flow provided by operating activities for the nine months ended September 30, 2014 compared to the same period in 2013 is as follows:

	September 30,		September 30,		Change Period over Period
	2014		2013
	(Dollars in millions)
Net cash provided by operating activities	$	885.7	$	167.7	$	718.0

Net cash provided by operating activities increased by $718.0 million for the nine months ended September 30, 2014 as compared to the same period in 2013, primarily due to the increase in reserves for claims and other settlements related to the ACA and state exchange programs.

Investing Activities

Our net cash flow (used in) provided by investing activities for the nine months ended September 30, 2014 compared to the same period in 2013 is as follows:

	September 30,			September 30,		Change Period over Period
	2014			2013
	(Dollars in millions)
Net cash (used in) provided by investing activities	$	(45.5	)	$	27.3	$	(72.8	)

Net cash used in investing activities increased by $72.8 million during the nine months ended September 30, 2014 as compared to the same period in 2013, primarily due to a $365.0 million decrease in sales and maturities of available-for-sale investments, partially offset by a $290.6 million decrease in purchases of available-for-sale investments.

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Financing Activities

Our net cash flow (used in) provided by financing activities for the nine months ended September 30, 2014 compared to the same period in 2013 is as follows:

	September 30,			September 30,		Change Period over Period
	2014			2013
	(Dollars in millions)
Net cash (used in) provided by financing activities	$	(158.8	)	$	151.0	$	(309.8	)

Net cash used in financing activities increased by $309.8 million during the nine months ended September 30, 2014 as compared to the same period in 2013, primarily due to a $353.5 million decrease in cash from customers funds administered, partially offset by a $23.8 million increase in checks outstanding, a $7.9 million decrease in share repurchases and a $10.8 million increase in proceeds from the exercise of stock options.

Capital Structure

Our debt-to-total capital ratio was 22.1 percent as of September 30, 2014 compared with 23.5 percent as of December 31, 2013. This decrease is due to an increase in stockholders' equity primarily resulting from net income, a decrease in accumulated other comprehensive loss, and an increase in additional paid-in capital due to stock option exercises and the vesting of certain equity awards, partially offset by an increase in treasury stock due to shares repurchased under the company’s stock repurchase program and shares withheld in connection with the exercise and vesting of equity awards.

Stock Repurchases. On May 2, 2011, our Board of Directors authorized a stock repurchase program pursuant to which a total of $300.0 million of our outstanding common stock could be repurchased (our "stock repurchase program"). On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program, which, when taken together with the remaining authorization at that time, brought our total authorization up to $400.0 million. During the three and nine months ended September 30, 2014, we repurchased approximately 1.5 million shares of our common stock for aggregate consideration of $69.0 million under our stock repurchase program. The remaining authorization under our stock repurchase program as of September 30, 2014 was $211.0 million. For additional information on our stock repurchase program, see Note 6 to our consolidated financial statements.

Under our various stock option and long-term incentive plans, in certain circumstances, employees and non-employee directors may elect for the Company to withhold shares to satisfy minimum statutory federal, state and local tax withholding and/or exercise price obligations, as applicable, arising from the exercise of stock options. For certain other equity awards, we have the right to withhold shares to satisfy any tax obligations that may be required to be withheld or paid in connection with such equity award, including any tax obligation arising on the vesting date. These repurchases were not part of our stock repurchase program.

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The following table presents monthly information related to repurchases of our common stock, including shares withheld by the Company to satisfy tax withholdings and exercise price obligations, as of September 30, 2014:

Period	Total Number of Shares Purchased (a)		Average Price Paid per Share		Total Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Programs (b)	Maximum Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Programs (b)
January 1—January 31	7,545	(c)	$	33.25	$	250,843	—	$	280,000,018
February 1—February 28	268,851	(c)	32.05		8,617,165		—	$	280,000,018
March 1—March 31	261,001	(c)	34.17		8,917,445		—	$	280,000,018
April 1—April 30	2,645	(c)	33.49		88,589		—	$	280,000,018
May 1—May 31	5,975	(c)	39.22		242,204		—	$	280,000,018
June 1—June 30	748	(c)	39.82		29,785		—	$	280,000,018
July 1—July 31	809	(c)	43.47		35,168		—	$	280,000,018
August 1—August 31	3,807	(c)	43.10		164,085		—	$	280,000,018
September 1—September 30	1,591,553	(c)	46.54		74,075,436		1,482,000	$	211,030,239
	2,142,934		$	43.13	$	92,420,720	1,482,000

________

(a) During the nine months ended September 30, 2014, we did not repurchase any shares of our common stock outside our stock repurchase program, except shares withheld in connection with our various stock option and long-term incentive plans.

(b) On May 2, 2011, our Board of Directors authorized and on May 4, 2011 we announced our stock repurchase program, pursuant to which a total of $300 million of our common stock could be repurchased. On March 8, 2012, our Board of Directors approved and on March 13, 2012 we announced a $323.7 million increase to our stock repurchase program. Our stock repurchase program does not have an expiration date. During the nine months ended September 30, 2014, we did not have any repurchase program expire, and we did not terminate any repurchase program prior to its expiration date.

(c) Includes shares withheld by the Company to satisfy tax withholding and/or exercise price obligations arising from the vesting and/or exercise of restricted stock units, stock options and other equity awards.

Revolving Credit Facility. In October 2011, we entered into a $600 million unsecured revolving credit facility due in October 2016, which includes a $400 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swing line loans (which sublimits may be increased in connection with any increase in the credit facility described below). In addition, we have the ability from time to time to increase the credit facility by up to an additional $200 million in the aggregate, subject to the receipt of additional commitments. As of September 30, 2014, $100.0 million was outstanding under our revolving credit facility and the maximum amount available for borrowing under the revolving credit facility was $491.3 million (see "—Letters of Credit" below). As of October 29, 2014, we had $100.0 million in borrowings outstanding under the revolving credit facility.

Amounts outstanding under our revolving credit facility bear interest, at the Company’s option, at either (a) the base rate (which is a rate per annum equal to the greatest of (i) the federal funds rate plus one-half of one percent, (ii) Bank of America, N.A.’s “prime rate” and (iii) the Eurodollar Rate (as such term is defined in the credit facility) for a one-month interest period plus one percent) plus an applicable margin ranging from 45 to 105 basis points or (b) the Eurodollar Rate plus an applicable margin ranging from 145 to 205 basis points. The applicable margins are based on our consolidated leverage ratio, as specified in the credit facility, and are subject to adjustment following the Company’s delivery of a compliance certificate for each fiscal quarter.

Our revolving credit facility includes, among other customary terms and conditions, limitations (subject to specified exclusions) on our and our subsidiaries’ ability to incur debt; create liens; engage in certain mergers, consolidations and acquisitions; sell or transfer assets; enter into agreements that restrict the ability to pay dividends or make or repay loans or advances; make investments, loans, and advances; engage in transactions with affiliates; and make dividends. In addition, we are required to be in compliance at the end of each fiscal quarter with a specified consolidated leverage ratio and consolidated fixed charge coverage ratio.

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Our revolving credit facility contains customary events of default, including nonpayment of principal or other amounts when due; breach of covenants; inaccuracy of representations and warranties; cross-default and/or cross-acceleration to other indebtedness of the Company or our subsidiaries in excess of $50 million; certain ERISA-related events; noncompliance by the Company or any of our subsidiaries with any material term or provision of the HMO Regulations or Insurance Regulations (as each such term is defined in the credit facility) in a manner that could reasonably be expected to result in a material adverse effect; certain voluntary and involuntary bankruptcy events; inability to pay debts; undischarged, uninsured judgments greater than $50 million against us and/or our subsidiaries that are not stayed within 60 days; actual or asserted invalidity of any loan document; and a change of control. If an event of default occurs and is continuing under the revolving credit facility, the lenders thereunder may, among other things, terminate their obligations under the facility and require us to repay all amounts owed thereunder.

As of September 30, 2014, we were in compliance with all covenants under our revolving credit facility.

Letters of Credit

Pursuant to the terms of our revolving credit facility, we can obtain letters of credit in an aggregate amount of $400 million and the maximum amount available for borrowing is reduced by the dollar amount of any outstanding letters of credit. As of September 30, 2014 and October 29, 2014, we had outstanding letters of credit of $8.7 million and $8.7 million, respectively, resulting in a maximum amount available for borrowing of $491.3 million as of September 30, 2014 and $491.3 million as of October 29, 2014. As of September 30, 2014 and October 29, 2014, no amount had been drawn on any of these letters of credit.

Senior Notes. We have issued $400 million in aggregate principal amount of 6.375% Senior Notes due 2017 (the “Senior Notes”). The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge or sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, within a specified period, we will be required to make an offer to purchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid interest to the date of repurchase. As of September 30, 2014, we were in compliance with all of the covenants under the indenture governing the Senior Notes.

The Senior Notes may be redeemed in whole at any time or in part from time to time, prior to maturity at our option, at a redemption price equal to the greater of:

• 100% of the principal amount of the Senior Notes then outstanding to be redeemed; or

• the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Notes to be redeemed (not including any portion of such payments of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable treasury rate plus 30 basis points

plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.

Each of the following will be an Event of Default under the indenture governing the Senior Notes:

• failure to pay interest for 30 days after the date payment is due and payable; provided that an extension of an interest payment period by us in accordance with the terms of the Senior Notes shall not constitute a failure to pay interest;

• failure to pay principal or premium, if any, on any note when due, either at maturity, upon any redemption, by declaration or otherwise;

• failure to perform any other covenant or agreement in the notes or indenture for a period of 60 days after notice that performance was required;

• (A) our failure or the failure of any of our subsidiaries to pay indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, at the later of final maturity and the expiration of any related applicable grace period and such defaulted payment shall not have been made, waived or extended within 30 days after notice or (B) acceleration of the maturity of indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, if that acceleration results from a default under the instrument giving rise to or securing such indebtedness for money borrowed and such indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days after notice; or

• events in bankruptcy, insolvency or reorganization of our Company.

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Statutory Capital Requirements

Certain of our subsidiaries must comply with minimum capital and surplus requirements under applicable state laws and regulations, and must have adequate reserves for claims. As necessary, we make contributions to and issue standby letters of credit on behalf of our subsidiaries to meet risk-based capital ("RBC") or other statutory capital requirements under state laws and regulations. We believe that as of October 31, 2014, all of our active health plans and insurance subsidiaries were in compliance with their respective regulatory requirements relating to maintenance of minimum capital standards, surplus requirements and adequate reserves for claims in all material respects.

By law, regulation and governmental policy, our health plan and insurance subsidiaries, which we refer to as our regulated subsidiaries, are required to maintain minimum levels of statutory capital and surplus. The minimum statutory capital and surplus requirements differ by state and are generally based on balances established by statute, a percentage of annualized premium revenue, a percentage of annualized health care costs, or RBC or tangible net equity (“TNE”) requirements. The RBC requirements are based on guidelines established by the National Association of Insurance Commissioners. The RBC formula, which calculates asset risk, underwriting risk, credit risk, business risk and other factors, generates the authorized control level (“ACL”), which represents the minimum amount of capital and surplus believed to be required to support the regulated entity’s business. For states in which the RBC requirements have been adopted, the regulated entity typically must maintain the greater of the Company Action Level RBC, calculated as 200% of the ACL, or the minimum statutory capital and surplus requirement calculated pursuant to pre-RBC guidelines. Because our regulated subsidiaries also are subject to their state regulators’ overall oversight authority, some of our subsidiaries are required to maintain minimum capital and surplus in excess of the RBC requirement, even though RBC has been adopted in their states of domicile.

Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended (“Knox-Keene”), certain of our California subsidiaries must comply with TNE requirements. Under these Knox-Keene TNE requirements, actual net worth less unsecured receivables and intangible assets must be more than the greater of (i) a fixed minimum amount, (ii) a minimum amount based on premiums or (iii) a minimum amount based on health care expenditures, excluding capitated amounts. In addition, certain of our California subsidiaries have made certain undertakings to the DMHC to restrict dividends and loans to affiliates, to the extent that the payment of such would reduce such entities' TNE below the minimum requirement or 130% of the minimum requirement. At September 30, 2014, all of our subsidiaries subject to the TNE requirements and the undertakings to DMHC exceeded the minimum requirements.

Legislation may be enacted in certain states in which our subsidiaries operate imposing substantially increased minimum capital and/or statutory deposit requirements for HMOs in such states. Such statutory deposits may only be drawn upon under limited circumstances relating to the protection of policyholders.

As a result of the above requirements and other regulatory requirements, certain of our subsidiaries are subject to restrictions on their ability to make dividend payments, loans or other transfers of cash to their parent companies. Such restrictions, unless amended or waived or unless regulatory approval is granted, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by our insurance company subsidiaries without prior approval of the applicable state insurance departments is subject to restrictions relating to statutory surplus, statutory income and unassigned surplus.

CONTRACTUAL OBLIGATIONS

Pursuant to Item 303(a)(5) of Regulation S-K, we identified our known contractual obligations as of December 31, 2013 in our Form 10-K and identified additional significant contractual obligations in our Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014. During the three months ended September 30, 2014, there were no significant changes to our contractual obligations as previously disclosed in our Form 10-K and Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2014, we had no off-balance sheet arrangements as defined under Regulation S-K Item 303(a)(4) and the instructions thereto. See Note 7 to our consolidated financial statements for a discussion of our letters of credit.

CRITICAL ACCOUNTING ESTIMATES

In our Form 10-K, we identified the critical accounting policies that affect the more significant estimates and assumptions used in preparing our consolidated financial statements. Those policies include revenue recognition, health care costs, including IBNR amounts, reserves for contingent liabilities, amounts receivable or payable under

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government contracts, goodwill and other intangible assets, recoverability of long-lived assets and investments, and income taxes. We have not changed existing policies from those previously disclosed in our Form 10-K; however, we implemented the accounting for certain provisions of the ACA beginning in 2014, as described below. Our critical accounting policy on estimating reserves for claims and other settlements and the quantification of the sensitivity of financial results to reasonably possible changes in the underlying assumptions used in such estimation as of September 30, 2014 is discussed below. Our critical accounting policy on income taxes also is discussed below. During the nine months ended September 30, 2014, there were no significant changes to the critical accounting estimates as disclosed in our Form 10-K.

Accounting for Certain Provisions of the ACA

Starting in 2014, our critical accounting estimates are impacted as a result of the implementation of certain provisions of the ACA, including three premium stabilization provisions ("3Rs"): permanent risk adjustment, temporary risk corridor and transitional reinsurance. The substantial influx of previously uninsured individuals into the new health insurance exchanges under the ACA could make it more difficult for health insurers, including us, to establish pricing accurately, at least during the early years of the exchanges. The 3Rs are intended to mitigate some of the risks around pricing and lack of information surrounding the previously uninsured. The application of the 3Rs will result in premium adjustments to health plan services premium revenues and health plan services expenses. Our estimated amounts may differ materially from actual amounts ultimately received or paid under the provisions. Significant changes in how we may be required to develop these estimates may have a significant impact on our consolidated results of operations and financial condition. See Note 2, under the heading "Accounting for Certain Provisions of the ACA," to our consolidated financial statements for additional information.

Reserves for Claims and Other Settlements

Reserves for claims and other settlements include reserves for claims (IBNR claims and received but unprocessed claims), and other liabilities including capitation payable, shared risk settlements, provider disputes, provider incentives and other reserves for our Western Region Operations reporting segment. Because reserves for claims include various actuarially developed estimates, our actual health care services expenses may be more or less than our previously developed estimates.

We calculate our best estimate of the amount of our IBNR reserves in accordance with GAAP and using standard actuarial developmental methodologies. This method also is known as the chain-ladder or completion factor method. The developmental method estimates reserves for claims based upon the historical lag between the month when services are rendered and the month claims are paid while taking into consideration, among other things, expected medical cost inflation, seasonal patterns, product mix, benefit plan changes and changes in membership. A key component of the developmental method is the completion factor, which is a measure of how complete the claims paid to date are relative to the estimate of the claims for services rendered for a given period. While the completion factors are reliable and robust for older service periods, they are more volatile and less reliable for more recent periods since a large portion of health care claims are not submitted to us until several months after services have been rendered. Accordingly, for the most recent months, the incurred claims are estimated from a trend analysis based on per member per month claims trends developed from the experience in preceding months. This method is applied consistently year-over-year while assumptions may be adjusted to reflect changes in medical cost inflation, seasonal patterns, product mix, benefit plan changes and changes in membership, among other things.

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An extensive degree of actuarial judgment is used in this estimation process, considerable variability is inherent in such estimates, and the estimates are highly sensitive to changes in medical claims submission and payment patterns and medical cost trends. As such, the completion factors and the claims per member per month trend factor are the most significant factors used in estimating our reserves for claims. Since a large portion of the reserves for claims is attributed to the most recent months, the estimated reserves for claims are highly sensitive to these factors. The following table illustrates the sensitivity of these factors and the estimated potential impact on our operating results caused by these factors:

Completion Factor (a) Percentage-point Increase (Decrease) in Factor	Western Region Operations Health Plan Services (Decrease) Increase in Reserves for Claims
2%	$ (73.2) million
1%	$ (37.5) million
(1)%	$ 39.4 million
(2)%	$ 80.8 million

Medical Cost Trend (b) Percentage-point Increase (Decrease) in Factor	Western Region Operations Health Plan Services Increase (Decrease) in Reserves for Claims
2%	$ 29.3 million
1%	$ 14.7 million
(1)%	$ (14.7) million
(2)%	$ (29.3) million

__________

(a) Impact due to change in completion factor for the most recent three months. Completion factors indicate how complete claims paid to date are in relation to the estimate of total claims for a given period. Therefore, an increase in completion factor percent results in a decrease in the remaining estimated reserves for claims.

(b) Impact due to change in annualized medical cost trend used to estimate the per member per month cost for the most recent three months.

Our IBNR best estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. This provision for adverse deviation is intended to capture the potential adverse development from known environmental factors such as our entry into new geographical markets, changes in our geographic or product mix, the introduction of new customer populations, variation in benefit utilization, disease outbreaks, changes in provider reimbursement, fluctuations in medical cost trend, variation in claim submission patterns and variation in claims processing speed and payment patterns, changes in technology that provide faster access to claims data or change the speed of adjudication and settlement of claims, variability in claim inventory levels, non-standard claim development, and/or exceptional situations that require judgmental adjustments in setting the reserves for claims.

We consistently apply our IBNR estimation methodology from period to period. Our IBNR best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known to us, we adjust our assumptions accordingly to change our estimate of IBNR. Therefore, if moderately adverse conditions do not occur, evidenced by more complete claims information in the following period, then our prior period estimates will be revised downward, resulting in favorable development. However, any favorable prior period reserve development would increase current period net income only to the extent that the current period provision for adverse deviation is less than the benefit recognized from the prior period favorable development. If moderately adverse conditions occur and are more acute than we estimated, then our prior period estimates will be revised upward, resulting in unfavorable development, which would decrease current period net income. For the three months ended September 30, 2014, we had $9.7 million in net unfavorable reserve development related to prior years. For the nine months ended September 30, 2014, we had $16.9 million in net favorable reserve developments related to prior years. The amount for the three months ended September 30, 2014

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consisted of $10.4 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $0.7 million of the provision for adverse deviation held at December 31, 2013. The amount for the nine months ended September 30, 2014 consisted of $34.5 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $51.4 million of the provision for adverse deviation held at December 31, 2013. We believe that the $10.4 million and $34.5 million unfavorable developments for the three and nine months ended September 30, 2014, respectively, were primarily due to unanticipated benefit utilization in our commercial business arising from dates of service in the fourth quarter of 2013 as a result of an uncertain environment related to the ACA. As part of our best estimate for IBNR, the provision for adverse deviation recorded as of September 30, 2014 and December 31, 2013 were $77.0 million and $53.4 million, respectively. For the three and nine months ended September 30, 2013, the reserve developments related to prior years, when considered together with the provision for adverse deviation recorded as of September 30, 2013, did not have a material impact on our operating results or financial condition.

Income Taxes

We record deferred tax assets and liabilities based on differences between the book and tax bases of assets and liabilities. The deferred tax assets and liabilities are calculated by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse. We establish a valuation allowance in accordance with the provisions of the Income Taxes Topic of the Financial Accounting Standards Board ("FASB") codification. We continually review the adequacy of the valuation allowance and recognize the benefits from our deferred tax assets only when an analysis of both positive and negative factors indicate that it is more likely than not that the benefits will be realized.

We file tax returns in many tax jurisdictions. Often, application of tax rules within the various jurisdictions is subject to differing interpretation. Despite our belief that our tax return positions are fully supportable, we believe that it is probable certain positions will be challenged by taxing authorities, and we may not prevail on all of the positions as filed. Accordingly, we maintain a liability for the estimated amount of contingent tax challenges by taxing authorities upon examination. We analyze the amount at which each tax position meets a “more likely than not” standard for sustainability upon examination by taxing authorities. Only tax benefit amounts meeting or exceeding this standard will be reflected in tax provision expense and deferred tax asset balances. Any difference between the amounts of tax benefits reported on tax returns and tax benefits reported in the financial statements is recorded in a liability for unrecognized tax benefits. The liability for unrecognized tax benefits is reported separately from deferred tax assets and liabilities and classified as current or noncurrent based upon the expected period of payment.

In 2014, due to the non-deductibility of the health insurer fee for federal income tax purposes, we expect our full-year effective income tax rate will be adversely affected by approximately 20 to 25 percentage points. However, we have also incurred a $72.6 million tax benefit from a loss on the stock of one of our subsidiaries in the second quarter of 2014, resulting in a decrease to our estimated annual effective tax rate of 25 to 30 percentage points. See "—Overview—Health Care Reform Legislation and Implementation" and "—Results of Operations—Income Tax Provision" above.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to interest rate and market risk primarily due to our investing and borrowing activities. Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest rates and/or market conditions and in equity prices. Interest rate risk is a consequence of maintaining variable interest rate earning investments and fixed rate liabilities or fixed income investments and variable rate liabilities. We are exposed to interest rate risks arising from changes in the level or volatility of interest rates, prepayment speeds and/or the shape and slope of the yield curve. In addition, we are exposed to the risk of loss related to changes in credit spreads. Credit spread risk arises from the potential changes in an issuer’s credit rating or credit perception that may affect the value of financial instruments. We believe that no material changes to any of these risks have occurred since December 31, 2013.

For a more detailed discussion of our market risks relating to these activities, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the reports we file or submit

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under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, based on the framework in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of such period.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item  1. Legal Proceedings.

A description of the legal proceedings to which the Company and its subsidiaries are a party is contained in Note 9 to the consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the Risk Factors and other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2013 (our "Form 10-K"), which could materially affect our business, financial condition, results of operations or future results. The risks described in this Quarterly Report on Form 10-Q and our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, cash flows, financial condition and/or results of operations. The risk factor set forth below updates, and should be read together with, the risk factors disclosed in Part I, Item IA of our Form 10-K.

We are subject to a number of risks in connection with our decision to enter into a master services agreement with Cognizant for the performance of a significant portion of our business process and information technology activities.

On November 2, 2014, we entered into an agreement with Cognizant Healthcare Services, LLC for the performance of a significant portion of our business process and information technology activities. As a result of the agreement, we anticipate a material reduction in our annual general and administrative and depreciation expense by 2017. However, the agreement is conditioned upon regulatory approval of the transaction, and there can be no assurance that such approval will be obtained in a timely manner or at all. Regulators may also require us to make changes to the transaction as a condition precedent to approval. If regulatory approval is not obtained, substantially delayed or conditioned on changes to the terms of the transaction, we may not be able to fully realize anticipated cost savings or other expected benefits of the transaction. In addition, assuming the transaction closes, the success of our business will depend in part on Cognizant’s ability to perform the contracted functions and services in a timely, satisfactory, and compliant manner. If we experience a loss or disruption in the provision of any of these functions or services, or they are not performed in a timely, satisfactory or compliant manner, we may not fully achieve anticipated cost savings or other expected benefits of the transaction; we may be subject to regulatory enforcement actions; we may be vulnerable to security breaches that threaten the security and confidentiality of our information and data; we may not be able to meet the full demands of our customers or be subject to claims against us by our members; and we may have difficulty in finding alternate providers on terms favorable to us, or at all. Any of the foregoing could, individually or in the aggregate, have an adverse impact on our business. For additional information on these and other risks associated with third party arrangements such as the Cognizant transaction, please refer to the risks set forth in our Form 10‑K, including those in Item 1A. Risk Factors under the heading “We are subject to risks associated with outsourcing services and functions to third parties.”

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Purchases of Equity Securities by the Issuer

On May 2, 2011, our Board of Directors authorized a stock repurchase program pursuant to which a total of $300 million of our outstanding common stock could be repurchased (our "stock repurchase program"). On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program. Including the additional $323.7 million authorized repurchase authority, the remaining authorization under our stock repurchase program as of September 30, 2014 was $211.0 million.

Under the Company’s various stock option and long-term incentive plans, in certain circumstances, employees and non-employee directors may elect for the Company to withhold shares to satisfy minimum statutory federal, state and local tax withholding and/or exercise price obligations, as applicable, arising from the exercise of stock options. For certain other equity awards, the Company has the right to withhold shares to satisfy any tax obligations for employees that may be required to be withheld or paid in connection with such equity awards, including any tax obligation arising on the vesting date.

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A description of our stock repurchase program and tabular disclosure of the information required under this Item 2 is contained in Note 6 to the consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q and in Part I— “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Structure—Stock Repurchases.”

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

Exhibit Number	Description
10.1†+	Consulting Services Agreement, dated as of September 3, 2014, by and among Joseph C. Capezza, 135 Cliff Road Consultants, LLC and Health Net, Inc., a copy of which is filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, a copy of which is filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, a copy of which is filed herewith.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, a copy of which is furnished herewith.
101	The following materials from Health Net, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013, (2) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013, (3) Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (4) Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2014 and 2013, (5) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 and (6) Condensed Notes to Consolidated Financial Statements.

__________

† A copy of the exhibit is being filed with this Quarterly Report on Form 10-Q.

+ Management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			HEALTH NET, INC. (REGISTRANT)
Date:	November 3, 2014	By:	/s/    JAMES E. WOYS
			James E. Woys
			Executive Vice President, Chief Financial and Operating Officer and Interim Treasurer (Duly Authorized Officer and Principal Financial Officer)
Date:	November 3, 2014	By:	/s/    MARIE MONTGOMERY
			Marie Montgomery
			Senior Vice President and Corporate Controller (Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Description
10.1†+	Consulting Services Agreement, dated as of September 3, 2014, by and among Joseph C. Capezza, 135 Cliff Road Consultants, LLC and Health Net, Inc., a copy of which is filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, a copy of which is filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, a copy of which is filed herewith.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, a copy of which is furnished herewith.
101	The following materials from Health Net, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013, (2) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013, (3) Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (4) Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2014 and 2013, (5) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 and (6) Condensed Notes to Consolidated Financial Statements.

__________

† A copy of the exhibit is being filed with this Quarterly Report on Form 10-Q.

+ Management contract or compensatory plan.

EX-10.1

Exhibit 10.1

CONSULTING SERVICES AGREEMENT

This Consulting Services Agreement (“Agreement”) is entered into as of September 3, 2014 (“Effective Date”) by and among Joseph C. Capezza (“Capezza”), 135 Cliff Road Consultants, LLC (together with Capezza, the “Consultant”) and Health Net, Inc., together with its affiliates and subsidiaries (“Health Net” or the “Company”).

WHEREAS, Capezza has previously served as Executive Vice President, Chief Financial Officer and Treasurer of Health Net, Inc.;

WHEREAS, Capezza has previously executed the Amended and Restated Employment Agreement, on or about December 3, 2008 (“Employment Agreement”);

WHEREAS, Capezza has terminated employment with Health Net effective as of September 2, 2014 (“Employment Termination Date”);

WHEREAS, Capezza will execute a Waiver and Release of Claims in conjunction with his eligibility for Company severance benefits (the “Waiver and Release Agreement”);

WHEREAS, Capezza has extensive knowledge and expertise with respect to the finance and treasury operations of Health Net;

WHEREAS, Capezza has agreed to assist Health Net by providing advice on issues related to his areas of expertise; and

WHEREAS, Health Net desires to engage Consultant to provide such services on the terms and conditions set forth below.

NOW THEREFORE, in consideration of the promises and of the mutual covenants, conditions and agreements contained herein, the parties agree as follows:

ARTICLE ONE

CONSULTING SERVICES

1.1Engagement. The term of this Agreement will commence on the Effective Date and will end on December 31, 2014, unless this Agreement and the consulting relationship established hereby are earlier terminated as provided for herein (the “Consulting Period”). During the Consulting Period, Consultant shall provide the consulting services specified on Exhibit A hereto and such other services as reasonably requested by Health Net (the “Services”). With respect to the Services, Consultant will receive assignments from James E. Woys, Health Net’s Executive Vice President, Chief Financial and Operating Officer and Interim Treasurer, or his designee. In connection with the Services, Consultant agrees to (i) be reasonably available for consultation by telephone, fax or e-mail on a regular basis during normal working hours throughout the Consulting Period; (ii) be reasonably available to meet with the executive officers or the board of directors of Health Net at Health Net’s headquarters or any other reasonable location on reasonable prior notice during normal working hours and (iii) provide written reports regarding the activities, progress, and/or development of the Services upon James E. Woys’ or his designee’s request.

1.2Location. The Services shall generally be performed remotely. Consultant shall primarily provide advice through correspondence, e-mail, and telephone calls. However, James E. Woys, Health Net’s Executive Vice President, Chief Financial and Operating Officer and Interim Treasurer, or his designee, may require that Consultant attend meetings or provide Services at Health Net’s headquarters or any other

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reasonable location; provided, that Consultant has been provided reasonable prior notice of such in-person requirement.

1.3No Authority. Effective as of the Employment Termination Date, Capezza is not an employee of Health Net. Consultant shall not represent or purport to represent Health Net in any manner whatsoever to any third party, unless permitted to do so pursuant to specific prior written authorization of Health Net’s Senior Vice President, Organization Effectiveness. Consultant shall have no authority to bind Health Net in any way.

ARTICLE TWO

COMPENSATION

2.1Compensation. In consideration of and as sole compensation for Consultant’s performance of the Services, Health Net shall pay 135 Cliff Road Consultants, LLC a consulting fee equal to $250,000 (the “Consulting Fee”), to be paid as soon as practicable following the last day of the Consulting Period, but in no event later than January 31, 2015.

2.2Reimbursement. During the term of this Agreement, Health Net will reimburse Consultant for all reasonable and necessary travel-related expenses incurred by Consultant directly relating to Consultant’s performance of the Services if advance written approval by James E. Woys or his designee, of such travel-related expenses is obtained. Reimbursable travel expenses shall include automobile rental and other transportation expenses and hotel expenses. All requests for reimbursement for travel-related expenses must be accompanied by documentation in form and detail sufficient to meet the requirements of the taxing authorities with respect to recognition of business-related travel expenses for corporate tax purposes. No request for expense reimbursement shall be submitted more than thirty (30) calendar days following the date the expenditure was incurred, and Consultant shall receive all reimbursements due hereunder within ninety (90) calendar days after the submission of the documentation described in the preceding sentence.

2.3Mechanism of Payment. Any payments hereunder shall be made by check payable to 135 Cliff Road Consultants, LLC and mailed to Consultant at the address set forth in Section 9.12 below, unless otherwise directed by Consultant in writing.

2.4Death. In the event Capezza dies during the Consulting Period, Capezza’s beneficiaries or estate shall be entitled to receive the Consulting Fee, paid as soon as practicable following the date of Capezza’s death.

ARTICLE THREE

REPRESENTATIONS AND COVENANTS

3.1Consultant’s Representations. Consultant represents and warrants:

(a)that the Services to be performed under this Agreement do not and will not involve the counseling or promotion of a business arrangement or other activity that violates any applicable law;

(b)solely for purposes of applying Treasury Regulations Section 1.409A‑1(h)(1), that Capezza worked at least 40 hours on average per week during the last 36 months of his employment at Health Net;

(c)that Consultant has not entered into any agreement, whether written or oral, that conflicts with the terms of this Agreement;

(d)that Consultant has the full power and authority to enter into this Agreement; and

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(e)that as of the Effective Date and throughout the Consulting Period, Consultant has no interests or relationships, including without limitation financial or personal interests or relationships, that would prevent Consultant from performing and completing the Services in an objective and non-biased manner.

3.2Consultant’s Covenants. Consultant:

(a)shall act as an independent consultant with no authority to obligate Health Net by contract or otherwise and not as an employee or officer of Health Net;

(b)shall not, directly or indirectly, during the Consulting Period and for a period of one (1) year following the end of the Consulting Period, without Health Net’s written consent by an authorized representative, on Consultant’s own behalf or on behalf of any other person, either directly or indirectly, (i) solicit, recruit, encourage or induce any employee, agent, provider, vendor or independent contractor to terminate such person’s or entity’s relationship with Health Net or to associate with a competitor of Health Net or (ii) entice, induce or encourage any of Health Net’s employees to engage in any activity which, were it done by Capezza, would violate the Protection of Proprietary and Confidential Information provision in the Employment Agreement. The prohibitions of this paragraph are not intended to deny employment opportunities within Consultant’s field of employment but are limited only to those prohibitions necessary to protect Health Net from unfair competition and shall supplement, but not limit or supersede any other agreement between Capezza and Health Net, including without limitation, the Employment Agreement and the Waiver and Release Agreement;

(c)shall not, during the term of this Agreement, enter into any other agreement, whether written or oral, which would conflict with Consultant’s obligations hereunder;

(d)that Consultant is not presently the subject of an exclusion or debarment proceeding or excluded or debarred from participation in any federal health care program under 42 C.F.R. Part 1001 et seq. Consultant shall notify Health Net’s General Counsel or her designee immediately upon any inquiry, or the commencement of any such proceeding, concerning Consultant;

(e)during the Consulting Period, agrees that at least ten (10) business days in advance of commencing services for any other client, Consultant will disclose in writing to Health Net’s Senior Vice President, Organization Effectiveness or her designee, Consultant’s plans to perform such services. Health Net shall determine in its sole discretion whether such engagement is appropriate. Health Net’s Senior Vice President, Organization Effectiveness or her designee will advise Consultant, in writing, of Health Net’s determination. If Consultant accepts an engagement which Health Net has determined, in its sole discretion, is not appropriate, Consultant’s acceptance shall constitute a material breach of this Agreement and Consultant shall not be entitled to the Consulting Fee and all obligations of Health Net hereunder shall cease and Consultant shall not be entitled to any payments in connection with or following the termination of this Agreement and the consulting relationship established hereby, except for any unpaid reimbursement for travel-related expenses that have been validly pre-approved;

(f)acknowledges and agrees that Consultant is aware that (i) Consultant is subject to Health Net's Insider Trading and Disclosure of Material Inside Information Policy during the Consulting Period, (ii) Consultant may be aware of material, non-public information relating to the Company, (iii) the Confidential Information (as defined below) being furnished hereunder may contain material, non-public information regarding the Company, and (iv) the United States securities laws and regulations and comparable laws and regulations in other jurisdictions prohibit any persons who have material, non-public information from purchasing or selling securities of an issuer or from communicating such information to any person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities in reliance upon such information. Consultant agrees to comply with such laws and

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regulations and with the terms of Health Net's Insider Trading and Disclosure of Material Inside Information Policy, as in effect from time to time;

(g)shall not assign or subcontract performance of this Agreement or any of the Services to any person, firm, company or organization without Health Net’s prior written consent;

(h)agrees to timely perform the Services;

(i)agrees to utilize and provide Health Net with accurate and complete data in rendering the Services; and

(j)agrees to promptly return all Health Net property in Consultant’s custody or control, in addition to information in accordance with Subsection 4.2, upon termination of this Agreement.

ARTICLE FOUR

CONFIDENTIAL INFORMATION AND NONDISPATAGEMENT

4.1Confidentiality. Consultant shall, during the term of this Agreement and thereafter, hold in strict confidence any information directly or indirectly related to Health Net which is disclosed to or developed or obtained by Consultant in connection with Consultant’s performance hereunder or which Consultant observes or obtains while present at Health Net’s facilities or which otherwise results from information disclosed to or obtained by Consultant in connection with this Agreement (collectively “Confidential Information”). Confidential Information includes but is not limited to, all knowledge or information in any format and any data, documents, memoranda, reports, files, correspondence, lists and other written and graphic records or information obtained or used in conjunction with any business, contract or agreement, or information directly or indirectly connected with Health Net, including without limitation, trade secrets, proprietary information, personnel information (including without limitation employee compensation), information related to marketing and customer support strategies, financial information including sales, costs, profits and pricing methods, any technical, actuarial, economic, procurement, provider, enrollee, customer, underwriting, contractual, managerial or marketing information, employee data, customer lists, customer and client names and requirements, services, prices, margins and costs, information of third parties (including without limitation customers, vendors, providers, partners, members, employees or directors of Health Net) as to which Health Net has an obligation of confidentiality, and all other knowledge or information whatsoever relating directly or indirectly to Health Net or any business in which it is engaged, whether or not it is marked “confidential”, and all notes, analyses, compilations, studies and other documents which incorporate, summarize, contain or otherwise reflect or refer to such information. Notwithstanding the foregoing, Confidential Information shall not include any information that is or becomes generally available to the public other than as a result of a disclosure by Consultant. Consultant also agrees that Consultant shall not without Health Net’s written consent by an authorized representative, directly or indirectly use Health Net’s confidential information, including but not limited to customer lists, to solicit business of any customers of Health Net (other than as directed by and on behalf of Health Net). Consultant acknowledges and agrees that any “Invention,” including without limitation, any developments or discoveries by Consultant during the course of Consultant’s services with Health Net during the Consulting Period resulting in patents, lists of customers, trade secrets, specialized know-how or other intellectual property useful in the then-current business of Health Net and any original works of authority are the property of Health Net and shall be used for the sole benefit of Health Net. If not previously assigned to Health Net, Consultant hereby assigns ownership of any and all Inventions to Health Net. Consultant hereby acknowledges Capezza’s responsibilities under the terms of the Protection of Proprietary and Confidential Information provisions of the Employment Agreement and the Waiver and Release Agreement, and Consultant agrees to continue to be bound by all of the terms and conditions thereof. This Article Four shall supplement, but not limit or supersede any other agreement between Capezza and Health Net, including without limitation, the Employment Agreement and the Waiver and Release Agreement.

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4.1.1If, based upon the written advice of legal counsel skilled in the subject matter, Consultant is required to disclose any Confidential Information to comply with any applicable law, regulation or order of a government authority or court of competent jurisdiction, Consultant may disclose such Confidential Information only to the governmental agency requiring such disclosure; provided, however, that Consultant (i) gives Health Net at least ten (10) business days advance notice of Consultant’s requirement to disclose such Confidential Information; (ii) uses all reasonable efforts to secure confidential protection of such Confidential Information, and (iii) continues to perform Consultant’s obligations of confidentiality set out herein.

4.1.2In connection with services rendered and to be rendered by Consultant, Consultant agrees to (i) hold all Confidential Information in confidence and take all reasonably necessary precautions to protect such Confidential Information, (ii) not disclose the Confidential Information to any other person or entity except as authorized herein, (iii) use the Confidential Information only for the purposes of this Agreement or as approved in writing by Health Net, (iv) not copy or reverse engineer, reverse compile or attempt to derive the composition or underlying information of any such Confidential Information, (v) limit the use and access to such Confidential Information to persons who need to know such Confidential Information for the purpose hereof and who are bound by confidentiality restrictions no less comprehensive than those contained herein and (vi) treat such Confidential Information with at least the same degree of care and protection as Consultant would use with respect to Consultant’s own confidential materials.

4.2Return of Information. Consultant agrees Consultant shall return to Health Net immediately upon termination of the Consulting Period any building key(s), security pass or other access or identification cards and any and all Health Net property in Consultant’s possession, including but not limited to any books, documents, credit cards, computer equipment, software, apparatus, equipment and other physical property, mobile phones or data files. Consultant shall not retain copies of such materials and information; and, if requested by Health Net, shall delete all Health Net Confidential Information stored in any magnetic or optical disc or memory. Compliance with this Section is a condition precedent to the Company’s obligation to provide the Consulting Fees.

4.3Non-Disparagement. Consultant agrees and acknowledges that Consultant shall not make any disparaging comments and/or statements to anyone either orally or in writing about Health Net and/or each of its past, present and future officers, directors, shareholders, employees, consultants, accountants, attorneys, agents, managers, insurers, sureties, parent and sister corporations, divisions, subsidiary corporations and entities, partners, joint venturers and affiliates (and each of their respective beneficiaries, successors, representatives and assigns) and all persons acting in concert with them.

ARTICLE FIVE

[INTENTIONALLY RESERVED]

ARTICLE SIX

INDEPENDENT CONSULTANT STATUS

6.1Independent Consultant. Health Net and Consultant expressly agree that Consultant is solely an independent contractor and neither Consultant nor any principal, employee or contractor of Consultant shall be construed to be an employee of Health Net in any matter under any circumstances or for any purposes whatsoever. Nothing in this Agreement shall establish an agency, partnership, joint venture or employee relationship between Health Net and Consultant, and Consultant shall not represent himself or itself as an employee or officer of Health Net. Without limiting the generality of the foregoing, (i) Health Net shall not pay, on the account of Consultant or any principal, employee or contractor of Consultant, any unemployment tax or other taxes required under the law to be paid with respect to employees and shall not withhold any monies from the fees payable pursuant to this Agreement for income or employment tax purposes, and (ii) Health Net shall not provide Consultant or any principal, employee or contractor of

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Consultant with, and no such individual shall be eligible to receive from Health Net under any Company plan, any benefits as a result of entering into this Agreement, including without limitation, any pension, health, welfare, retirement, workers’ compensation or other insurance benefits.

6.2Taxes. Consultant acknowledges and agrees that Consultant, and not the Company, will be solely responsible for any and all taxes imposed upon Consultant as a result of entering into this Agreement, including without limitation any and all federal, state, local and foreign income and employment taxes. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement, and Consultant agrees to and acknowledges the obligation to pay all self-employment and other taxes thereon. Any compensation and benefits paid to Consultant will be reported to taxing authorities as Health Net deems to be appropriate. Consultant agrees to hold Health Net harmless from the fact or manner of Health Net’s tax reporting.

6.3Benefits. Consultant shall not claim the status, perquisites or benefits of a Health Net employee and agrees to hold Health Net harmless from any claim or other assertion (by Consultant or Consultant’s successors or beneficiaries, as applicable) to the contrary. Consultant agrees that Consultant is not eligible for coverage or to receive any benefit under any Health Net employee benefit plan or employee compensation arrangement as a result of this Agreement. Even if Consultant were to become or be deemed to be a common-law employee of Health Net, Consultant still shall not be eligible for coverage or to receive any benefit under any Health Net employee benefit plan or any employee compensation arrangement with respect to any period during which Health Net classified Consultant as a consultant, except to the limited extent that Health Net grants eligibility for such coverage or the right to receive such benefits to Consultant in a document signed by Consultant and Health Net’s Senior Vice President, Organization Effectiveness. Consultant further agrees that if Consultant is injured while performing work for Health Net hereunder, Consultant will not be covered for such injury under Health Net’s insurance policies, including under any worker’s compensation coverage provided by Health Net for its employees, and that Consultant is solely responsible for providing worker’s compensation insurance for Consultant.

ARTICLE SEVEN

TERM AND TERMINATION

7.1Term. This Agreement shall terminate on December 31, 2014.

7.2Termination. This Agreement may be terminated before December 31, 2014, by either party upon material breach of any term of this Agreement by the other party, including without limitation, Consultant’s breach of any of Consultant’s obligations under Section 1.1 and Articles Three, Four and Five. In the event Consultant materially breaches this Agreement, Health Net shall not be obligated and Consultant shall not be entitled to the Consulting Fee and all obligations of Health Net hereunder shall cease and Consultant shall not be entitled to any payments under this Agreement in connection with or following the termination of this Agreement and the consulting relationship established hereby, except for any unpaid reimbursement for travel-related expenses that have been validly pre-approved.

7.3Continuing Obligations. This Section 7.3 andConsultant’s obligations under Sections 3.2(b), 3.2(f) and 3.2(j) and Articles Four, Five, Six, Eight and Nine shall survive any termination of this Agreement.

ARTICLE EIGHT

INDEMNIFICATION AND DAMAGES

8.1Indemnification. Notwithstanding anything to the contrary, Consultant hereby agrees to indemnify, defend and hold free and harmless Health Net, its officers, directors, employees and agents from

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and against all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties, attorney’s fees and costs incurred as a result of a breach by Consultant of any representation, warranty or obligation set forth under this Agreement or arising out of acts or omissions of Consultant in performing the Services hereunder.

8.2Damages. Health Net will not be liable to Consultant for any consequential, liquidated, punitive or special damages.

ARTICLE NINE

MISCELLANEOUS

9.1Waiver. None of the terms of this Agreement may be waived except by an express agreement in writing signed by the party against whom enforcement of such waiver is sought. The failure or delay of either party in enforcing any of its rights under this Agreement shall not be deemed a continuing waiver of such right.

9.2Entire Agreement. Other than as set forth herein, this Agreement represents the final, complete and exclusive embodiment of the entire agreement and understanding between Health Net and Consultant concerning Consultant’s consulting services to Health Net, and supersedes and replaces any and all agreements and understandings concerning Consultant’s consulting services to Health Net.

9.3Termination of Employment Agreement. Health Net and Consultant acknowledge and agree that, effective as of the Employment Termination Date, the Employment Agreement has terminated and Capezza shall have no further rights or interests thereunder; provided, however, that notwithstanding the foregoing, Section 3 (Protection of Proprietary and Confidential Information) and Section 13 (Restrictive Covenants) of the Employment Agreement shall remain in full force and effect in accordance with their terms.

9.4Amendments. This Agreement may not be released, discharged, amended or modified in any manner except by an instrument in writing signed by Consultant and Health Net’s Senior Vice President, Organization Effectiveness.    

9.5Assignment. Health Net has specifically contracted for the Services of Consultant and, therefore, Consultant may not assign or delegate Consultant’s obligations under this Agreement, either in whole or in part, without the prior written consent of Health Net. Health Net may assign this Agreement at any time without the prior consent of Consultant. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto.

9.6Severability. Should any part, term or provision of this Agreement be declared and/or be determined by any court or arbitrator to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Agreement.

9.7Reformation. In the event any part, term or provision herein is not enforceable including because its geographic scope, length or subject matter is determined to be excessive, then such part, term or provision shall be reformed to the minimum extent necessary to make such part, term or provision enforceable.

9.8Headings. The headings of the Sections and Articles of this Agreement are provided for convenience only. They do not alter or limit, in any way, the text of any Section or Article of this Agreement.

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9.9Publicity. Consultant will not use the name of Health Net in any public announcements, publicity or advertising without the prior written approval of Health Net’s Senior Vice President, Organization Effectiveness; provided, however, that Capezza may reference Health Net in his employment history including on business-oriented social networking sites, such as LinkedIn.

9.10Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

9.11Arbitration. If there is any dispute between Health Net and Consultant over the terms or obligations under this Agreement, that dispute shall be resolved by binding arbitration before a single neutral arbitrator who shall be a retired judge. The arbitration shall proceed in accordance with the then-current Commercial Rules of the American Arbitration Association. The judgment of the arbitrator shall be final, binding and nonappealable, and may be entered in any state or federal court having jurisdiction thereafter. The arbitrator shall be bound to apply and follow the applicable state or federal laws in reaching a decision in this matter. Any disagreement regarding whether a dispute is required to be arbitrated pursuant to this Agreement shall be decided by the arbitrator. The Federal Arbitration Act, 9 U.S.C. Sections 1-16, shall govern the interpretation and enforcement of this paragraph.

Notwithstanding the above paragraph, the arbitration procedure shall not prohibit Consultant or Health Net from seeking injunctive relief, including without limitation, temporary or preliminary injunctive relief, through any court of competent jurisdiction if such relief is not available or is not available in a timely manner, through arbitration.

9.12Notices. All notices required or permitted to be given under this Agreement must be in writing and may be given by any method of delivery which provides evidence or confirmation of receipt, including but not limited to personal delivery, express courier (such as Federal Express) and prepaid certified or registered mail with return receipt requested. Notices shall be deemed to have been given and received on the date of actual receipt or, if either of the following dates is applicable and is earlier, then on such earlier date: one (1) business day after sending, if sent by express courier; or three (3) business days after deposit in the U.S. mail, if sent by certified or registered mail. Notices shall be given and/or addressed to the respective parties at the following addresses:

To Health Net’s Senior Vice President, Organization Effectiveness:

Health Net, Inc.

Attn: Karin Mayhew

21650 Oxnard Boulevard, Suite 2200

Woodland Hills, CA 91367

To Consultant:

Joseph C. Capezza

16 Mustang Drive

Bell Canyon, California 91307

Any party may change its address for the purpose of this paragraph by giving written notice of such change to the other party in the manner herein provided.

9.13Disclosure of Personal Compensation Information. Consultant acknowledges that Capezza was a “named executive officer” (as such term is defined in the rules and regulations of the Securities and Exchange Commission (“SEC”)) of Health Net prior to the Employment Termination Date,

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and as such, information regarding Consultant’s compensatory arrangements with Health Net, including, among other things, the terms of this Agreement and any other agreement entered into with Health Net (collectively, “Personal Compensation Information”), may be disclosed in filings with the SEC, the New York Stock Exchange (“NYSE”) and/or other regulatory organizations. Consultant’s execution of this Agreement will serve as Consultant’s acknowledgement that the Personal Compensation Information may be publicly disclosed from time to time in filings with the SEC, NYSE or otherwise as Health Net deems necessary and appropriate.

9.14Acknowledgement. Consultant acknowledges that Consultant has had an opportunity to consult with a tax adviser and has had an opportunity to consult with and be represented by counsel, each pursuant to Consultant’s choosing in the review of this Agreement, that Consultant has been advised by Health Net to do so, that Consultant is fully aware of the contents of this Agreement and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, and that Consultant enters into this Agreement freely, without duress or coercion, and based on Consultant’s own judgment and wishes and not in reliance upon any representation or promise made by Health Net, other than those contained herein.

[Signatures begin on following page]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by proper persons thereunto duly authorized as of the date first set forth above.

HEALTH NET INC.	JOSEPH C. CAPEZZA
By: /s/ Karin Mayhew	/s/ Joseph C. Capezza
Name: Karin Mayhew        Title: Senior Vice President, Organization Effectiveness	Joseph C. Capezza
	135 CLIFF ROAD CONSULTANTS, LLC By: /s/ Joseph C. Capezza        Name: Joseph C. Capezza        Title:

EXHIBIT A

SERVICES

During the Consulting Period, Consultant shall:

• consult with and advise Health Net’s Chief Financial and Operating Officer with respect to the transition of the Chief Financial Officer duties and responsibilities;

• consult with and advise the Company’s Chief Financial and Operating Officer with respect to the transition of the Treasurer duties and responsibilities; and

• work on other special assignments relating to investment consulting and/or debt restructuring, as assigned by the Company’s Chief Financial and Operating Officer.

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jay M. Gellert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Health Net, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 3, 2014	/S/    JAY M. GELLERT
	Jay M. Gellert
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James E. Woys, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Health Net, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 3, 2014	/S/    JAMES E. WOYS
	James E. Woys
	Chief Financial and Operations Officer

EX-32

Exhibit 32

Certification of CEO and CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Health Net, Inc. (the “Company”) for the quarterly period ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jay M. Gellert, as Chief Executive Officer of the Company, and James E. Woys, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jay M. Gellert

Jay M. Gellert

Chief Executive Officer

November 3, 2014

/s/ James E. Woys

James E. Woys

Chief Financial Officer

November 3, 2014

XML

Investments (Available-for-Sale Investments Classified by Contractual Maturity Date) (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Carrying Value, Noncurrent	$ 3,055,000	$ 59,768,000
Available for sale securities, Estimated Fair Value	1,664,830,000	1,567,020,000
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, Amortized Cost	49,100,000
Due after one year through five years, Amortized Cost	347,800,000
Due after five years through ten years, Amortized Cost	435,300,000
Due after ten years, Amortized Cost	424,000,000
Available for sale securities, Amortized Cost	1,656,529,000	1,602,456,000
Due in one year or less, Estimated Fair Value	49,200,000
Due after one year through five years, Estimated Fair Value	349,600,000
Due after five years through ten years, Estimated Fair Value	438,800,000
Due after ten years, Estimated Fair Value	428,300,000
Available for sale securities, Estimated Fair Value	1,664,800,000	1,567,000,000
Current [Member] | Asset-backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available for sale securities, Amortized Cost	400,300,000	394,700,000
Available for sale securities, Estimated Fair Value	398,900,000	389,400,000
Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Due after five years through ten years, Amortized Cost	2,800,000
Available for sale securities, Amortized Cost	3,538,000	67,943,000
Carrying Value, Noncurrent	3,100,000	59,800,000
Due after five years through ten years, Estimated Fair Value	2,500,000
Noncurrent [Member] | Asset-backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available for sale securities, Amortized Cost	800,000	1,300,000
Carrying Value, Noncurrent	$ 600,000	$ 1,100,000

XML

Fair Value Measurements (Changes in the Balances of Level 3 Financial Liabilities) (Details) (Embedded contractual derivative liability [Member], USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Embedded contractual derivative liability [Member]
Changes in Level 3 Financial Liabilities
Opening balance	$ 4.8	$ 3.2
Transfers Into Level 3	0	0
Transfers out of Level 3	0	0
Realized in net income	(4.1)	(2.5)
Unrealized in accumulated other comprehensive income	0	0
Purchases, issues, sales and settlements:
Purchases	0	0
Issues	0	0
Sales	0	0
Settlements	0	0
Closing balance	$ 0.7	$ 0.7

XML

Fair Value Measurements (Assets and Liabilities Measured at Fair Value on Recurring Basis) (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Transfers of Assets, Levels 1 to Level 2	$ 0		$ 0
Transfer of Assets, Level 2 to Level 1	0		0
Transfer of Liabilities, Level 1 to Level 2	0		0
Transfers of Liabilities, Levels 2 to Level 1	0		0
Liabilities measured on nonrecurring basis	0	0
Assets, Fair Value Disclosure, Nonrecurring		0
Recurring [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	1,114,600,000	433,200,000
Investments at fair value	1,667,900,000	1,626,800,000
Embedded contractual derivative asset	14,200,000	7,200,000
State-sponsored health plans settlement account deficit	0	62,900,000
Total assets at fair value	2,796,700,000	2,130,100,000
Liabilities, fair value	0	0
Recurring [Member] | Residential Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	202,900,000	203,900,000
Recurring [Member] | Commercial Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	132,100,000	144,800,000
Recurring [Member] | Other Asset-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	64,500,000	41,800,000
Recurring [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	23,600,000	23,700,000
Recurring [Member] | U.S. Agency Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Obligations of States and Other Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	709,100,000	757,000,000
Recurring [Member] | Corporate Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	535,700,000	455,600,000
Recurring [Member] | Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	1,114,600,000	433,200,000
Investments at fair value	23,600,000	23,700,000
Embedded contractual derivative asset	0	0
State-sponsored health plans settlement account deficit	0	0
Total assets at fair value	1,138,200,000	456,900,000
Recurring [Member] | Level 1 [Member] | Residential Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 1 [Member] | Commercial Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 1 [Member] | Other Asset-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 1 [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	23,600,000	23,700,000
Recurring [Member] | Level 1 [Member] | U.S. Agency Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 1 [Member] | Obligations of States and Other Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 1 [Member] | Corporate Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	0	0
Investments at fair value	1,641,200,000	1,543,300,000
Embedded contractual derivative asset	0	0
State-sponsored health plans settlement account deficit	0
Total assets at fair value	1,641,200,000	1,543,300,000
Recurring [Member] | Level 2 [Member] | Residential Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	202,900,000	203,500,000
Recurring [Member] | Level 2 [Member] | Commercial Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	131,500,000	144,100,000
Recurring [Member] | Level 2 [Member] | Other Asset-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	64,500,000	41,800,000
Recurring [Member] | Level 2 [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 2 [Member] | U.S. Agency Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 2 [Member] | Obligations of States and Other Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	709,100,000	709,900,000
Recurring [Member] | Level 2 [Member] | Corporate Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	533,200,000	444,000,000
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	0	0
Investments at fair value	3,100,000	59,800,000
Embedded contractual derivative asset	0	0
State-sponsored health plans settlement account deficit	0	0
Total assets at fair value	3,100,000	59,800,000
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | Residential Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	400,000
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | Commercial Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	600,000	700,000
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | Other Asset-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | U.S. Agency Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | Obligations of States and Other Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	47,100,000
Recurring [Member] | Level 2 [Member] | Noncurrent Assets [Member] | Corporate Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	2,500,000	11,600,000
Recurring [Member] | Level 2 [Member] | Current Assets [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
State-sponsored health plans settlement account deficit		0
Recurring [Member] | Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	0	0
Investments at fair value	0	0
Embedded contractual derivative asset	14,200,000	7,200,000
State-sponsored health plans settlement account deficit	0	62,900,000
Total assets at fair value	14,200,000	70,100,000
Recurring [Member] | Level 3 [Member] | Residential Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 3 [Member] | Commercial Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 3 [Member] | Other Asset-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 3 [Member] | U.S. Treasury Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 3 [Member] | U.S. Agency Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 3 [Member] | Obligations of States and Other Political Subdivisions [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	0	0
Recurring [Member] | Level 3 [Member] | Corporate Debt Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investments at fair value	$ 0	$ 0

XML

Significant Accounting Policies (Restricted Assets) (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Summary of Significant Accounting Policies [Abstract]
Restricted cash and cash equivalents	$ 0.3	$ 5.3
Investment securities held by trustees or agencies	$ 23.7	$ 23.8

XML

Significant Accounting Policies (Cash and Cash Equivalents, Investments and Fair Value of Financial Instruments) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Accounting Policies [Abstract]
Checks outstanding	$ 0		$ 0		$ 0
Losses recognized from other-than-temporary impairments	0	0	0	0
Fair value of fixed rate borrowings	436.0		436.0		434.5
Fair value of variable rate borrowings	$ 100.0		$ 100.0		$ 100.0

XML

Fair Value Measurements (Quantitative Information About Level 3 Fair Value Measurements) (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Goodwill	$ 558,886,000	$ 565,886,000
Western Region Operations [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Goodwill	558,900,000	565,900,000
Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets held for sale	50,000,000
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Embedded contractual derivative asset	14,200,000	7,200,000
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member] | Health Net Health Care Expenditures [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Health Care Expenditures, range (as a percentage)	(5.70%)	(3.34%)
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member] | Health Net Health Care Expenditures [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Health Care Expenditures, range (as a percentage)	6.78%	7.34%
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member] | Health Net Health Care Expenditures [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Health Care Expenditures, range (as a percentage)	1.46%	2.20%
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member] | National Health Care Expenditures [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Health Care Expenditures, range (as a percentage)	(2.01%)	(0.77%)
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member] | National Health Care Expenditures [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Health Care Expenditures, range (as a percentage)	8.50%	9.46%
Embedded Contractual Derivative Asset [Member] | Level 3 [Member] | Monte Carlo Simulation Approach [Member] | National Health Care Expenditures [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Health Care Expenditures, range (as a percentage)	2.44%	3.63%
Goodwill [Member] | Level 3 [Member] | Western Region Operations [Member] | Income Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Goodwill	558,900,000	565,900,000
Goodwill [Member] | Level 3 [Member] | Western Region Operations [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)	7.50%	10.00%
Goodwill [Member] | Level 3 [Member] | Western Region Operations [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)	7.50%	10.00%
Goodwill [Member] | Level 3 [Member] | Western Region Operations [Member] | Income Approach [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)	7.50%	10.00%
State-sponsored health plans settlement account deficit [Member] | Level 3 [Member] | Income Approach [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
State-sponsored health plans settlement account deficit		62,900,000
State-sponsored health plans settlement account deficit [Member] | Level 3 [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)		1.135%
State-sponsored health plans settlement account deficit [Member] | Level 3 [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)		1.135%
State-sponsored health plans settlement account deficit [Member] | Level 3 [Member] | Income Approach [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)		1.135%
Cognizant Technology Solutions [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets held for sale	$ 50,000,000
Cognizant Technology Solutions [Member] | Property, Plant and Equipment [Member] | Level 3 [Member] | Income Approach [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)	12.00%
Cognizant Technology Solutions [Member] | Property, Plant and Equipment [Member] | Level 3 [Member] | Income Approach [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)	12.00%
Cognizant Technology Solutions [Member] | Property, Plant and Equipment [Member] | Level 3 [Member] | Income Approach [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate, range (as a percentage)	12.00%

XML

Investments (Number of Securities Included in Loss Position of Current and Noncurrent Investments) (Details)	Sep. 30, 2014 Securities
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	285
12 Months or More	218
Total, number of securities	503
Current [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	51
12 Months or More	58
Total, number of securities	109
Current [Member] | Obligations of States and Other Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	6
12 Months or More	85
Total, number of securities	91
Current [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	228
12 Months or More	75
Total, number of securities	303
Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	1
12 Months or More	3
Total, number of securities	4
Noncurrent [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	0
12 Months or More	1
Total, number of securities	1
Noncurrent [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months	1
12 Months or More	2
Total, number of securities	3

XML

Segment Information (Premium Revenue By Line Of Business) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Segment Reporting Information [Line Items]
Health plans services premiums	$ 3,631,617	$ 2,606,754	$ 9,774,840	$ 7,817,697
Commercial Premium Revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	1,430,800	1,279,800	4,072,400	3,903,800
Medicare Premium Revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	763,300	685,400	2,275,700	2,080,300
Medicaid Premium Revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	1,397,700	641,600	3,381,600	1,833,600
Dual eligibles premium revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	$ 39,800	$ 0	$ 45,100	$ 0

XML

Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Effective tax rate	139.30%		38.40%	23.30%	37.80%
Federal statutory rate (as a percentage)	35.00%			35.00%
Tax Benefit Due to Worthless Stock loss		$ 72.6
Unrecognized Tax Benefits, Increase Resulting from Current Period Tax Positions	7.3	11.0
ACA Health Insurer Fee [Member]
ACA Health Insurer Fee Payment				$ 141.4

XML

Fair Value Measurements (Changes in the Balances of Level 3 Financial Assets) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Opening balance	$ 22.9	$ 46.2	$ 70.1	$ 11.4
Transfers into Level 3	0	0	0	0
Transfers out of Level 3	0	0	0	0
Total gains or losses for the period
Realized in net income	(8.7)	18.2	(55.9)	53.2
Unrealized in accumulated other comprehensive income	0	0	0	0
Purchases, issues, sales and settlements
Purchases/additions	0	0	0	0
Issues	0	0	0	0
Sales	0	0	0	(0.2)
Settlements	0	0	0	0
Closing balance	14.2	64.4	14.2	64.4
Fair Value, Assets Measured on Recurring Basis, Change in Unrealized Gain (Loss)	0	0	0	0
Available-For-Sale Investments [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Opening balance	0	0	0	0.2
Transfers into Level 3	0	0	0	0
Transfers out of Level 3	0	0	0	0
Total gains or losses for the period
Realized in net income	0	0	0	0
Unrealized in accumulated other comprehensive income	0	0	0	0
Purchases, issues, sales and settlements
Purchases/additions	0	0	0	0
Issues	0	0	0	0
Sales	0	0	0	(0.2)
Settlements	0	0	0	0
Closing balance	0	0	0	0
Fair Value, Assets Measured on Recurring Basis, Change in Unrealized Gain (Loss)	0	0	0	0
Embedded Contractual Derivative Asset [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Opening balance	13.3	10.8	7.2	11.2
Transfers into Level 3	0	0	0	0
Transfers out of Level 3	0	0	0	0
Total gains or losses for the period
Realized in net income	0.9	1.9	7.0	1.5
Unrealized in accumulated other comprehensive income	0	0	0	0
Purchases, issues, sales and settlements
Purchases/additions	0	0	0	0
Issues	0	0	0	0
Sales	0	0	0	0
Settlements	0	0	0	0
Closing balance	14.2	12.7	14.2	12.7
Fair Value, Assets Measured on Recurring Basis, Change in Unrealized Gain (Loss)	0	0	0	0
Other Noncurrent Assets [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Opening balance	9.6	35.4	62.9	0
Transfers into Level 3	0	0	0	0
Transfers out of Level 3	0	0	0	0
Total gains or losses for the period
Realized in net income	(9.6)	16.3	(62.9)	51.7
Unrealized in accumulated other comprehensive income	0	0	0	0
Purchases, issues, sales and settlements
Purchases/additions	0	0	0	0
Issues	0	0	0	0
Sales	0	0	0	0
Settlements	0	0	0	0
Closing balance	0	51.7	0	51.7
Fair Value, Assets Measured on Recurring Basis, Change in Unrealized Gain (Loss)	$ 0	$ 0	$ 0	$ 0

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Summary of Significant Accounting Policies [Abstract]

Significant Accounting Policies

SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash equivalents include all highly liquid investments with maturity of three months or less when purchased. We had no checks outstanding, net of deposits as of September 30, 2014 and December 31, 2013. Checks outstanding, net of deposits are classified as accounts payable and other liabilities in the consolidated balance sheets and the changes are reflected in the line item net increase (decrease) in checks outstanding, net of deposits within the cash flows from financing activities in the consolidated statements of cash flows.

Investments

Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net of income tax effects. The cost of investments sold is determined in accordance with the specific identification method and realized gains and losses are included in net investment income. We analyze all debt investments that have unrealized losses for impairment consideration and assess the intent to sell such securities. If such intent exists, impaired securities are considered other-than-temporarily impaired. Management also assesses if we may be required to sell the debt investments prior to the recovery of amortized cost, which may also trigger an impairment charge. If securities are considered other-than-temporarily impaired based on intent or ability, we assess whether the amortized costs of the securities can be recovered. If management anticipates recovering an amount less than the amortized cost of the securities, an impairment charge is calculated based on the expected discounted cash flows of the securities. Any deficit between the amortized cost and the expected cash flows is recorded through earnings as a charge. All other temporary impairment changes are recorded through other comprehensive income. During the three and nine months endedSeptember 30, 2014 and 2013, respectively, no losses were recognized from other-than-temporary impairments.

Fair Value of Financial Instruments

The estimated fair value amounts of cash equivalents, investments available-for-sale, premiums and other receivables, notes receivable and notes payable have been determined by using available market information and appropriate valuation methodologies. The carrying amounts of cash equivalents approximate fair value due to the short maturity of those instruments. Fair values for debt and equity securities are generally based upon quoted market prices. Where quoted market prices were not readily available, fair values were estimated using valuation methodologies based on available and observable market information. Such valuation methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. The carrying value of premiums and other receivables, long-term notes receivable and nonmarketable securities approximates the fair value of such financial instruments. The fair value of notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt with the same remaining maturities. The fair value of our fixed-rate borrowings was $436.0 million and $434.5 million as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $100.0 million, respectively. The fair value of our fixed-rate borrowings was determined using the quoted market price, which is a Level 1 input in the fair value hierarchy. The fair value of our variable-rate borrowings was estimated to equal the carrying value because the interest rates paid on these borrowings were based on prevailing market rates. Since the pricing inputs are other than quoted prices and fair value is determined using an income approach, our variable-rate borrowings are classified as a Level 2 in the fair value hierarchy. See Notes 7 and 8 for additional information regarding our financing arrangements and fair value measurements, respectively.

Health Plan Services Revenue Recognition

Health plan services premium revenues generally include HMO, POS and PPO premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide care to Medicaid recipients, and revenue underd Medicare risk contracts to provide care to enrolled Medicare recipients. Revenue is recognized in the month in which the related enrollees are entitled to health care services. Premiums collected in advance of the month in which enrollees are entitled to health care services are recorded as unearned premiums.

Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), commercial health plans with medical loss ratios ("MLR") on fully insured products, as calculated as set forth in the ACA, that fall below certain targets are required to rebate ratable portions of their premiums annually. We classify the estimated rebates, if any, as a reduction to Health plan services premiums in our consolidated statement of operations. Estimated rebates for our commercial health plans were $0 for the three and nine months ended September 30, 2014. In addition to the rebates for the commercial health plans under the ACA, there is also a medical loss ratio corridor for the California Department of Health Care Services ("DHCS") adult Medicaid expansion members under the state Medicaid program in California ("Medi-Cal"). If our MLR for this population is below 85%, then we would have to pay DHCS a rebate. If the MLR is above 95%, then DHCS would have to pay us additional premium. As of September 30, 2014, we have accrued $45.3 million for a MLR rebate with respect to this population payable to DHCS. Accordingly, for the three months ended September 30, 2014, we reduced Medicaid premium revenue by $45.3 million, though no amounts will be paid prior to issuance of final regulations on this program. Our Medicaid contract with the state of Arizona contains profit-sharing or profit ceiling provisions. Because our Arizona Medicaid profits were in excess of the amount we are allowed to fully retain, we reduced Medicaid premium revenue by $11.9 million. In addition, certain provisions of the ACA became effective January 1, 2014, including an annual insurance industry premium-based assessment and the establishment of federally facilitated, state and federal partnership or state-based health insurance exchanges coupled with premium stabilization programs. See below in this Note 2 under the heading "Accounting for Certain Provisions of the ACA" for additional information.

Our Medicare Advantage contracts are with the Centers for Medicare & Medicaid Services ("CMS"). CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. This risk adjustment model results in periodic changes in our risk factor adjustment scores for certain diagnostic codes, which then result in changes to our health plan services premium revenues. Because the recorded revenue is based on our best estimate at the time, the actual payment we receive from CMS for risk adjustment reimbursement settlements may be materially different than the amounts we have initially recognized on our financial statements. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2014 decreased health plan services premium revenues by $5.5 million and increased health plan services premium revenues by $14.5 million, respectively. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2013 increased health plan services premium revenues by $1.0 million and decreased health plan services revenues by $8.5 million, respectively.

Our revenue from the Medi-Cal program, including seniors and persons with disabilities ("SPD") programs, and other state-sponsored health programs are subject to certain retroactive rate adjustments based on expected and actual health care costs. For the three and nine months ended September 30, 2014, retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2014 were not significant. For the three and nine months ended September 30, 2013, we recognized $32.1 million and $74.3 million, respectively, of premium revenue as a result of retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2013.

In addition, our state-sponsored health care programs in California, including Medi-Cal, SPD programs, the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medicaid expansion under federal health care reform, are subject to retrospective premium adjustments based on certain risk sharing provisions included in our state-sponsored health plans rate settlement agreement described below. We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets.

On November 2, 2012, we entered into a state-sponsored health plans rate settlement agreement (the "Agreement") with the DHCS to settle historical rate disputes with respect to our participation in the Medi-Cal program, for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS agreed, among other things, to (1) an extension of all of our Medi-Cal managed care contracts existing as of the date of the Agreement for an additional five years from their then existing expiration dates; (2) retrospective premium adjustments on all of our state-sponsored health care programs, including Medi-Cal, SPDs, our participation in the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medi-Cal expansion populations (our “state-sponsored health care programs”), which are tracked in a settlement account as discussed in more detail below; and (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early.

Effective January 1, 2013, the settlement account (the "Account") was established with an initial balance of zero. The balance in the Account is adjusted annually to reflect retrospective premium adjustments for each calendar year (referenced in the Agreement as a "deficit" or "surplus"). A deficit or surplus will result to the extent our actual pretax margin (as defined in the Agreement) on our state-sponsored health care programs is below or above a predetermined pretax margin target. The amount of any deficit or surplus is calculated as described in the Agreement. Cash settlement of the Account will occur on December 31, 2019, except that under certain circumstances the DHCS may extend the final settlement for up to three additional one-year periods (as may be extended, the "Term"). In addition, the DHCS will make an interim partial settlement payment to us if it terminates any of our state-sponsored health care programs contracts early. Upon expiration of the Term, if the Account is in a surplus position, then no monies are owed to either party. If the Account is in a deficit position, then DHCS shall pay the amount of the deficit to us. In no event, however, shall the amount paid by DHCS to us under the Agreement exceed $264 million or be less than an alternative minimum amount as defined in the Agreement.

We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets. As of September 30, 2014, we had calculated a surplus of $7.5 million and reduced our receivable to zero, reflecting our cumulative estimated retrospective premium adjustment to the Account based on our actual pretax margin for the period beginning on January 1, 2013 and ending on September 30, 2014. As a surplus Account position results in no monies due to either party upon expiration of the Term, we have no receivable and no payable recorded as of September 30, 2014 in connection with the Agreement. As of December 31, 2013, we had calculated and recorded a deficit of $62.9 million, net of a valuation discount in the amount of $4.4 million, reflecting our estimated retrospective premium adjustment to the Account based on our actual pretax margin for the year ended December 31, 2013. As a result of the change in the Account balance calculated during the three and nine months ended September 30, 2014, our health plan services premium revenue was reduced by $9.6 million and $62.9 million for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, we had recorded increases in our health plan services premium revenue of $16.3 million and $51.7 million, respectively, as a result of the deficit calculated under the state settlement agreement as of September 30, 2013.

Health Plan Services Health Care Cost

The cost of health care services is recognized in the period in which services are provided and includes an estimate of the cost of services that have been incurred but not yet reported. Such costs include payments to primary care physicians, specialists, hospitals and outpatient care facilities, and the costs associated with managing the extent of such care. Our health care cost also can include from time to time remediation of certain claims as a result of periodic reviews by various regulatory agencies.

We estimate the amount of the provision for health care service costs incurred but not yet reported ("IBNR") in accordance with GAAP and using standard actuarial developmental methodologies based upon historical data including the period between the date services are rendered and the date claims are received and paid, denied claim activity, expected medical cost inflation, seasonality patterns and changes in membership, among other things.

Our IBNR best estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. This provision for adverse deviation is intended to capture the potential adverse development from known environmental factors such as our entry into new geographical markets, changes in our geographic or product mix, the introduction of new customer populations, variation in benefit utilization, disease outbreaks, changes in provider reimbursement, fluctuations in medical cost trend, variation in claim submission patterns and variation in claims processing speed and payment patterns, changes in technology that provide faster access to claims data or change the speed of adjudication and settlement of claims, variability in claims inventory levels, non-standard claims development, and/or exceptional situations that require judgmental adjustments in setting the reserves for claims.

We consistently apply our IBNR estimation methodology from period to period. Our IBNR best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known to us, we adjust our assumptions accordingly to change our estimate of IBNR. Therefore, if moderately adverse conditions do not occur, evidenced by more complete claims information in the following period, then our prior period estimates will be revised downward, resulting in favorable development. However, any favorable prior period reserve development would increase current period net income only to the extent that the current period provision for adverse deviation is less than the benefit recognized from the prior period favorable development. If moderately adverse conditions occur and are more acute than we estimated, then our prior period estimates will be revised upward, resulting in unfavorable development, which would decrease current period net income. For the three months ended September 30, 2014, we had $9.7 million in net unfavorable reserve developments related to prior years. For the nine months ended September 30, 2014, we had $16.9 million in net favorable reserve developments related to prior years. The amount for the three months ended September 30, 2014 consisted of $10.4 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $0.7 million of the provision for adverse deviation held at December 31, 2013. The amount for the nine months ended September 30, 2014 consisted of $34.5 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $51.4 million of the provision for adverse deviation held at December 31, 2013. We believe that the $10.4 million and $34.5 million unfavorable developments for the three and nine months ended September 30, 2014, respectively, were primarily due to unanticipated benefit utilization in our commercial business arising from dates of service in the fourth quarter of 2013 as a result of an uncertain environment related to the ACA. As part of our best estimate for IBNR, the provision for adverse deviation recorded as of September 30, 2014 and December 31, 2013 were $77.0 million and $53.4 million, respectively. For the three and nine months ended September 30, 2013, the reserve developments related to prior years, when considered together with the provision for adverse deviation recorded as of September 30, 2013, did not have a material impact on our operating results or financial condition.

The majority of the IBNR reserve balance held at each quarter-end is associated with the most recent months' incurred services because these are the services for which the fewest claims have been paid. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months' incurred services. Revised estimates for prior periods are determined in each quarter based on the most recent updates of paid claims for prior periods. Estimates for service costs incurred but not yet reported are subject to the impact of changes in the regulatory environment, economic conditions, changes in claims trends, and numerous other factors. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts estimated.

Government Contracts

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. On March 15, 2014, the Department of Defense exercised the last of these options, which extended the T-3 contract through March 31, 2015. On June 27, 2014, at the Department of Defense's request, we submitted a proposal to add three additional one-year option periods to the T-3 contract. The government is reviewing the proposal and if accepted as submitted, the modified T-3 contract would conclude on March 31, 2018.

Revenues and expenses associated with the T-3 contract are reported as part of government contracts revenues and government contracts expenses in the consolidated statements of operations and included in the Government Contracts reportable segment.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investments and premiums receivable. All cash equivalents and investments are managed within established guidelines, which provide us diversity among issuers. Concentrations of credit risk with respect to premiums receivable are limited due to the large number of payers comprising our customer base. The federal government is the primary customer of our Government Contracts reportable segment with fees and premiums associated with this customer accounting for approximately 96% of our Government Contracts revenue. In addition, the federal government is a significant customer of our Western Region Operations reportable segment as a result of our contract with CMS for coverage of Medicare-eligible individuals. Furthermore, our Medicaid revenue is currently derived from our participation in Medi-Cal through our relationship with DHCS, and beginning in the fourth quarter of 2013, in Arizona through our contract with the Arizona Health Care Cost Containment System ("AHCCCS"). The DHCS is a significant customer of our Western Region Operations reportable segment.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income (loss), net unrealized appreciation (depreciation) after tax on investments available-for-sale and prior service cost and net loss related to our defined benefit pension plan.

Our accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 are as follows:

	Unrealized Gains (Losses) on investments available-for-sale			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (loss)
Three Months Ended September 30:				(Dollars in millions)
Balance as of July 1, 2013	$	(25.4	)	$	(10.2	)	$	(35.6	)
Other comprehensive loss before reclassifications	0.7			—			0.7
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.4			0.2
Other comprehensive (loss) income for the three months ended September 30, 2013	0.5			0.4			0.9
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of July 1, 2014	$	3.9		$	(4.4	)	$	(0.5	)
Other comprehensive income (loss) before reclassifications	1.3			—			1.3
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.1			(0.1		)
Other comprehensive income for the three months ended September 30, 2014	1.1			0.1			1.2
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7
Nine Months Ended September 30:
Balance as of January 1, 2013	$	38.0		$	(11.0	)	$	27.0
Other comprehensive (loss) income before reclassifications	(47.8		)	—			(47.8		)
Amounts reclassified from accumulated other comprehensive income	(15.1		)	1.2			(13.9		)
Other comprehensive (loss) income for the nine months ended September 30, 2013	(62.9		)	1.2			(61.7		)
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of January 1, 2014	$	(28.3	)	$	(4.6	)	$	(32.9	)
Other comprehensive income (loss) before reclassifications	35.0			—			35.0
Amounts reclassified from accumulated other comprehensive income	(1.7		)	0.3			(1.4		)
Other comprehensive income for the nine months ended September 30, 2014	33.3			0.3			33.6
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7

The following table shows reclassifications out of accumulated other comprehensive income and the affected line items in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013:

	Three months ended September 30,						Nine months ended September 30,						Affected line item in the Consolidated Statements of Operations
	2014			2013			2014			2013
	(Dollars in millions)
Unrealized gains on investments available-for-sale	$	0.3		$	0.3		$	2.6		$	23.3		Net investment income
	0.3			0.3			2.6			23.3			Total before tax
	0.1			0.1			0.9			8.2			Tax expense
	0.2			0.2			1.7			15.1			Net of tax
Amortization of defined benefit pension items:
Prior-service cost	(0.1		)	(0.1		)	(0.3		)	(0.1		)	(a)
Actuarial gains (losses)	(0.1		)	(0.6		)	(0.2		)	(1.9		)	(a)
	(0.2		)	(0.7		)	(0.5		)	(2.0		)	Total before tax
	(0.1		)	(0.3		)	(0.2		)	(0.8		)	Tax benefit
	(0.1		)	(0.4		)	(0.3		)	(1.2		)	Net of tax
Total reclassifications for the period	$	0.1		$	(0.2	)	$	1.4		$	13.9		Net of tax

_________

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Earnings Per Share

Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted average shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that could occur if stock options were exercised and restricted stock units ("RSUs") and performance share units ("PSUs") were vested) outstanding during the periods presented.

The inclusion or exclusion of common stock equivalents arising from stock options, RSUs and PSUs in the computation of diluted earnings per share is determined using the treasury stock method. For the three months ended September 30, 2014, 1,278,000 shares of common stock equivalents were excluded from the computation of loss per share due to their anti-dilutive effect. For the nine months ended September 30, 2014, 1,122,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, 1,009,000 shares and 903,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share.

For the nine months ended September 30, 2014, an aggregate of 779,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, an aggregate of 812,000 shares and 1,019,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. Stock options expire at various times through August 2018.

In May 2011, our Board of Directors authorized a stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (our "stock repurchase program"). On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program. As of December 31, 2013 and September 30, 2014, the remaining authorization under our stock repurchase program was $280.0 million and $211.0 million respectively. See Note 6 for more information regarding our stock repurchase program.

Goodwill and Other Intangible Assets

We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2014 for our Western Region Operations reporting unit and also re-evaluated the useful lives of our other intangible assets. No goodwill impairment was identified. We also determined that the estimated useful lives of our other intangible assets properly reflected the current estimated useful lives.

The carrying amount of goodwill by reporting unit is as follows:

	Western Region Operations			Total
	(Dollars in millions)
Balance as of December 31, 2013	$	565.9		$	565.9
Goodwill allocated to sale of business (see Note 3)	(7.0		)	(7.0		)
Balance as of September 30, 2014	$	558.9		$	558.9

On November 2, 2014, we signed a definitive master services agreement with Cognizant to provide certain services to us. In connection with this agreement, we have agreed to sell certain software assets and related intellectual property ("software system assets") we own to Cognizant. The transaction, including the related asset sale, is subject to the receipt of required regulatory approvals. See Note 3 for additional information regarding our agreements with Cognizant. Because the sale of these software system assets meets the definition of a sale of a business, as of September 30, 2014, we re-allocated $7 million of goodwill based on fair values of the Western Region Operations reporting unit with and without the impact of the business to be sold. Our measurement of fair values is based on a combination of the discounted total consideration expected to be received in connection with the services and asset sale agreements, income approach based on a discounted cash flow methodology, and replacement cost methodology. After the reallocation of goodwill, we performed a two-step impairment test to determine the existence of any impairment and the amount of the impairment. In the first step, we compared the fair values to the related carrying value and concluded that the carrying value of the business to be sold was impaired; however, we determined that the carrying value of the Western Region Operations reporting unit was not impaired. In the second step, we measured the impairment amount by comparing the implied value of the allocated goodwill to the carrying amount of such goodwill. Based on the results of our Step 2 test, we concluded that the implied value of the goodwill allocated to the business to be sold was zero, which resulted in an impairment charge for the total carrying value of the allocated goodwill of $7 million. See Note 8 for goodwill fair value measurement information.

Due to the many variables inherent in the estimation of a business’s fair value and the relative size of recorded goodwill, changes in assumptions may have a material effect on the results of our impairment test. The discounted cash flows and market participant valuations (and the resulting fair value estimates of the Western Region Operations reporting unit) are sensitive to changes in assumptions including, among others, certain valuation and market assumptions, our ability to adequately incorporate into our premium rates the future costs of premium-based assessments imposed by the ACA, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of California's Coordinated Care Initiative, which includes the dual eligibles demonstration. Changes to any of these assumptions could cause the fair value of our Western Region Operations reporting unit to be below its carrying value. As of September 30, 2014 and June 30, 2013, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 224% and 149%, respectively.

The intangible assets that continue to be subject to amortization using the straight-line method over their estimated lives are as follows:

	Gross Carrying Amount		Accumulated Amortization			Net Balance		Weighted Average Life (in years)
	(Dollars in millions)
As of September 30, 2014:
Provider networks	$	41.5	$	(36.6	)	$	4.9	18.9
Customer relationships and other	29.5		(21.9		)	7.6		11.1
	$	71.0	$	(58.5	)	$	12.5
As of December 31, 2013:
Provider networks	$	40.5	$	(35.7	)	$	4.8	19.4
Customer relationships and other	29.5		(20.5		)	9.0		11.1
	$	70.0	$	(56.2	)	$	13.8

Estimated annual pretax amortization expense for other intangible assets for each of the next five years ending December 31 is as follows (dollars in millions):

Year	Amount
2014	$	3.0
2015	2.8
2016	2.2
2017	2.2
2018	2.1

Restricted Assets

We and our consolidated subsidiaries are required to set aside certain funds that may only be used for certain purposes pursuant to state regulatory requirements. We have discretion as to whether we invest such funds in cash and cash equivalents or other investments. As of September 30, 2014 and December 31, 2013, the restricted cash and cash equivalents balances totaled $0.3 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $23.7 million and $23.8 million as of September 30, 2014 and December 31, 2013, respectively, and are included in investments available-for-sale.

Accounting for Certain Provisions of the ACA

Premium-based Fee on Health Insurers

The ACA mandated significant reforms to various aspects of the U.S. health insurance industry. Among other things, the ACA imposes an annual premium-based fee on health insurers (the "health insurance industry fee") for each calendar year beginning on or after January 1, 2014 which is not deductible for federal income tax purposes and in many state jurisdictions. The healthy insurance industry fee is levied based on a ratio of an insurer's net health insurance premiums written for the previous calendar year compared to the U.S. health insurance industry total. We are required to estimate a liability for our portion of the health insurance industry fee and record it in full once qualifying insurance coverage is provided in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized ratably to expense over the calendar year that it is payable.

In September 2014, we paid the federal government $141.4 million for our portion of the health insurance industry fee in accordance with the ACA. We had recorded a liability for this fee in other current liabilities with an offsetting deferred cost in other current assets in our consolidated financial statements. Our general and administrative expense for the three and nine months ended September 30, 2014 includes amortization of the deferred cost of $31.9 million and $106.1 million, respectively. The balance of the remaining deferred cost asset was approximately $35.3 million as of September 30, 2014.

Public Health Insurance Exchanges

The ACA requires the establishment of state-based, state and federal partnership or federally facilitated health insurance exchanges ("exchanges") where individuals and small groups may purchase health insurance coverage under regulations established by U.S. Department of Health and Human Services ("HHS"). We currently participate in exchanges in Arizona, California and Oregon. Effective January 1, 2014, the ACA includes permanent and temporary premium stabilization provisions for transitional reinsurance, permanent risk adjustment, and temporary risk corridors (collectively referred to as the "3Rs"), which are applicable to those insurers participating inside, and in some cases outside, of the exchanges.

Member Related Components

Member Premium—We receive a monthly premium from members. The member premium, which is fixed for the entire plan year, is recognized evenly over the contract period and reported as part of health plan services premium revenue.

Premium Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of the monthly member premium depending on the member’s income level in relation to the Federal Poverty Level. We recognize the premium subsidy evenly over the contract period and report it as part of health plan services premium revenue.

Cost Sharing Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of a member’s cost sharing amounts (e.g., deductible, co-pay/coinsurance). The amount paid for the member by HHS is dependent on the member’s income level in relation to the Federal Poverty Level. We receive prospective payments on a monthly basis, and they represent a cost reimbursement that is finalized and settled after the end of the year. The cost sharing subsidy is accounted for as deposit accounting.

3Rs: Reinsurance, Risk Adjustment and Risk Corridor

Our accounting estimates are impacted as a result of the provisions of the ACA, including the 3Rs. The substantial influx of previously uninsured individuals into the new health insurance exchanges under the ACA could make it more difficult for health insurers, including us, to establish pricing accurately, at least during the early years of the exchanges. The 3Rs are intended to mitigate some of the risks around pricing and lack of information surrounding the previously uninsured. We will experience premium adjustments to our health plan services premium revenues and health plan services expenses based on changes to our estimated amounts related to the 3Rs, which may be significant at times. Such estimated amounts may differ materially from actual amounts ultimately received or paid under the provisions, which may have a material impact on our consolidated results of operations and financial condition.

Reinsurance—The transitional reinsurance program requires us to make reinsurance contributions for calendar years 2014 through 2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the reinsurance entity, only fully-insured non-grandfathered plans in the individual commercial market will be eligible for recoveries if individual claims exceed a specified threshold. Accordingly, we account for transitional reinsurance contributions associated with all commercial medical health plans other than non-grandfathered individual plans as an assessment in general and administrative expenses in our consolidated statement of income. We account for contributions made by individual commercial plans which are subject to recoveries as contra-health plan services premium revenue, and we account for any recoveries as contra-health plan services expense in our consolidated statements of income with a corresponding current or long-term receivable or payable. We recorded $32.0 million and $142.6 million of reinsurance recovery as contra-health plan services expense for the three and nine months ended September 30, 2014, respectively, and the balance included in other receivables as of September 30, 2014 was $142.6 million.

Risk Adjustment—The risk adjustment provision applies to individual and small group business both within and outside the exchange and requires measurement of the relative health status risk of each insurer’s pool of insured enrollees in a given market. The risk adjustment provision then operates to transfer funds from insurers whose pools of insured enrollees have a lower-than-average risk scores to those insurers whose pools have greater-than-average risk scores. Our estimate for the risk adjustment incorporates our pricing and demographic assumptions, the distribution of our newly enrolled membership in terms of geography, metal tiers, and age bands, and what we believe are the market averages in terms of premium and risk scores. As part of our ongoing estimation process, we consider information as it becomes available at interim dates along with our actuarially determined expectations, and we update our estimates incorporating such information as appropriate.

We estimate and recognize adjustments to our health plan services premium revenue for the risk adjustment provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience. We record receivables and/or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. Our risk adjustment estimate was $17.6 million and $47.7 million for the three and nine months ended September 30, 2014, respectively, and was recorded as a reduction to health plan services premiums. The risk adjustment receivable balance included in other receivables as of September 30, 2014 was $69.9 million and the risk adjustment payable balance included in accounts payable and other liabilities as of September 30, 2014 was $117.6 million.

Risk Corridor—The temporary risk corridor program will be in place for three years and applies to individual and small group business operating both inside and outside of the exchanges. The risk corridor provisions limit health insurers' gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS, and sharing the risk for allowable costs with the federal government. Variances from the target exceeding certain thresholds may result in HHS making additional payments to us or require us to make payments to HHS.

We estimate and recognize adjustments to our health plan services premium revenue for the risk corridor provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience, including changes in risk adjustment and reinsurance recoverables. We record receivables or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. For the three and nine months ended September 30, 2014,we recorded $44.7 million and $72.0 million, respectively, of increases to risk corridor receivable as health plan services premium revenue, and the balance in other noncurrent assets as of September 30, 2014 was $72.0 million.

The final reconciliation and settlement with HHS of the premium and cost sharing subsidies and the amounts related to the 3Rs for the current year will be completed in the following year with HHS.

Section 1202 of ACA

Section 1202 of the ACA mandates increases in Medicaid payment rates for primary care in calendar years 2013 and 2014. The final rule has been in effect since January 1, 2013. The provisions of section 1202 impact our 1.5 million Medi-Cal members in California and 80,000 Medicaid members in Arizona. DHCS, the agency that regulates the Medi-Cal program, initially implemented a reimbursement methodology with no underwriting risk to the managed care plans ("MCPs") in 2013. Subsequently, DHCS changed the reimbursement methodology during the second quarter of 2014, and this change transferred full underwriting risk to the MCPs.

For the periods prior to this reimbursement methodology change, i.e., the year ended December 31, 2013 and the three months ended March 31, 2014, we accounted for the provisions of section 1202 on an administrative services only basis since it transferred no underwriting risk to the MCPs, and recorded the receipts and payments on a net basis.

Following the change in reimbursement methodology, we have full underwriting risk for 2013, including both utilization and unit cost risk. Accordingly, for the second quarter of 2014, with respect to our Medi-Cal business, we had:

• Reversed $7.9 million previously recorded as administrative services fees and other income in 2013 and for the three months ended March 31, 2014.

• Recorded payments on a grossed-up basis by recording Medi-Cal payments received as premium revenue and estimated Medi-Cal claim payments as health care costs (incurred claims), each via retroactive adjustments to premium revenues and health care costs. See the "Three Months Ended June 30, 2014 - Full Risk" column in the table below.

• Recorded retrospective premium revenue adjustments based upon the state settlement agreement (see Note 2 - "Health Plan Services Revenue Recognition" above).

The financial statement impact of the section 1202 reimbursement methodology change is summarized in the table below.

	Recorded In
	Year Ended December 31, 2013		Three Months Ended March 31, 2014		Three Months Ended June 30, 2014
(Dollars in millions)	No Risk		No Risk		Full Risk
Health plan services premiums	$	4.4	$	—	$	154.7
Health plan services expenses	—		—		144.0
General and administrative expenses	4.4		—		—
Administrative services fees and other income	6.5		1.4		(7.9		)
Pretax income	$	6.5	$	1.4	$	2.8

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Stock Repurchase Program (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Mar. 08, 2012	May 02, 2011
Equity, Class of Treasury Stock [Line Items]
Treasury stock value acquired cost method			$ 92,436,000	$ 86,878,000
2011 Stock Repurchase Program [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program authorized amount						323,700,000	300,000,000
Treasury stock shares acquired	1,482,000	0	1,500,000	2,700,000
Treasury stock value acquired cost method	69,000,000		69,000,000	70,000,000
Stock repurchase program remaining authorized repurchase amount	$ 211,000,000		$ 211,000,000		$ 280,000,000	$ 400,000,000

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Significant Accounting Policies (Accumulated Other Comprehensive Income) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (500,000)	$ (35,600,000)	$ (32,867,000)	$ 27,000,000
Other comprehensive income (loss) before reclassifications	1,300,000	700,000	35,000,000	(47,800,000)
Amounts reclassified from accumulated other comprehensive (loss) income	(100,000)	200,000	(1,400,000)	(13,900,000)
Other comprehensive income (loss), net of tax	1,227,000	914,000	33,643,000	(61,679,000)
Ending balance	776,000	(34,700,000)	776,000	(34,700,000)
Unrealized Gains (Losses) on investments available-for-sale [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	3,900,000	(25,400,000)	(28,300,000)	38,000,000
Other comprehensive income (loss) before reclassifications	1,300,000	700,000	35,000,000	(47,800,000)
Amounts reclassified from accumulated other comprehensive (loss) income	(200,000)	(200,000)	(1,700,000)	(15,100,000)
Other comprehensive income (loss), net of tax	1,100,000	500,000	33,300,000	(62,900,000)
Ending balance	5,000,000	(24,900,000)	5,000,000	(24,900,000)
Defined Benefit Pension Plans [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(4,400,000)	(10,200,000)	(4,600,000)	(11,000,000)
Other comprehensive income (loss) before reclassifications	0	0	0	0
Amounts reclassified from accumulated other comprehensive (loss) income	100,000	400,000	300,000	1,200,000
Other comprehensive income (loss), net of tax	100,000	400,000	300,000	1,200,000
Ending balance	$ (4,300,000)	$ (9,800,000)	$ (4,300,000)	$ (9,800,000)

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Significant Accounting Policies (Concentration of Credit Risk) (Details) (Government Contracts Concentration Risk [Member])	9 Months Ended
	Sep. 30, 2014
Government Contracts Concentration Risk [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	96.00%

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Financing Arrangements (Revolving Credit Facility and Letters of Credit) (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Oct. 31, 2011
Debt Instrument [Line Items]
Maximum amount available for borrowing under the revolving credit facility			$ 600,000,000
Line of credit facility, maturity date	Oct. 24, 2016
Additional borrowing capacity			200,000,000
Revolving credit facility outstanding balance	100,000,000
Revolving credit facility, remaining capacity	491,300,000	492,500,000
Line of credit default limit	50,000,000
Limit of uninsured judgment not stayed within 60 days	50,000,000
Limit of uninsured judgment not stayed, period (in days)	60 days
Standby Letters of Credit [Member]
Debt Instrument [Line Items]
Revolving credit facility, borrowing capacity			400,000,000
Letter of Credit [Member]
Debt Instrument [Line Items]
Maximum amount available for borrowing under the revolving credit facility			400,000,000
Outstanding letters of credit	8,700,000	7,500,000
Amounts drawn on letters of credit	0	0
Bridge Loan [Member]
Debt Instrument [Line Items]
Maximum amount available for borrowing under the revolving credit facility			$ 50,000,000
Line of Credit [Member]
Debt Instrument [Line Items]
Debt instrument basis description	a) the base rate (which is a rate per annum equal to the greatest of (i) the federal funds rate plus one-half of one percent, (ii) Bank of America, N.A.’s “prime rate” and (iii) the Eurodollar Rate (as such term is defined in the credit facility) for a one-month interest period plus one percent) plus an applicable margin ranging from 45 to 105 basis points or (b) the Eurodollar Rate plus an applicable margin ranging from 145 to 205 basis points
Line of Credit [Member] | Federal Funds [Member] | Variable Base Rate A [Member]
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate (as a percentage)	0.50%
Line of Credit [Member] | Eurodollar Rate Plus 45 to 105 Basis Points [Member] | Variable Base Rate A [Member]
Debt Instrument [Line Items]
Debt instrument, basis spread (as a percentage)	1.00%
Interest period on credit facility (in months)	1 month
Line of Credit [Member] | Eurodollar Rate Plus 45 to 105 Basis Points [Member] | Variable Base Rate A [Member] | Minimum [Member]
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate (as a percentage)	0.45%
Line of Credit [Member] | Eurodollar Rate Plus 45 to 105 Basis Points [Member] | Variable Base Rate A [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate (as a percentage)	1.05%
Line of Credit [Member] | Eurodollar Rate Plus 145 to 205 Basis Points [Member] | Variable Base Rate B [Member] | Minimum [Member]
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate (as a percentage)	1.45%
Line of Credit [Member] | Eurodollar Rate Plus 145 to 205 Basis Points [Member] | Variable Base Rate B [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate (as a percentage)	2.05%

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Significant Accounting Policies (Reclassifications Out of Accumulated Other Comprehensive Income) (Details) (USD $)	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income from operations before income taxes	$ 22,723,000		$ 108,580,000		$ 183,485,000		$ 241,911,000
Tax expense (benefit)	31,662,000		41,740,000		42,770,000		91,538,000
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net of tax	100,000		(200,000)		1,400,000		13,900,000
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized gains (losses) on investments available-for-sale [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Unrealized gains (losses) on investments available-for-sale	300,000		300,000		2,600,000		23,300,000
Income from operations before income taxes	300,000		300,000		2,600,000		23,300,000
Tax expense (benefit)	100,000		100,000		900,000		8,200,000
Net of tax	200,000		200,000		1,700,000		15,100,000
Reclassification out of Accumulated Other Comprehensive Income [Member] | Amortization of defined benefit pension items [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Prior-service cost	(100,000)	[1]	(100,000)	[1]	(300,000)	[1]	(100,000)	[1]
Actuarial gains (losses)	(100,000)	[1]	(600,000)	[1]	(200,000)	[1]	(1,900,000)	[1]
Income from operations before income taxes	(200,000)		(700,000)		(500,000)		(2,000,000)
Tax expense (benefit)	(100,000)		(300,000)		(200,000)		(800,000)
Net of tax	$ (100,000)		$ (400,000)		$ (300,000)		$ (1,200,000)

[1] These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

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Significant Accounting Policies (Earnings Per Share) (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 2011 Stock Repurchase Program [Member]	Dec. 31, 2013 2011 Stock Repurchase Program [Member]	Mar. 08, 2012 2011 Stock Repurchase Program [Member]	May 02, 2011 2011 Stock Repurchase Program [Member]
Significant Accounting Policies [Line Items]
Common stock equivalents (in shares)		1,009,000	1,122,000	903,000
Anti-dilutive securities excluded from computation of diluted earnings per share (in shares)	1,278,000	812,000	779,000	1,019,000
Stock repurchase program authorized amount							$ 323.7	$ 300.0
Stock repurchase program remaining authorized repurchase amount					$ 211.0	$ 280.0	$ 400.0

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Basis of Presentation

9 Months Ended

Sep. 30, 2014

Basis of Presentation [Abstract]

Basis of Presentation

BASIS OF PRESENTATION

Health Net, Inc. prepared the accompanying unaudited consolidated financial statements following the rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting. In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries. As permitted under those rules and regulations, certain notes or other financial information that are normally required by accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted if they substantially duplicate the disclosures contained in the annual audited financial statements. The accompanying unaudited consolidated financial statements should be read together with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 ("Form 10-K").

We are responsible for the accompanying unaudited consolidated financial statements. These consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results in accordance with GAAP. In accordance with GAAP, we make certain estimates and assumptions that affect the reported amounts. Actual results could differ from those estimates and assumptions. In addition, revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for the full year.

On November 2, 2014, we signed a definitive master services agreement with Cognizant Healthcare Services, LLC, a wholly owned subsidiary of Cognizant Technology Solutions Corporation ("Cognizant") to provide certain services to us. In connection with this agreement, we have also entered into an asset purchase agreement pursuant to which we have agreed to sell certain software assets and related intellectual property we own to Cognizant. The transaction, including the related asset sale, is subject to receipt of required regulatory approvals. As of September 30, 2014, we have classified $50.0 million, at fair value less cost to sell, in assets as assets held for sale. See Note 3 for additional information about our agreement with Cognizant and the assets held for sale.

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Significant Accounting Policies (Goodwill and Other Intangible Assets) (Details) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended		3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Provider Networks [Member]	Dec. 31, 2013 Provider Networks [Member]	Sep. 30, 2014 Customer Relationships and Other [Member]	Dec. 31, 2013 Customer Relationships and Other [Member]	Sep. 30, 2014 Western Region Operations [Member]	Sep. 30, 2013 Western Region Operations [Member]	Sep. 30, 2014 Goodwill [Member]
Goodwill [Line Items]
Goodwill, beginning of the period			$ 565,886,000							$ 565,900,000
Goodwill allocated to sale of business (see Note 3)										(7,000,000)
Asset Impairment Charges	84,690,000	0	84,690,000	0								7,000,000
Goodwill, end of the period	558,886,000		558,886,000							558,900,000
Ratio of fair value to carrying value										224.00%	149.00%
Finite-Lived Intangible Assets
Gross Carrying Amount	71,000,000		71,000,000		70,000,000	41,500,000	40,500,000	29,500,000	29,500,000
Accumulated Amortization	(58,500,000)		(58,500,000)		(56,200,000)	(36,600,000)	(35,700,000)	(21,900,000)	(20,500,000)
Net Balance	12,500,000		12,500,000		13,800,000	4,900,000	4,800,000	7,600,000	9,000,000
Weighted Average Life (in years)						18 years 10 months 24 days	19 years 4 months 24 days	11 years 1 month 6 days	11 years 1 month 6 days
Future Amortization Expense, Current to Five Succeeding Fiscal Years
2014	3,000,000		3,000,000
2015	2,800,000		2,800,000
2016	2,200,000		2,200,000
2017	2,200,000		2,200,000
2018	$ 2,100,000		$ 2,100,000

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Investments (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Investments [Abstract]
Losses from other-than-temporary impairments	$ 0	$ 0	$ 0	$ 0
Carrying Value, Noncurrent	3,055,000		3,055,000		59,768,000
Proceeds from sales of investments available-for-sale	104,600,000	80,400,000	296,878,000	653,786,000
Gross realized gains	1,000,000	1,000,000	4,400,000	25,500,000
Gross realized losses	$ 600,000	$ 700,000	$ 1,800,000	$ 2,200,000

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Consolidated Statements Of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues
Health plan services premiums	$ 3,631,617	$ 2,606,754	$ 9,774,840	$ 7,817,697
Government contracts	146,183	149,342	444,356	423,796
Net investment income	10,964	11,276	34,109	57,970
Administrative services fees and other income	1,106	7,659	(3,108)	11,036
Total revenues	3,789,870	2,775,031	10,250,197	8,310,499
Expenses
Health plan services (excluding depreciation and amortization)	3,104,010	2,196,561	8,269,531	6,657,215
Government contracts	124,403	125,334	389,585	378,209
General and administrative	373,623	267,683	1,079,380	804,355
Selling	66,111	59,498	194,265	175,828
Depreciation and amortization	6,500	9,402	25,804	28,355
Interest	7,810	7,973	23,457	24,626
Asset Impairment Charges	84,690	0	84,690	0
Total expenses	3,767,147	2,666,451	10,066,712	8,068,588
Income from operations before income taxes	22,723	108,580	183,485	241,911
Income tax provision	31,662	41,740	42,770	91,538
Net (loss) income	$ (8,939)	$ 66,840	$ 140,715	$ 150,373
Net (loss) income per share:
Basic	$ (0.11)	$ 0.84	$ 1.76	$ 1.89
Diluted	$ (0.11)	$ 0.83	$ 1.73	$ 1.87
Weighted average shares outstanding:
Basic	80,235	79,432	80,096	79,436
Diluted	80,235	80,441	81,218	80,339

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Financing Arrangements (Senior Notes) (Details) (USD $)			0 Months Ended	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	May 18, 2007 6.375% Senior Notes [Member]	Sep. 30, 2014 6.375% Senior Notes [Member]	Sep. 30, 2014 Change in Control and Below Investment Grade Rating [Member] 6.375% Senior Notes [Member]
Debt Instrument [Line Items]
Debt instrument, aggregate principal amount			$ 400,000,000
Debt instrument, stated interest rate (as a percentage)			6.375%
Debt instrument, maturity date			Jun. 01, 2017
Debt Instrument, Redemption Price (as a percentage)				100.00%	101.00%
Default on senior notes				0
Number of days in year per debt terms				360 days
Number of months in year per debt terms				12 months
Number of days in month, per debt terms				30 days
Debt instrument, benchmark for variable rate basis				Treasury rate
Treasury rate basis points (as a percentage)				0.30%
Senior note, failure to perform covenant				60 days
Senior note, grace period for defaulted payment				30 days
Threshold for noncompliance				50,000,000
Accelerated principal amount threshold				50,000,000
Senior notes amount	$ 399,453,000	$ 399,300,000

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Consolidated Statements Of Stockholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Common Stock Held In Treasury [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Dec. 31, 2012	$ 1,557,030	$ 149	$ 1,329,000	$ (2,092,625)	$ 2,293,522	$ 26,984
Balance, shares at Dec. 31, 2012		148,727,000		(67,426,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	150,373				150,373
Other comprehensive income (loss), net of tax	(61,679)					(61,679)
Exercise of stock options and vesting of restricted stock units	19,951	1	19,950
Exercise of stock options and vesting of restricted stock units, shares		1,466,000
Share-based compensation expense	23,388		23,388
Tax benefit (detriment) related to equity compensation plans	(1,594)		(1,594)
Repurchases of common stock	(86,878)			(86,878)
Repurchases of common stock, shares				(3,270,000)
Balance at Sep. 30, 2013	1,600,591	150	1,370,744	(2,179,503)	2,443,895	(34,695)
Balance, shares at Sep. 30, 2013		150,193,000		(70,696,000)
Balance at Dec. 31, 2013	1,628,811	150	1,377,624	(2,179,744)	2,463,648	(32,867)
Balance, shares at Dec. 31, 2013		150,224,000		(70,704,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	140,715				140,715
Other comprehensive income (loss), net of tax	33,643					33,643
Exercise of stock options and vesting of restricted stock units	31,499	2	31,497
Exercise of stock options and vesting of restricted stock units, shares		2,052,000
Share-based compensation expense	21,809		21,809
Tax benefit (detriment) related to equity compensation plans	1,583		1,583
Repurchases of common stock	(92,436)			(92,436)
Repurchases of common stock, shares				(2,143,000)
Balance at Sep. 30, 2014	$ 1,765,624	$ 152	$ 1,432,513	$ (2,272,180)	$ 2,604,363	$ 776
Balance, shares at Sep. 30, 2014		152,276,000		(72,847,000)

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Assets Held for Sale (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Long Lived Assets Held-for-sale [Line Items]
Asset Impairment Charges	$ 84,690,000	$ 0	$ 84,690,000	$ 0
Property and equipment, net	50,000,000		50,000,000
Goodwill	0		0
Assets held for sale	50,000,000		50,000,000		0
Cognizant Technology Solutions [Member]
Long Lived Assets Held-for-sale [Line Items]
Sale price of assets per asset sale agreement	50,000,000		50,000,000
Property, Plant and Equipment [Member]
Long Lived Assets Held-for-sale [Line Items]
Asset Impairment Charges	77,700,000
Goodwill [Member]
Long Lived Assets Held-for-sale [Line Items]
Asset Impairment Charges	7,000,000
Assets Held-for-sale [Member]
Long Lived Assets Held-for-sale [Line Items]
Property, Plant and Equipment, Transfers and Changes	127,700,000
Goodwill allocated to sale of business	7,000,000
Disposal Group, Including Discontinued Operation, Long Lived Assets, Current	$ 134,700,000		$ 134,700,000

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Investments (Tables)

9 Months Ended

Sep. 30, 2014

Investments [Abstract]

Fair Value of Investments Available-for-Sale

As of September 30, 2014 and December 31, 2013, the amortized cost, gross unrealized holding gains and losses, and fair value of our current investments available-for-sale and our investments available-for-sale-noncurrent, after giving effect to other-than-temporary impairments, were as follows:

	September 30, 2014
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	400.3	$	2.8	$	(4.2	)	$	398.9
U.S. government and agencies	23.6		—		—			23.6
Obligations of states and other political subdivisions	698.3		13.9		(3.1		)	709.1
Corporate debt securities	534.3		2.7		(3.8		)	533.2
	$	1,656.5	$	19.4	$	(11.1	)	$	1,664.8
Noncurrent:
Asset-backed securities	$	0.8	$	—	$	(0.2	)	$	0.6
Corporate debt securities	2.8		—		(0.3		)	2.5
	$	3.6	$	—	$	(0.5	)	$	3.1

	December 31, 2013
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	394.7	$	3.4	$	(8.7	)	$	389.4
U.S. government and agencies	23.7		—		—			23.7
Obligations of states and other political subdivisions	734.3		5.9		(30.3		)	709.9
Corporate debt securities	449.8		3.6		(9.4		)	444.0
	$	1,602.5	$	12.9	$	(48.4	)	$	1,567.0
Noncurrent:
Asset-backed securities	$	1.3	$	—	$	(0.2	)	$	1.1
Obligations of states and other political subdivisions	53.4		—		(6.3		)	47.1
Corporate debt securities	13.2		—		(1.6		)	11.6
	$	67.9	$	—	$	(8.1	)	$	59.8

Available-for-Sale Current Investments Classified by Contractual Maturity Date

As of September 30, 2014, the contractual maturities of our current investments available-for-sale and our investments available-for-sale-noncurrent were as follows:

	Amortized Cost		Estimated Fair Value
Current:	(Dollars in millions)
Due in one year or less	$	49.1	$	49.2
Due after one year through five years	347.8		349.6
Due after five years through ten years	435.3		438.8
Due after ten years	424.0		428.3
Asset-backed securities	400.3		398.9
Total current investments available-for-sale	$	1,656.5	$	1,664.8
	Amortized Cost		Estimated Fair Value
Noncurrent:	(Dollars in millions)
Due after five years through ten years	2.8		2.5
Asset-backed securities	0.8		0.6
Total noncurrent investments available-for-sale	$	3.6	$	3.1

Schedule of Unrealized Loss on Investments

The following table shows our current investments’ fair values and gross unrealized losses for individual securities that have been in a continuous loss position through December 31, 2013:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	225.3	$	(7.9	)	$	22.5	$	(0.8	)	$	247.8	$	(8.7	)
U.S. government and agencies	4.0		—			—		—			4.0		—
Obligations of states and other political subdivisions	453.5		(23.5		)	79.7		(6.8		)	533.2		(30.3		)
Corporate debt securities	242.8		(9.0		)	6.7		(0.4		)	249.5		(9.4		)
	$	925.6	$	(40.4	)	$	108.9	$	(8.0	)	$	1,034.5	$	(48.4	)

The following table shows the fair values and gross unrealized losses for our individual securities-noncurrent that have been in a continuous loss position through December 31, 2013:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	0.5	$	(0.1	)	$	0.7	$	(0.1	)	$	1.2	$	(0.2	)
Obligations of states and other political subdivisions	17.4		(2.2		)	29.6		(4.1		)	47.0		(6.3		)
Corporate debt securities	7.5		(0.9		)	4.1		(0.7		)	11.6		(1.6		)
	$	25.4	$	(3.2	)	$	34.4	$	(4.9	)	$	59.8	$	(8.1	)

The following table shows our current investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	82.1	$	(0.4	)	$	148.0	$	(3.8	)	$	230.1	$	(4.2	)
Obligations of states and other political subdivisions	7.8		(0.1		)	169.0		(3.0		)	176.8		(3.1		)
Corporate debt securities	223.8		(1.9		)	68.5		(1.9		)	292.3		(3.8		)
	$	313.7	$	(2.4	)	$	385.5	$	(8.7	)	$	699.2	$	(11.1	)

The following table shows our noncurrent investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	—	$	—		$	0.6	$	(0.2	)	$	0.6	$	(0.2	)
Corporate debt securities	0.5		(0.1		)	2.0		(0.2		)	2.5		(0.3		)
	$	0.5	$	(0.1	)	$	2.6	$	(0.4	)	$	3.1	$	(0.5	)

Number of Securities Included in Loss Position of Current Investments

The following table shows the number of our individual securities-current that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	51	58	109
Obligations of states and other political subdivisions	6	85	91
Corporate debt securities	228	75	303
	285	218	503

The following table shows the number of our individual securities-noncurrent that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	—	1	1
Corporate debt securities	1	2	3
	1	3	4

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Segment Information (Segment Information) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Segment Reporting Information [Line Items]
Revenues	$ 3,789,870	$ 2,775,031	$ 10,250,197	$ 8,310,499
Pretax income	22,723	108,580	183,485	241,911
Intersegment [Member]
Segment Reporting Information [Line Items]
Revenues	0	0	0	0
Western Region Operations [Member]
Segment Reporting Information [Line Items]
Revenues	3,643,700	2,625,700	9,805,800	7,886,700
Pretax income	105,900	85,200	239,600	204,300
Western Region Operations [Member] | Intersegment [Member]
Segment Reporting Information [Line Items]
Revenues	3,100	2,700	9,200	8,400
Government Contracts [Member]
Segment Reporting Information [Line Items]
Revenues	146,200	149,300	444,400	423,800
Pretax income	22,600	23,500	57,100	50,600
Government Contracts [Member] | Intersegment [Member]
Segment Reporting Information [Line Items]
Revenues	0	0	0	0
Corporate/Other/Eliminations [Member]
Segment Reporting Information [Line Items]
Revenues	0	0	0	0
Pretax income	(105,800)	(100)	(113,200)	(13,000)
Corporate/Other/Eliminations [Member] | Intersegment [Member]
Segment Reporting Information [Line Items]
Revenues	$ (3,100)	$ (2,700)	$ (9,200)	$ (8,400)

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Basis of Presentation (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Significant Acquisitions and Disposals [Line Items]
Assets held for sale	$ 50,000	$ 0

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 140,715	$ 150,373
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization and depreciation	25,804	28,355
Asset Impairment Charges	84,690	0
Share-based compensation expense	21,809	23,388
Deferred income taxes	(34,755)	18,321
Excess tax benefit on share-based compensation	(1,595)	(451)
Net realized (gain) loss on investments	(2,582)	(23,306)
Other changes	23,190	23,564
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Premiums receivable and unearned premiums	(148,109)	7,800
Other current assets, receivables and noncurrent assets	(251,479)	25,953
Amounts receivable/payable under government contracts	45,966	31,064
Reserves for claims and other settlements	749,232	(47,778)
Accounts payable and other liabilities	232,777	(69,558)
Net cash provided by (used in) operating activities	885,663	167,725
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments	296,878	653,786
Maturities of investments	64,743	72,810
Purchases of investments	(361,451)	(652,044)
Purchases of property and equipment	(48,395)	(42,596)
Sales (purchases) of restricted investments and other	2,762	(4,697)
Net cash (used in) provided by investing activities	(45,463)	27,259
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock purchases	21,417	10,642
Excess tax benefit on share-based compensation	1,595	451
Repurchases of common stock	(69,686)	(77,569)
Borrowings under financing arrangements	0	323,000
Repayment of borrowings under financing arrangements	0	(323,000)
Net increase (decrease) in checks outstanding, net of deposits	0	(23,842)
Customer funds administered	(112,123)	241,363
Net cash (used in) provided by financing activities	(158,797)	151,045
Net increase (decrease) in cash and cash equivalents	681,403	346,029
Cash and cash equivalents, beginning of period	433,155	340,110
Cash and cash equivalents, end of period	1,114,558	686,139
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	15,948	16,741
Income taxes paid	$ 63,635	$ 46,031

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (8,939)	$ 66,840	$ 140,715	$ 150,373
Unrealized gains (losses) on investments available-for-sale:
Unrealized holding gains (losses) arising during the period	2,103	1,074	54,011	(73,779)
Less: Reclassification adjustments for gains included in earnings	(346)	(370)	(2,582)	(23,306)
Unrealized gains (losses) on investments available-for-sale, net	1,757	704	51,429	(97,085)
Defined benefit pension plans:
Prior service cost arising during the period	0	0	0	0
Net loss arising during the period	0	0	0	0
Less: Amortization of prior service cost and net loss included in net periodic pension cost	150	643	450	1,929
Defined benefit pension plans, net	150	643	450	1,929
Other comprehensive income (loss) before tax	1,907	1,347	51,879	(95,156)
Income tax expense (benefit) related to components of other comprehensive income	680	433	18,236	(33,477)
Other comprehensive income (loss), net of tax	1,227	914	33,643	(61,679)
Comprehensive (loss) income	$ (7,712)	$ 67,754	$ 174,358	$ 88,694

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Income Taxes

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The effective income tax rate from operations was 139.3% and 38.4% for the three months ended September 30, 2014 and 2013, respectively, and 23.3% and 37.8% for the nine months ended September 30, 2014 and 2013, respectively. For the three and nine months ended September 30, 2014, our effective tax rate was impacted by the health insurer fee which became effective under the ACA. Our 2014 health insurance industry fee payment of $141.4 million was not deductible for federal income tax purposes and in many state jurisdictions. The health insurance industry fee is effective for calendar years beginning after December 31, 2013 and was paid in September 2014. See Note 2, under the heading "Accounting for Certain Provisions of the ACA—Premium-based Fee on Health Insurers" for additional information regarding the health insurance industry fee. Other items which cause our effective tax rate to differ from the statutory federal tax rate of 35% for the three and nine months ended September 30, 2014 include state income taxes, tax-exempt interest and non-deductible compensation.

During the three months ended June 30, 2014, we recorded a $72.6 million tax benefit, net of adjustments to our reserve for uncertain tax benefits, as a result of a worthless stock loss. The loss was incurred with respect to the stock of Health Net of the Northeast, Inc., the former parent company of subsidiaries sold to United Health Group in 2009. The amount and character of the loss could be challenged by the taxing authorities, and as such, we increased our reserve for uncertain tax positions by $11.0 million related to this transaction as of June 30, 2014. During the three months ended September 30, 2014, we increased our reserve for uncertain tax positions by an additional $7.3 million due to adjustments to our claims reserves, the deductibility of a portion of which in the period may be challenged by the taxing authorities.

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Document and Entity Information Document	9 Months Ended
	Sep. 30, 2014	Oct. 29, 2014	Dec. 31, 2013
Entity Information [Line Items]
Entity Registrant Name	Health Net Inc
Entity Central Index Key	0000916085
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		77,919,424
Treasury Stock, Shares	72,847,000	74,368,703	70,704,000

XML

Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2014

Summary of Significant Accounting Policies [Abstract]

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash equivalents include all highly liquid investments with maturity of three months or less when purchased. We had no checks outstanding, net of deposits as of September 30, 2014 and December 31, 2013. Checks outstanding, net of deposits are classified as accounts payable and other liabilities in the consolidated balance sheets and the changes are reflected in the line item net increase (decrease) in checks outstanding, net of deposits within the cash flows from financing activities in the consolidated statements of cash flows.

Investments

Investments

Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net of income tax effects. The cost of investments sold is determined in accordance with the specific identification method and realized gains and losses are included in net investment income. We analyze all debt investments that have unrealized losses for impairment consideration and assess the intent to sell such securities. If such intent exists, impaired securities are considered other-than-temporarily impaired. Management also assesses if we may be required to sell the debt investments prior to the recovery of amortized cost, which may also trigger an impairment charge. If securities are considered other-than-temporarily impaired based on intent or ability, we assess whether the amortized costs of the securities can be recovered. If management anticipates recovering an amount less than the amortized cost of the securities, an impairment charge is calculated based on the expected discounted cash flows of the securities. Any deficit between the amortized cost and the expected cash flows is recorded through earnings as a charge. All other temporary impairment changes are recorded through other comprehensive income. During the three and nine months endedSeptember 30, 2014 and 2013, respectively, no losses were recognized from other-than-temporary impairments.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The estimated fair value amounts of cash equivalents, investments available-for-sale, premiums and other receivables, notes receivable and notes payable have been determined by using available market information and appropriate valuation methodologies. The carrying amounts of cash equivalents approximate fair value due to the short maturity of those instruments. Fair values for debt and equity securities are generally based upon quoted market prices. Where quoted market prices were not readily available, fair values were estimated using valuation methodologies based on available and observable market information. Such valuation methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. The carrying value of premiums and other receivables, long-term notes receivable and nonmarketable securities approximates the fair value of such financial instruments. The fair value of notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt with the same remaining maturities. The fair value of our fixed-rate borrowings was $436.0 million and $434.5 million as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $100.0 million, respectively. The fair value of our fixed-rate borrowings was determined using the quoted market price, which is a Level 1 input in the fair value hierarchy. The fair value of our variable-rate borrowings was estimated to equal the carrying value because the interest rates paid on these borrowings were based on prevailing market rates. Since the pricing inputs are other than quoted prices and fair value is determined using an income approach, our variable-rate borrowings are classified as a Level 2 in the fair value hierarchy. See Notes 7 and 8 for additional information regarding our financing arrangements and fair value measurements, respectively.

Health Plan Services Revenue Recognition

Health Plan Services Revenue Recognition

Health plan services premium revenues generally include HMO, POS and PPO premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide care to Medicaid recipients, and revenue underd Medicare risk contracts to provide care to enrolled Medicare recipients. Revenue is recognized in the month in which the related enrollees are entitled to health care services. Premiums collected in advance of the month in which enrollees are entitled to health care services are recorded as unearned premiums.

Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), commercial health plans with medical loss ratios ("MLR") on fully insured products, as calculated as set forth in the ACA, that fall below certain targets are required to rebate ratable portions of their premiums annually. We classify the estimated rebates, if any, as a reduction to Health plan services premiums in our consolidated statement of operations. Estimated rebates for our commercial health plans were $0 for the three and nine months ended September 30, 2014. In addition to the rebates for the commercial health plans under the ACA, there is also a medical loss ratio corridor for the California Department of Health Care Services ("DHCS") adult Medicaid expansion members under the state Medicaid program in California ("Medi-Cal"). If our MLR for this population is below 85%, then we would have to pay DHCS a rebate. If the MLR is above 95%, then DHCS would have to pay us additional premium. As of September 30, 2014, we have accrued $45.3 million for a MLR rebate with respect to this population payable to DHCS. Accordingly, for the three months ended September 30, 2014, we reduced Medicaid premium revenue by $45.3 million, though no amounts will be paid prior to issuance of final regulations on this program. Our Medicaid contract with the state of Arizona contains profit-sharing or profit ceiling provisions. Because our Arizona Medicaid profits were in excess of the amount we are allowed to fully retain, we reduced Medicaid premium revenue by $11.9 million. In addition, certain provisions of the ACA became effective January 1, 2014, including an annual insurance industry premium-based assessment and the establishment of federally facilitated, state and federal partnership or state-based health insurance exchanges coupled with premium stabilization programs. See below in this Note 2 under the heading "Accounting for Certain Provisions of the ACA" for additional information.

Our Medicare Advantage contracts are with the Centers for Medicare & Medicaid Services ("CMS"). CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. This risk adjustment model results in periodic changes in our risk factor adjustment scores for certain diagnostic codes, which then result in changes to our health plan services premium revenues. Because the recorded revenue is based on our best estimate at the time, the actual payment we receive from CMS for risk adjustment reimbursement settlements may be materially different than the amounts we have initially recognized on our financial statements. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2014 decreased health plan services premium revenues by $5.5 million and increased health plan services premium revenues by $14.5 million, respectively. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2013 increased health plan services premium revenues by $1.0 million and decreased health plan services revenues by $8.5 million, respectively.

Our revenue from the Medi-Cal program, including seniors and persons with disabilities ("SPD") programs, and other state-sponsored health programs are subject to certain retroactive rate adjustments based on expected and actual health care costs. For the three and nine months ended September 30, 2014, retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2014 were not significant. For the three and nine months ended September 30, 2013, we recognized $32.1 million and $74.3 million, respectively, of premium revenue as a result of retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2013.

In addition, our state-sponsored health care programs in California, including Medi-Cal, SPD programs, the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medicaid expansion under federal health care reform, are subject to retrospective premium adjustments based on certain risk sharing provisions included in our state-sponsored health plans rate settlement agreement described below. We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets.

On November 2, 2012, we entered into a state-sponsored health plans rate settlement agreement (the "Agreement") with the DHCS to settle historical rate disputes with respect to our participation in the Medi-Cal program, for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS agreed, among other things, to (1) an extension of all of our Medi-Cal managed care contracts existing as of the date of the Agreement for an additional five years from their then existing expiration dates; (2) retrospective premium adjustments on all of our state-sponsored health care programs, including Medi-Cal, SPDs, our participation in the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medi-Cal expansion populations (our “state-sponsored health care programs”), which are tracked in a settlement account as discussed in more detail below; and (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early.

Effective January 1, 2013, the settlement account (the "Account") was established with an initial balance of zero. The balance in the Account is adjusted annually to reflect retrospective premium adjustments for each calendar year (referenced in the Agreement as a "deficit" or "surplus"). A deficit or surplus will result to the extent our actual pretax margin (as defined in the Agreement) on our state-sponsored health care programs is below or above a predetermined pretax margin target. The amount of any deficit or surplus is calculated as described in the Agreement. Cash settlement of the Account will occur on December 31, 2019, except that under certain circumstances the DHCS may extend the final settlement for up to three additional one-year periods (as may be extended, the "Term"). In addition, the DHCS will make an interim partial settlement payment to us if it terminates any of our state-sponsored health care programs contracts early. Upon expiration of the Term, if the Account is in a surplus position, then no monies are owed to either party. If the Account is in a deficit position, then DHCS shall pay the amount of the deficit to us. In no event, however, shall the amount paid by DHCS to us under the Agreement exceed $264 million or be less than an alternative minimum amount as defined in the Agreement.

We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets. As of September 30, 2014, we had calculated a surplus of $7.5 million and reduced our receivable to zero, reflecting our cumulative estimated retrospective premium adjustment to the Account based on our actual pretax margin for the period beginning on January 1, 2013 and ending on September 30, 2014. As a surplus Account position results in no monies due to either party upon expiration of the Term, we have no receivable and no payable recorded as of September 30, 2014 in connection with the Agreement. As of December 31, 2013, we had calculated and recorded a deficit of $62.9 million, net of a valuation discount in the amount of $4.4 million, reflecting our estimated retrospective premium adjustment to the Account based on our actual pretax margin for the year ended December 31, 2013. As a result of the change in the Account balance calculated during the three and nine months ended September 30, 2014, our health plan services premium revenue was reduced by $9.6 million and $62.9 million for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, we had recorded increases in our health plan services premium revenue of $16.3 million and $51.7 million, respectively, as a result of the deficit calculated under the state settlement agreement as of September 30, 2013.

Health Plan Services Health Care Cost

Health Plan Services Health Care Cost

The cost of health care services is recognized in the period in which services are provided and includes an estimate of the cost of services that have been incurred but not yet reported. Such costs include payments to primary care physicians, specialists, hospitals and outpatient care facilities, and the costs associated with managing the extent of such care. Our health care cost also can include from time to time remediation of certain claims as a result of periodic reviews by various regulatory agencies.

We estimate the amount of the provision for health care service costs incurred but not yet reported ("IBNR") in accordance with GAAP and using standard actuarial developmental methodologies based upon historical data including the period between the date services are rendered and the date claims are received and paid, denied claim activity, expected medical cost inflation, seasonality patterns and changes in membership, among other things.

Our IBNR best estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. This provision for adverse deviation is intended to capture the potential adverse development from known environmental factors such as our entry into new geographical markets, changes in our geographic or product mix, the introduction of new customer populations, variation in benefit utilization, disease outbreaks, changes in provider reimbursement, fluctuations in medical cost trend, variation in claim submission patterns and variation in claims processing speed and payment patterns, changes in technology that provide faster access to claims data or change the speed of adjudication and settlement of claims, variability in claims inventory levels, non-standard claims development, and/or exceptional situations that require judgmental adjustments in setting the reserves for claims.

We consistently apply our IBNR estimation methodology from period to period. Our IBNR best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known to us, we adjust our assumptions accordingly to change our estimate of IBNR. Therefore, if moderately adverse conditions do not occur, evidenced by more complete claims information in the following period, then our prior period estimates will be revised downward, resulting in favorable development. However, any favorable prior period reserve development would increase current period net income only to the extent that the current period provision for adverse deviation is less than the benefit recognized from the prior period favorable development. If moderately adverse conditions occur and are more acute than we estimated, then our prior period estimates will be revised upward, resulting in unfavorable development, which would decrease current period net income. For the three months ended September 30, 2014, we had $9.7 million in net unfavorable reserve developments related to prior years. For the nine months ended September 30, 2014, we had $16.9 million in net favorable reserve developments related to prior years. The amount for the three months ended September 30, 2014 consisted of $10.4 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $0.7 million of the provision for adverse deviation held at December 31, 2013. The amount for the nine months ended September 30, 2014 consisted of $34.5 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $51.4 million of the provision for adverse deviation held at December 31, 2013. We believe that the $10.4 million and $34.5 million unfavorable developments for the three and nine months ended September 30, 2014, respectively, were primarily due to unanticipated benefit utilization in our commercial business arising from dates of service in the fourth quarter of 2013 as a result of an uncertain environment related to the ACA. As part of our best estimate for IBNR, the provision for adverse deviation recorded as of September 30, 2014 and December 31, 2013 were $77.0 million and $53.4 million, respectively. For the three and nine months ended September 30, 2013, the reserve developments related to prior years, when considered together with the provision for adverse deviation recorded as of September 30, 2013, did not have a material impact on our operating results or financial condition.

The majority of the IBNR reserve balance held at each quarter-end is associated with the most recent months' incurred services because these are the services for which the fewest claims have been paid. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months' incurred services. Revised estimates for prior periods are determined in each quarter based on the most recent updates of paid claims for prior periods. Estimates for service costs incurred but not yet reported are subject to the impact of changes in the regulatory environment, economic conditions, changes in claims trends, and numerous other factors. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts estimated.

Government Contracts

Government Contracts

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. On March 15, 2014, the Department of Defense exercised the last of these options, which extended the T-3 contract through March 31, 2015. On June 27, 2014, at the Department of Defense's request, we submitted a proposal to add three additional one-year option periods to the T-3 contract. The government is reviewing the proposal and if accepted as submitted, the modified T-3 contract would conclude on March 31, 2018.

Revenues and expenses associated with the T-3 contract are reported as part of government contracts revenues and government contracts expenses in the consolidated statements of operations and included in the Government Contracts reportable segment.

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investments and premiums receivable. All cash equivalents and investments are managed within established guidelines, which provide us diversity among issuers. Concentrations of credit risk with respect to premiums receivable are limited due to the large number of payers comprising our customer base. The federal government is the primary customer of our Government Contracts reportable segment with fees and premiums associated with this customer accounting for approximately 96% of our Government Contracts revenue. In addition, the federal government is a significant customer of our Western Region Operations reportable segment as a result of our contract with CMS for coverage of Medicare-eligible individuals. Furthermore, our Medicaid revenue is currently derived from our participation in Medi-Cal through our relationship with DHCS, and beginning in the fourth quarter of 2013, in Arizona through our contract with the Arizona Health Care Cost Containment System ("AHCCCS"). The DHCS is a significant customer of our Western Region Operations reportable segment.

Comprehensive Income

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income (loss), net unrealized appreciation (depreciation) after tax on investments available-for-sale and prior service cost and net loss related to our defined benefit pension plan.

Our accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 are as follows:

	Unrealized Gains (Losses) on investments available-for-sale			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (loss)
Three Months Ended September 30:				(Dollars in millions)
Balance as of July 1, 2013	$	(25.4	)	$	(10.2	)	$	(35.6	)
Other comprehensive loss before reclassifications	0.7			—			0.7
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.4			0.2
Other comprehensive (loss) income for the three months ended September 30, 2013	0.5			0.4			0.9
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of July 1, 2014	$	3.9		$	(4.4	)	$	(0.5	)
Other comprehensive income (loss) before reclassifications	1.3			—			1.3
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.1			(0.1		)
Other comprehensive income for the three months ended September 30, 2014	1.1			0.1			1.2
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7
Nine Months Ended September 30:
Balance as of January 1, 2013	$	38.0		$	(11.0	)	$	27.0
Other comprehensive (loss) income before reclassifications	(47.8		)	—			(47.8		)
Amounts reclassified from accumulated other comprehensive income	(15.1		)	1.2			(13.9		)
Other comprehensive (loss) income for the nine months ended September 30, 2013	(62.9		)	1.2			(61.7		)
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of January 1, 2014	$	(28.3	)	$	(4.6	)	$	(32.9	)
Other comprehensive income (loss) before reclassifications	35.0			—			35.0
Amounts reclassified from accumulated other comprehensive income	(1.7		)	0.3			(1.4		)
Other comprehensive income for the nine months ended September 30, 2014	33.3			0.3			33.6
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7

The following table shows reclassifications out of accumulated other comprehensive income and the affected line items in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013:

	Three months ended September 30,						Nine months ended September 30,						Affected line item in the Consolidated Statements of Operations
	2014			2013			2014			2013
	(Dollars in millions)
Unrealized gains on investments available-for-sale	$	0.3		$	0.3		$	2.6		$	23.3		Net investment income
	0.3			0.3			2.6			23.3			Total before tax
	0.1			0.1			0.9			8.2			Tax expense
	0.2			0.2			1.7			15.1			Net of tax
Amortization of defined benefit pension items:
Prior-service cost	(0.1		)	(0.1		)	(0.3		)	(0.1		)	(a)
Actuarial gains (losses)	(0.1		)	(0.6		)	(0.2		)	(1.9		)	(a)
	(0.2		)	(0.7		)	(0.5		)	(2.0		)	Total before tax
	(0.1		)	(0.3		)	(0.2		)	(0.8		)	Tax benefit
	(0.1		)	(0.4		)	(0.3		)	(1.2		)	Net of tax
Total reclassifications for the period	$	0.1		$	(0.2	)	$	1.4		$	13.9		Net of tax

_________

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Earnings Per Share

Earnings Per Share

Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted average shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that could occur if stock options were exercised and restricted stock units ("RSUs") and performance share units ("PSUs") were vested) outstanding during the periods presented.

The inclusion or exclusion of common stock equivalents arising from stock options, RSUs and PSUs in the computation of diluted earnings per share is determined using the treasury stock method. For the three months ended September 30, 2014, 1,278,000 shares of common stock equivalents were excluded from the computation of loss per share due to their anti-dilutive effect. For the nine months ended September 30, 2014, 1,122,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, 1,009,000 shares and 903,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share.

For the nine months ended September 30, 2014, an aggregate of 779,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, an aggregate of 812,000 shares and 1,019,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. Stock options expire at various times through August 2018.

In May 2011, our Board of Directors authorized a stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (our "stock repurchase program"). On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program. As of December 31, 2013 and September 30, 2014, the remaining authorization under our stock repurchase program was $280.0 million and $211.0 million respectively. See Note 6 for more information regarding our stock repurchase program.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2014 for our Western Region Operations reporting unit and also re-evaluated the useful lives of our other intangible assets. No goodwill impairment was identified. We also determined that the estimated useful lives of our other intangible assets properly reflected the current estimated useful lives.

The carrying amount of goodwill by reporting unit is as follows:

	Western Region Operations			Total
	(Dollars in millions)
Balance as of December 31, 2013	$	565.9		$	565.9
Goodwill allocated to sale of business (see Note 3)	(7.0		)	(7.0		)
Balance as of September 30, 2014	$	558.9		$	558.9

On November 2, 2014, we signed a definitive master services agreement with Cognizant to provide certain services to us. In connection with this agreement, we have agreed to sell certain software assets and related intellectual property ("software system assets") we own to Cognizant. The transaction, including the related asset sale, is subject to the receipt of required regulatory approvals. See Note 3 for additional information regarding our agreements with Cognizant. Because the sale of these software system assets meets the definition of a sale of a business, as of September 30, 2014, we re-allocated $7 million of goodwill based on fair values of the Western Region Operations reporting unit with and without the impact of the business to be sold. Our measurement of fair values is based on a combination of the discounted total consideration expected to be received in connection with the services and asset sale agreements, income approach based on a discounted cash flow methodology, and replacement cost methodology. After the reallocation of goodwill, we performed a two-step impairment test to determine the existence of any impairment and the amount of the impairment. In the first step, we compared the fair values to the related carrying value and concluded that the carrying value of the business to be sold was impaired; however, we determined that the carrying value of the Western Region Operations reporting unit was not impaired. In the second step, we measured the impairment amount by comparing the implied value of the allocated goodwill to the carrying amount of such goodwill. Based on the results of our Step 2 test, we concluded that the implied value of the goodwill allocated to the business to be sold was zero, which resulted in an impairment charge for the total carrying value of the allocated goodwill of $7 million. See Note 8 for goodwill fair value measurement information.

Due to the many variables inherent in the estimation of a business’s fair value and the relative size of recorded goodwill, changes in assumptions may have a material effect on the results of our impairment test. The discounted cash flows and market participant valuations (and the resulting fair value estimates of the Western Region Operations reporting unit) are sensitive to changes in assumptions including, among others, certain valuation and market assumptions, our ability to adequately incorporate into our premium rates the future costs of premium-based assessments imposed by the ACA, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of California's Coordinated Care Initiative, which includes the dual eligibles demonstration. Changes to any of these assumptions could cause the fair value of our Western Region Operations reporting unit to be below its carrying value. As of September 30, 2014 and June 30, 2013, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 224% and 149%, respectively.

The intangible assets that continue to be subject to amortization using the straight-line method over their estimated lives are as follows:

	Gross Carrying Amount		Accumulated Amortization			Net Balance		Weighted Average Life (in years)
	(Dollars in millions)
As of September 30, 2014:
Provider networks	$	41.5	$	(36.6	)	$	4.9	18.9
Customer relationships and other	29.5		(21.9		)	7.6		11.1
	$	71.0	$	(58.5	)	$	12.5
As of December 31, 2013:
Provider networks	$	40.5	$	(35.7	)	$	4.8	19.4
Customer relationships and other	29.5		(20.5		)	9.0		11.1
	$	70.0	$	(56.2	)	$	13.8

Estimated annual pretax amortization expense for other intangible assets for each of the next five years ending December 31 is as follows (dollars in millions):

Year	Amount
2014	$	3.0
2015	2.8
2016	2.2
2017	2.2
2018	2.1

Restricted Assets

Restricted Assets

We and our consolidated subsidiaries are required to set aside certain funds that may only be used for certain purposes pursuant to state regulatory requirements. We have discretion as to whether we invest such funds in cash and cash equivalents or other investments. As of September 30, 2014 and December 31, 2013, the restricted cash and cash equivalents balances totaled $0.3 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $23.7 million and $23.8 million as of September 30, 2014 and December 31, 2013, respectively, and are included in investments available-for-sale.

Accounting for Certain Provisions of the ACA

Accounting for Certain Provisions of the ACA

Premium-based Fee on Health Insurers

The ACA mandated significant reforms to various aspects of the U.S. health insurance industry. Among other things, the ACA imposes an annual premium-based fee on health insurers (the "health insurance industry fee") for each calendar year beginning on or after January 1, 2014 which is not deductible for federal income tax purposes and in many state jurisdictions. The healthy insurance industry fee is levied based on a ratio of an insurer's net health insurance premiums written for the previous calendar year compared to the U.S. health insurance industry total. We are required to estimate a liability for our portion of the health insurance industry fee and record it in full once qualifying insurance coverage is provided in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized ratably to expense over the calendar year that it is payable.

In September 2014, we paid the federal government $141.4 million for our portion of the health insurance industry fee in accordance with the ACA. We had recorded a liability for this fee in other current liabilities with an offsetting deferred cost in other current assets in our consolidated financial statements. Our general and administrative expense for the three and nine months ended September 30, 2014 includes amortization of the deferred cost of $31.9 million and $106.1 million, respectively. The balance of the remaining deferred cost asset was approximately $35.3 million as of September 30, 2014.

Public Health Insurance Exchanges

The ACA requires the establishment of state-based, state and federal partnership or federally facilitated health insurance exchanges ("exchanges") where individuals and small groups may purchase health insurance coverage under regulations established by U.S. Department of Health and Human Services ("HHS"). We currently participate in exchanges in Arizona, California and Oregon. Effective January 1, 2014, the ACA includes permanent and temporary premium stabilization provisions for transitional reinsurance, permanent risk adjustment, and temporary risk corridors (collectively referred to as the "3Rs"), which are applicable to those insurers participating inside, and in some cases outside, of the exchanges.

Member Related Components

Member Premium—We receive a monthly premium from members. The member premium, which is fixed for the entire plan year, is recognized evenly over the contract period and reported as part of health plan services premium revenue.

Premium Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of the monthly member premium depending on the member’s income level in relation to the Federal Poverty Level. We recognize the premium subsidy evenly over the contract period and report it as part of health plan services premium revenue.

Cost Sharing Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of a member’s cost sharing amounts (e.g., deductible, co-pay/coinsurance). The amount paid for the member by HHS is dependent on the member’s income level in relation to the Federal Poverty Level. We receive prospective payments on a monthly basis, and they represent a cost reimbursement that is finalized and settled after the end of the year. The cost sharing subsidy is accounted for as deposit accounting.

3Rs: Reinsurance, Risk Adjustment and Risk Corridor

Our accounting estimates are impacted as a result of the provisions of the ACA, including the 3Rs. The substantial influx of previously uninsured individuals into the new health insurance exchanges under the ACA could make it more difficult for health insurers, including us, to establish pricing accurately, at least during the early years of the exchanges. The 3Rs are intended to mitigate some of the risks around pricing and lack of information surrounding the previously uninsured. We will experience premium adjustments to our health plan services premium revenues and health plan services expenses based on changes to our estimated amounts related to the 3Rs, which may be significant at times. Such estimated amounts may differ materially from actual amounts ultimately received or paid under the provisions, which may have a material impact on our consolidated results of operations and financial condition.

Reinsurance—The transitional reinsurance program requires us to make reinsurance contributions for calendar years 2014 through 2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the reinsurance entity, only fully-insured non-grandfathered plans in the individual commercial market will be eligible for recoveries if individual claims exceed a specified threshold. Accordingly, we account for transitional reinsurance contributions associated with all commercial medical health plans other than non-grandfathered individual plans as an assessment in general and administrative expenses in our consolidated statement of income. We account for contributions made by individual commercial plans which are subject to recoveries as contra-health plan services premium revenue, and we account for any recoveries as contra-health plan services expense in our consolidated statements of income with a corresponding current or long-term receivable or payable. We recorded $32.0 million and $142.6 million of reinsurance recovery as contra-health plan services expense for the three and nine months ended September 30, 2014, respectively, and the balance included in other receivables as of September 30, 2014 was $142.6 million.

Risk Adjustment—The risk adjustment provision applies to individual and small group business both within and outside the exchange and requires measurement of the relative health status risk of each insurer’s pool of insured enrollees in a given market. The risk adjustment provision then operates to transfer funds from insurers whose pools of insured enrollees have a lower-than-average risk scores to those insurers whose pools have greater-than-average risk scores. Our estimate for the risk adjustment incorporates our pricing and demographic assumptions, the distribution of our newly enrolled membership in terms of geography, metal tiers, and age bands, and what we believe are the market averages in terms of premium and risk scores. As part of our ongoing estimation process, we consider information as it becomes available at interim dates along with our actuarially determined expectations, and we update our estimates incorporating such information as appropriate.

We estimate and recognize adjustments to our health plan services premium revenue for the risk adjustment provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience. We record receivables and/or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. Our risk adjustment estimate was $17.6 million and $47.7 million for the three and nine months ended September 30, 2014, respectively, and was recorded as a reduction to health plan services premiums. The risk adjustment receivable balance included in other receivables as of September 30, 2014 was $69.9 million and the risk adjustment payable balance included in accounts payable and other liabilities as of September 30, 2014 was $117.6 million.

Risk Corridor—The temporary risk corridor program will be in place for three years and applies to individual and small group business operating both inside and outside of the exchanges. The risk corridor provisions limit health insurers' gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS, and sharing the risk for allowable costs with the federal government. Variances from the target exceeding certain thresholds may result in HHS making additional payments to us or require us to make payments to HHS.

We estimate and recognize adjustments to our health plan services premium revenue for the risk corridor provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience, including changes in risk adjustment and reinsurance recoverables. We record receivables or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. For the three and nine months ended September 30, 2014,we recorded $44.7 million and $72.0 million, respectively, of increases to risk corridor receivable as health plan services premium revenue, and the balance in other noncurrent assets as of September 30, 2014 was $72.0 million.

The final reconciliation and settlement with HHS of the premium and cost sharing subsidies and the amounts related to the 3Rs for the current year will be completed in the following year with HHS.

Section 1202 of ACA

Section 1202 of the ACA mandates increases in Medicaid payment rates for primary care in calendar years 2013 and 2014. The final rule has been in effect since January 1, 2013. The provisions of section 1202 impact our 1.5 million Medi-Cal members in California and 80,000 Medicaid members in Arizona. DHCS, the agency that regulates the Medi-Cal program, initially implemented a reimbursement methodology with no underwriting risk to the managed care plans ("MCPs") in 2013. Subsequently, DHCS changed the reimbursement methodology during the second quarter of 2014, and this change transferred full underwriting risk to the MCPs.

For the periods prior to this reimbursement methodology change, i.e., the year ended December 31, 2013 and the three months ended March 31, 2014, we accounted for the provisions of section 1202 on an administrative services only basis since it transferred no underwriting risk to the MCPs, and recorded the receipts and payments on a net basis.

Following the change in reimbursement methodology, we have full underwriting risk for 2013, including both utilization and unit cost risk. Accordingly, for the second quarter of 2014, with respect to our Medi-Cal business, we had:

• Reversed $7.9 million previously recorded as administrative services fees and other income in 2013 and for the three months ended March 31, 2014.

• Recorded payments on a grossed-up basis by recording Medi-Cal payments received as premium revenue and estimated Medi-Cal claim payments as health care costs (incurred claims), each via retroactive adjustments to premium revenues and health care costs. See the "Three Months Ended June 30, 2014 - Full Risk" column in the table below.

• Recorded retrospective premium revenue adjustments based upon the state settlement agreement (see Note 2 - "Health Plan Services Revenue Recognition" above).

The financial statement impact of the section 1202 reimbursement methodology change is summarized in the table below.

	Recorded In
	Year Ended December 31, 2013		Three Months Ended March 31, 2014		Three Months Ended June 30, 2014
(Dollars in millions)	No Risk		No Risk		Full Risk
Health plan services premiums	$	4.4	$	—	$	154.7
Health plan services expenses	—		—		144.0
General and administrative expenses	4.4		—		—
Administrative services fees and other income	6.5		1.4		(7.9		)
Pretax income	$	6.5	$	1.4	$	2.8

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
ASSETS
Cash and cash equivalents	$ 1,114,558	$ 433,155
Investments-available-for-sale (amortized cost: 2014-$1,656,529, 2013-$1,602,456)	1,664,830	1,567,020
Premiums receivable, net of allowance for doubtful accounts (2014-$1,279, 2013-$643)	579,515	430,012
Amounts receivable under government contracts	143,662	194,041
Other receivables	307,369	68,919
Deferred taxes	71,434	94,060
Assets held for sale	50,000	0
Other assets	157,066	132,683
Total current assets	4,088,434	2,919,890
Property and equipment, net	92,193	201,395
Goodwill	558,886	565,886
Other intangible assets, net	12,526	13,842
Deferred taxes	34,580	5,793
Investments-available-for-sale-noncurrent (amortized cost: 2014-$3,538, 2013-$67,943)	3,055	59,768
Other noncurrent assets	173,230	162,551
Total Assets	4,962,904	3,929,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Reserves for claims and other settlements	1,733,307	984,075
Health care and other costs payable under government contracts	62,796	72,098
Unearned premiums	125,363	123,969
Accounts payable and other liabilities	540,968	397,036
Total current liabilities	2,462,434	1,577,178
Senior notes payable	399,453	399,300
Borrowings under revolving credit facility	100,000	100,000
Deferred taxes	0	10,409
Other noncurrent liabilities	235,393	213,427
Total Liabilities	3,197,280	2,300,314
Commitments and contingencies
Stockholders’ Equity:
Preferred stock ($0.001 par value, 10,000 shares authorized, none issued and outstanding)	0	0
Common stock ($0.001 par value, 350,000 shares authorized; issued 2014-152,276 shares; 2013-150,224 shares)	152	150
Additional paid-in capital	1,432,513	1,377,624
Treasury common stock, at cost (2014-72,847 shares of common stock; 2013-70,704 shares of common stock)	(2,272,180)	(2,179,744)
Retained earnings	2,604,363	2,463,648
Accumulated other comprehensive loss	776	(32,867)
Total Stockholders’ Equity	1,765,624	1,628,811
Total Liabilities and Stockholders’ Equity	$ 4,962,904	$ 3,929,125

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Investments

9 Months Ended

Sep. 30, 2014

Investments [Abstract]

Investments

INVESTMENTS

Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net of income tax effects. The cost of investments sold is determined in accordance with the specific identification method, and realized gains and losses are included in net investment income. We periodically assess our investments available-for-sale for other-than-temporary impairment. Any such other-than-temporary impairment loss is recognized as a realized loss, which is recorded through earnings, if related to credit losses.

During the three and nine months ended September 30, 2014 and 2013, we recognized no losses from other-than-temporary impairments of our cash equivalents and available-for-sale investments.

We classified $3.1 million and $59.8 million as investments available-for-sale-noncurrent as of September 30, 2014 and December 31, 2013, respectively, because we did not intend to sell and we believed it may take longer than one year for such impaired securities to recover. This classification does not affect the marketability or the valuation of the investments, which are reflected at their market values as of September 30, 2014 and December 31, 2013.

As of September 30, 2014 and December 31, 2013, the amortized cost, gross unrealized holding gains and losses, and fair value of our current investments available-for-sale and our investments available-for-sale-noncurrent, after giving effect to other-than-temporary impairments, were as follows:

	September 30, 2014
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	400.3	$	2.8	$	(4.2	)	$	398.9
U.S. government and agencies	23.6		—		—			23.6
Obligations of states and other political subdivisions	698.3		13.9		(3.1		)	709.1
Corporate debt securities	534.3		2.7		(3.8		)	533.2
	$	1,656.5	$	19.4	$	(11.1	)	$	1,664.8
Noncurrent:
Asset-backed securities	$	0.8	$	—	$	(0.2	)	$	0.6
Corporate debt securities	2.8		—		(0.3		)	2.5
	$	3.6	$	—	$	(0.5	)	$	3.1

	December 31, 2013
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	394.7	$	3.4	$	(8.7	)	$	389.4
U.S. government and agencies	23.7		—		—			23.7
Obligations of states and other political subdivisions	734.3		5.9		(30.3		)	709.9
Corporate debt securities	449.8		3.6		(9.4		)	444.0
	$	1,602.5	$	12.9	$	(48.4	)	$	1,567.0
Noncurrent:
Asset-backed securities	$	1.3	$	—	$	(0.2	)	$	1.1
Obligations of states and other political subdivisions	53.4		—		(6.3		)	47.1
Corporate debt securities	13.2		—		(1.6		)	11.6
	$	67.9	$	—	$	(8.1	)	$	59.8

As of September 30, 2014, the contractual maturities of our current investments available-for-sale and our investments available-for-sale-noncurrent were as follows:

	Amortized Cost		Estimated Fair Value
Current:	(Dollars in millions)
Due in one year or less	$	49.1	$	49.2
Due after one year through five years	347.8		349.6
Due after five years through ten years	435.3		438.8
Due after ten years	424.0		428.3
Asset-backed securities	400.3		398.9
Total current investments available-for-sale	$	1,656.5	$	1,664.8
	Amortized Cost		Estimated Fair Value
Noncurrent:	(Dollars in millions)
Due after five years through ten years	2.8		2.5
Asset-backed securities	0.8		0.6
Total noncurrent investments available-for-sale	$	3.6	$	3.1

Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2014 were $104.6 million and $296.9 million, respectively. Gross realized gains and losses totaled $1.0 million and $0.6 million, respectively, for the three months ended September 30, 2014, and $4.4 million and $1.8 million, respectively, for the nine months ended September 30, 2014. Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2013 were $80.4 million and $653.8 million, respectively. Gross realized gains and losses totaled $1.0 million and $0.7 million, respectively, for the three months ended September 30, 2013, and $25.5 million and $2.2 million, respectively, for the nine months ended September 30, 2013.

The following tables show our investments’ fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014 and December 31, 2013. These investments are interest-yielding debt securities of varying maturities. We have determined that the unrealized loss position for these securities is primarily due to market volatility. Generally, in a rising interest rate environment, the estimated fair value of fixed income securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of fixed income securities would be expected to increase. These securities also may be negatively impacted by illiquidity in the market.

The following table shows our current investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	82.1	$	(0.4	)	$	148.0	$	(3.8	)	$	230.1	$	(4.2	)
Obligations of states and other political subdivisions	7.8		(0.1		)	169.0		(3.0		)	176.8		(3.1		)
Corporate debt securities	223.8		(1.9		)	68.5		(1.9		)	292.3		(3.8		)
	$	313.7	$	(2.4	)	$	385.5	$	(8.7	)	$	699.2	$	(11.1	)

The following table shows our noncurrent investments' fair values and gross unrealized losses for individual securities that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	—	$	—		$	0.6	$	(0.2	)	$	0.6	$	(0.2	)
Corporate debt securities	0.5		(0.1		)	2.0		(0.2		)	2.5		(0.3		)
	$	0.5	$	(0.1	)	$	2.6	$	(0.4	)	$	3.1	$	(0.5	)

The following table shows the number of our individual securities-current that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	51	58	109
Obligations of states and other political subdivisions	6	85	91
Corporate debt securities	228	75	303
	285	218	503

The following table shows the number of our individual securities-noncurrent that have been in a continuous loss position through September 30, 2014:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	—	1	1
Corporate debt securities	1	2	3
	1	3	4

The following table shows our current investments’ fair values and gross unrealized losses for individual securities that have been in a continuous loss position through December 31, 2013:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	225.3	$	(7.9	)	$	22.5	$	(0.8	)	$	247.8	$	(8.7	)
U.S. government and agencies	4.0		—			—		—			4.0		—
Obligations of states and other political subdivisions	453.5		(23.5		)	79.7		(6.8		)	533.2		(30.3		)
Corporate debt securities	242.8		(9.0		)	6.7		(0.4		)	249.5		(9.4		)
	$	925.6	$	(40.4	)	$	108.9	$	(8.0	)	$	1,034.5	$	(48.4	)

The following table shows the fair values and gross unrealized losses for our individual securities-noncurrent that have been in a continuous loss position through December 31, 2013:

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in millions)
Asset-backed securities	$	0.5	$	(0.1	)	$	0.7	$	(0.1	)	$	1.2	$	(0.2	)
Obligations of states and other political subdivisions	17.4		(2.2		)	29.6		(4.1		)	47.0		(6.3		)
Corporate debt securities	7.5		(0.9		)	4.1		(0.7		)	11.6		(1.6		)
	$	25.4	$	(3.2	)	$	34.4	$	(4.9	)	$	59.8	$	(8.1	)

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Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting Information, Additional Information [Abstract]

Segment Information

SEGMENT INFORMATION

In connection with the Cognizant Transaction, we reviewed our reportable segments and determined that there are no changes to our reportable segments. See Note 3 for additional information regarding the Cognizant Transaction.

Our reportable segments are comprised of Western Region Operations and Government Contracts. Our Western Region Operations reportable segment includes the operations of our commercial, Medicare, Medicaid and dual eligibles health plans, our health and life insurance companies, our pharmaceutical services subsidiaries and certain operations of our behavioral health subsidiaries. These operations are conducted primarily in California, Arizona, Oregon and Washington. Our Government Contracts reportable segment includes government-sponsored managed care and administrative services contracts through the TRICARE program, the Department of Defense Military and Family Life Counseling ("MFLC") program and certain other health care-related government contracts.

The financial results of our reportable segments are reviewed on a monthly basis by our chief operating decision maker ("CODM"). We continuously monitor our reportable segments to ensure they reflect how our CODM manages our company.

We evaluate performance and allocate resources based on segment pretax income. Our assets are managed centrally and viewed by our CODM on a consolidated basis; therefore, they are not allocated to our segments and our segments are not evaluated for performance based on assets. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 2), except that intersegment transactions are not eliminated.

We also have a Corporate/Other segment that is not a business operating segment. It is added to our reportable segments to provide a reconciliation to our consolidated results. The Corporate/Other segment includes costs that are excluded from the calculation of segment pretax income because they are not managed within the segments and are not directly identified with a particular operating segment. Accordingly, these costs are not included in the performance evaluation of our reportable segments by our CODM. In addition, certain charges, including but not limited to those related to our continuing efforts to address scale issues as well as asset impairments, are reported as part of Corporate/Other.

Our segment information for the three and nine months ended September 30, 2014 and 2013 is as follows:

	Western Region Operations		Government Contracts		Corporate/Other/ Eliminations			Total
	(Dollars in millions)
Three months ended September 30, 2014
Revenues from external sources	$	3,643.7	$	146.2	$	—		$	3,789.9
Intersegment revenues	3.1		—		(3.1		)	—
Segment pretax income (loss)	105.9		22.6		(105.8		)	22.7
Three months ended September 30, 2013
Revenues from external sources	$	2,625.7	$	149.3	$	—		$	2,775.0
Intersegment revenues	2.7		—		(2.7		)	—
Segment pretax income (loss)	85.2		23.5		(0.1		)	108.6
Nine months ended September 30, 2014
Revenues from external sources	$	9,805.8	$	444.4	$	—		$	10,250.2
Intersegment revenues	9.2		—		(9.2		)	—
Segment pretax income (loss)	239.6		57.1		(113.2		)	183.5
Nine months ended September 30, 2013
Revenues from external sources	$	7,886.7	$	423.8	$	—		$	8,310.5
Intersegment revenues	8.4		—		(8.4		)	—
Segment pretax income (loss)	204.3		50.6		(13.0		)	241.9

Our health plan services premium revenue by line of business is as follows:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
	(Dollars in millions)
Commercial premium revenue	$	1,430.8	$	1,279.8	$	4,072.4	$	3,903.8
Medicare premium revenue	763.3		685.4		2,275.7		2,080.3
Medicaid premium revenue	1,397.7		641.6		3,381.6		1,833.6
Dual Eligibles premium revenue	39.8		—		45.1		—
Total health plan services premiums	$	3,631.6	$	2,606.8	$	9,774.8	$	7,817.7

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured on recurring basis

The following tables present information about our assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013, and indicate the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (dollars in millions):

	Level 1		Level 2		Level 2- noncurrent		Level 3		Total
As of September 30, 2014:
Assets:
Cash and cash equivalents	$	1,114.6	$	—	$	—	$	—	$	1,114.6
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	202.9	$	—	$	—	$	202.9
Commercial mortgage-backed securities	—		131.5		0.6		—		132.1
Other asset-backed securities	—		64.5		—		—		64.5
U.S. government and agencies:
U.S. Treasury securities	23.6		—		—		—		23.6
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		709.1		—		—		709.1
Corporate debt securities	—		533.2		2.5		—		535.7
Total investments at fair value	$	23.6	$	1,641.2	$	3.1	$	—	$	1,667.9
Embedded contractual derivative	—		—		—		14.2		14.2
State-sponsored health plans settlement account deficit	—		—		—		—		—
Total assets at fair value	$	1,138.2	$	1,641.2	$	3.1	$	14.2	$	2,796.7

	Level 1		Level 2		Level 2- noncurrent		Level 3		Total
As of December 31, 2013:
Assets:
Cash and cash equivalents	$	433.2	$	—	$	—	$	—	$	433.2
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	203.5	$	0.4	$	—	$	203.9
Commercial mortgage-backed securities	—		144.1		0.7		—		144.8
Other asset-backed securities	—		41.8		—		—		41.8
U.S. government and agencies:
U.S. Treasury securities	23.7		—		—		—		23.7
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		709.9		47.1		—		757.0
Corporate debt securities	—		444.0		11.6		—		455.6
Total investments at fair value	$	23.7	$	1,543.3	$	59.8	$	—	$	1,626.8
Embedded contractual derivative	—		—		—		7.2		7.2
State-sponsored health plans settlement account deficit	—		—		—		62.9		62.9
Total assets at fair value	$	456.9	$	1,543.3	$	59.8	$	70.1	$	2,130.1

Changes in the Balances of Level 3 Financial Assets on Recurring Basis

The changes in the balances of Level 3 financial assets for the three months ended September 30, 2014 and 2013 were as follows (dollars in millions):

	Three months ended September 30,
	2014										2013
	Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit			Total			Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit		Total
Opening balance	$	—	$	13.3	$	9.6		$	22.9		$	—	$	10.8	$	35.4	$	46.2
Transfers into Level 3	—		—		—			—			—		—		—		—
Transfers out of Level 3	—		—		—			—			—		—		—		—
Total gains or losses for the period:
Realized in net income	—		0.9		(9.6		)	(8.7		)	—		1.9		16.3		18.2
Unrealized in accumulated other comprehensive income	—		—		—			—			—		—		—		—
Purchases, issues, sales and settlements:
Purchases/additions	—		—		—			—			—		—		—		—
Issues	—		—		—			—			—		—		—		—
Sales	—		—		—			—			—		—		—		—
Settlements	—		—		—			—			—		—		—		—
Closing balance	$	—	$	14.2	$	—		$	14.2		$	—	$	12.7	$	51.7	$	64.4
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—		$	—		$	—	$	—	$	—	$	—

The changes in the balances of Level 3 financial assets for the nine months ended September 30, 2014 and 2013 were as follows (dollars in millions):

	Nine months ended September 30,
	2014										2013
	Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit			Total			Available-For-Sale Investments			Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit		Total
Opening balance	$	—	$	7.2	$	62.9		$	70.1		$	0.2		$	11.2	$	—	$	11.4
Transfers into Level 3	—		—		—			—			—			—		—		—
Transfers out of Level 3	—		—		—			—			—			—		—		—
Total gains or losses for the period:
Realized in net income	—		7.0		(62.9		)	(55.9		)	—			1.5		51.7		53.2
Unrealized in accumulated other comprehensive income	—		—		—			—			—			—		—		—
Purchases, issues, sales and settlements:
Purchases/additions	—		—		—			—			—			—		—		—
Issues	—		—		—			—			—			—		—		—
Sales	—		—		—			—			(0.2		)	—		—		(0.2		)
Settlements	—		—		—			—			—			—		—		—
Closing balance	$	—	$	14.2	$	—		$	14.2		$	—		$	12.7	$	51.7	$	64.4
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	—

Changes in the Balances of Level 3 Financial Liabilities on Recurring Basis

The changes in the balances of Level 3 financial liability for the three and nine months ended September 30, 2013 were as follows (dollars in millions):

	Three months ended September 30, 2013			Nine months ended September 30, 2013
	Embedded Contractual Derivative
Opening balance, April 1 and January 1	$	4.8		$	3.2
Transfers into Level 3	—			—
Transfers out of Level 3	—			—
Total gains or losses for the period:
Realized in net income	(4.1		)	(2.5		)
Unrealized in accumulated other comprehensive income	—			—
Purchases, issues, sales and settlements:
Purchases	—			—
Issues	—			—
Sales	—			—
Settlements	—			—
Closing balance	$	0.7		$	0.7

Fair Value of Assets Held-for-Sale

The following table presents information about our assets classified as held for sale as of September 30, 2014, the hierarchy of the valuation techniques utilized by us to determine such fair values and the related impairment loss for the three months ended September 30, 2014 (dollars in millions):

	Level 3		Total Asset Impairment for the Three Months Ended September 30, 2014
Property and equipment, net	$	50.0	$	77.7
Goodwill allocated to sale of business	—		7.0
Assets held for sale	$	50.0	$	84.7

Quantitative information about level 3 assets fair value measurements

The following tables present quantitative information about Level 3 Fair Value Measurements as of September 30, 2014 and December 31, 2013 (dollars in millions):

	Fair Value as of September 30, 2014		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative asset	$	14.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-5.70	%	—	6.78%	(1.46%)
				National Health Care Expenditures	-2.01	%	—	8.50%	(2.44%)
Goodwill - Western Region reporting unit	$	558.9	Income Approach	Discount Rate	7.5	%	—	7.5%	(7.5%)
Assets held for sale	$	50.0	Income Approach	Discount Rate	12.0	%	—	12.0%	(12.0%)

	Fair Value as of December 31, 2013		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative asset	$	7.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-3.34	%	—	7.34%	(2.20%)
				National Health Care Expenditures	-0.77	%	—	9.46%	(3.63%)
Goodwill - Western Region reporting unit	$	565.9	Income Approach	Discount Rate	10.0	%	—	10.0%	(10.0%)
State-sponsored health plans settlement account deficit	$	62.9	Income Approach	Discount Rate	1.135	%	—	1.135%	(1.135%)

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Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2014

Summary of Significant Accounting Policies [Abstract]

Accumulated Other Comprehensive (Loss) Income

Our accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 are as follows:

	Unrealized Gains (Losses) on investments available-for-sale			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (loss)
Three Months Ended September 30:				(Dollars in millions)
Balance as of July 1, 2013	$	(25.4	)	$	(10.2	)	$	(35.6	)
Other comprehensive loss before reclassifications	0.7			—			0.7
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.4			0.2
Other comprehensive (loss) income for the three months ended September 30, 2013	0.5			0.4			0.9
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of July 1, 2014	$	3.9		$	(4.4	)	$	(0.5	)
Other comprehensive income (loss) before reclassifications	1.3			—			1.3
Amounts reclassified from accumulated other comprehensive (loss) income	(0.2		)	0.1			(0.1		)
Other comprehensive income for the three months ended September 30, 2014	1.1			0.1			1.2
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7
Nine Months Ended September 30:
Balance as of January 1, 2013	$	38.0		$	(11.0	)	$	27.0
Other comprehensive (loss) income before reclassifications	(47.8		)	—			(47.8		)
Amounts reclassified from accumulated other comprehensive income	(15.1		)	1.2			(13.9		)
Other comprehensive (loss) income for the nine months ended September 30, 2013	(62.9		)	1.2			(61.7		)
Balance as of September 30, 2013	$	(24.9	)	$	(9.8	)	$	(34.7	)
Balance as of January 1, 2014	$	(28.3	)	$	(4.6	)	$	(32.9	)
Other comprehensive income (loss) before reclassifications	35.0			—			35.0
Amounts reclassified from accumulated other comprehensive income	(1.7		)	0.3			(1.4		)
Other comprehensive income for the nine months ended September 30, 2014	33.3			0.3			33.6
Balance as of September 30, 2014	$	5.0		$	(4.3	)	$	0.7

Reclassifications Out of Accumulated Other Comprehensive Income

The following table shows reclassifications out of accumulated other comprehensive income and the affected line items in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013:

	Three months ended September 30,						Nine months ended September 30,						Affected line item in the Consolidated Statements of Operations
	2014			2013			2014			2013
	(Dollars in millions)
Unrealized gains on investments available-for-sale	$	0.3		$	0.3		$	2.6		$	23.3		Net investment income
	0.3			0.3			2.6			23.3			Total before tax
	0.1			0.1			0.9			8.2			Tax expense
	0.2			0.2			1.7			15.1			Net of tax
Amortization of defined benefit pension items:
Prior-service cost	(0.1		)	(0.1		)	(0.3		)	(0.1		)	(a)
Actuarial gains (losses)	(0.1		)	(0.6		)	(0.2		)	(1.9		)	(a)
	(0.2		)	(0.7		)	(0.5		)	(2.0		)	Total before tax
	(0.1		)	(0.3		)	(0.2		)	(0.8		)	Tax benefit
	(0.1		)	(0.4		)	(0.3		)	(1.2		)	Net of tax
Total reclassifications for the period	$	0.1		$	(0.2	)	$	1.4		$	13.9		Net of tax

_________

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

Carrying Amount of Goodwill

The carrying amount of goodwill by reporting unit is as follows:

	Western Region Operations			Total
	(Dollars in millions)
Balance as of December 31, 2013	$	565.9		$	565.9
Goodwill allocated to sale of business (see Note 3)	(7.0		)	(7.0		)
Balance as of September 30, 2014	$	558.9		$	558.9

Schedule of Intangible Assets

The intangible assets that continue to be subject to amortization using the straight-line method over their estimated lives are as follows:

	Gross Carrying Amount		Accumulated Amortization			Net Balance		Weighted Average Life (in years)
	(Dollars in millions)
As of September 30, 2014:
Provider networks	$	41.5	$	(36.6	)	$	4.9	18.9
Customer relationships and other	29.5		(21.9		)	7.6		11.1
	$	71.0	$	(58.5	)	$	12.5
As of December 31, 2013:
Provider networks	$	40.5	$	(35.7	)	$	4.8	19.4
Customer relationships and other	29.5		(20.5		)	9.0		11.1
	$	70.0	$	(56.2	)	$	13.8

Estimated Annual Pretax Amortization Expense For Other Intangible Assets

Estimated annual pretax amortization expense for other intangible assets for each of the next five years ending December 31 is as follows (dollars in millions):

Year	Amount
2014	$	3.0
2015	2.8
2016	2.2
2017	2.2
2018	2.1

Schedule of Financial Statement Impact of Section 1202 Model Change

The financial statement impact of the section 1202 reimbursement methodology change is summarized in the table below.

	Recorded In
	Year Ended December 31, 2013		Three Months Ended March 31, 2014		Three Months Ended June 30, 2014
(Dollars in millions)	No Risk		No Risk		Full Risk
Health plan services premiums	$	4.4	$	—	$	154.7
Health plan services expenses	—		—		144.0
General and administrative expenses	4.4		—		—
Administrative services fees and other income	6.5		1.4		(7.9		)
Pretax income	$	6.5	$	1.4	$	2.8

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

We record certain assets and liabilities at fair value in the consolidated balance sheets and categorize them based upon the level of judgment associated with the inputs used to measure their fair value and the level of market price observability. We also estimate fair value when the volume and level of activity for the asset or liability have significantly decreased or in those circumstances that indicate when a transaction is not orderly.

Investments measured and reported at fair value using Level inputs are classified and disclosed in one of the following categories:

Level 1—Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 include U.S. Treasury securities and listed equities. We do not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.

Level 2—Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models and/or other valuation methodologies that are based on an income approach. Examples include, but are not limited to, multidimensional relational model, option adjusted spread model, and various matrices. Specific pricing inputs include quoted prices for similar securities in both active and non-active markets, other observable inputs such as interest rates, yield curve volatilities, default rates, and inputs that are derived principally from or corroborated by other observable market data. Investments that are generally included in this category include asset-backed securities, corporate bonds and loans, and state and municipal bonds.

Level 3—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation using assumptions that market participants would use, including assumptions for risk. Level 3 includes an embedded contractual derivative asset and/or liability held by the Company estimated at fair value. Significant inputs used in the derivative valuation model include the estimated growth in Health Net health care expenditures and estimated growth in national health care expenditures. The growth in these expenditures was modeled using a Monte Carlo simulation approach. Level 3 also includes a state-sponsored health plans settlement account deficit asset estimated at fair value based on the income approach. See Note 2 for additional information on our state-sponsored health plans rate settlement agreement.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

The following tables present information about our assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013, and indicate the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (dollars in millions):

	Level 1		Level 2		Level 2- noncurrent		Level 3		Total
As of September 30, 2014:
Assets:
Cash and cash equivalents	$	1,114.6	$	—	$	—	$	—	$	1,114.6
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	202.9	$	—	$	—	$	202.9
Commercial mortgage-backed securities	—		131.5		0.6		—		132.1
Other asset-backed securities	—		64.5		—		—		64.5
U.S. government and agencies:
U.S. Treasury securities	23.6		—		—		—		23.6
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		709.1		—		—		709.1
Corporate debt securities	—		533.2		2.5		—		535.7
Total investments at fair value	$	23.6	$	1,641.2	$	3.1	$	—	$	1,667.9
Embedded contractual derivative	—		—		—		14.2		14.2
State-sponsored health plans settlement account deficit	—		—		—		—		—
Total assets at fair value	$	1,138.2	$	1,641.2	$	3.1	$	14.2	$	2,796.7

	Level 1		Level 2		Level 2- noncurrent		Level 3		Total
As of December 31, 2013:
Assets:
Cash and cash equivalents	$	433.2	$	—	$	—	$	—	$	433.2
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	203.5	$	0.4	$	—	$	203.9
Commercial mortgage-backed securities	—		144.1		0.7		—		144.8
Other asset-backed securities	—		41.8		—		—		41.8
U.S. government and agencies:
U.S. Treasury securities	23.7		—		—		—		23.7
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		709.9		47.1		—		757.0
Corporate debt securities	—		444.0		11.6		—		455.6
Total investments at fair value	$	23.7	$	1,543.3	$	59.8	$	—	$	1,626.8
Embedded contractual derivative	—		—		—		7.2		7.2
State-sponsored health plans settlement account deficit	—		—		—		62.9		62.9
Total assets at fair value	$	456.9	$	1,543.3	$	59.8	$	70.1	$	2,130.1

We had no financial liabilities fair valued on a recurring basis as of September 30, 2014 and December 31, 2013.

We had no transfers between Levels 1 and 2 of financial assets or liabilities that are fair valued on a recurring basis during the three and nine months ended September 30, 2014 and 2013. In determining when transfers between levels are recognized, our accounting policy is to recognize the transfers based on the actual date of the event or change in circumstances that caused the transfer.

The changes in the balances of Level 3 financial assets for the three months ended September 30, 2014 and 2013 were as follows (dollars in millions):

	Three months ended September 30,
	2014										2013
	Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit			Total			Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit		Total
Opening balance	$	—	$	13.3	$	9.6		$	22.9		$	—	$	10.8	$	35.4	$	46.2
Transfers into Level 3	—		—		—			—			—		—		—		—
Transfers out of Level 3	—		—		—			—			—		—		—		—
Total gains or losses for the period:
Realized in net income	—		0.9		(9.6		)	(8.7		)	—		1.9		16.3		18.2
Unrealized in accumulated other comprehensive income	—		—		—			—			—		—		—		—
Purchases, issues, sales and settlements:
Purchases/additions	—		—		—			—			—		—		—		—
Issues	—		—		—			—			—		—		—		—
Sales	—		—		—			—			—		—		—		—
Settlements	—		—		—			—			—		—		—		—
Closing balance	$	—	$	14.2	$	—		$	14.2		$	—	$	12.7	$	51.7	$	64.4
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—		$	—		$	—	$	—	$	—	$	—

The changes in the balances of Level 3 financial assets for the nine months ended September 30, 2014 and 2013 were as follows (dollars in millions):

	Nine months ended September 30,
	2014										2013
	Available-For-Sale Investments		Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit			Total			Available-For-Sale Investments			Embedded Contractual Derivative		State-Sponsored Health Plans Settlement Account Deficit		Total
Opening balance	$	—	$	7.2	$	62.9		$	70.1		$	0.2		$	11.2	$	—	$	11.4
Transfers into Level 3	—		—		—			—			—			—		—		—
Transfers out of Level 3	—		—		—			—			—			—		—		—
Total gains or losses for the period:
Realized in net income	—		7.0		(62.9		)	(55.9		)	—			1.5		51.7		53.2
Unrealized in accumulated other comprehensive income	—		—		—			—			—			—		—		—
Purchases, issues, sales and settlements:
Purchases/additions	—		—		—			—			—			—		—		—
Issues	—		—		—			—			—			—		—		—
Sales	—		—		—			—			(0.2		)	—		—		(0.2		)
Settlements	—		—		—			—			—			—		—		—
Closing balance	$	—	$	14.2	$	—		$	14.2		$	—		$	12.7	$	51.7	$	64.4
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	—

The changes in the balances of Level 3 financial liability for the three and nine months ended September 30, 2013 were as follows (dollars in millions):

	Three months ended September 30, 2013			Nine months ended September 30, 2013
	Embedded Contractual Derivative
Opening balance, April 1 and January 1	$	4.8		$	3.2
Transfers into Level 3	—			—
Transfers out of Level 3	—			—
Total gains or losses for the period:
Realized in net income	(4.1		)	(2.5		)
Unrealized in accumulated other comprehensive income	—			—
Purchases, issues, sales and settlements:
Purchases	—			—
Issues	—			—
Sales	—			—
Settlements	—			—
Closing balance	$	0.7		$	0.7

As of September 30, 2014, we classified certain assets as assets held for sale. These assets held for sale are carried at the lower of carrying value or fair value (see Note 2, under the heading "Goodwill and Other Intangibles," and Note 3 for additional information). The following table presents information about our assets classified as held for sale as of September 30, 2014, the hierarchy of the valuation techniques utilized by us to determine such fair values and the related impairment loss for the three months ended September 30, 2014 (dollars in millions):

	Level 3		Total Asset Impairment for the Three Months Ended September 30, 2014
Property and equipment, net	$	50.0	$	77.7
Goodwill allocated to sale of business	—		7.0
Assets held for sale	$	50.0	$	84.7

We had no liabilities fair valued on a non-recurring basis during the three and nine months ended September 30, 2014. We had no assets or liabilities fair valued on a non-recurring basis for the year ended December 31, 2013.

The following tables present quantitative information about Level 3 Fair Value Measurements as of September 30, 2014 and December 31, 2013 (dollars in millions):

	Fair Value as of September 30, 2014		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative asset	$	14.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-5.70	%	—	6.78%	(1.46%)
				National Health Care Expenditures	-2.01	%	—	8.50%	(2.44%)
Goodwill - Western Region reporting unit	$	558.9	Income Approach	Discount Rate	7.5	%	—	7.5%	(7.5%)
Assets held for sale	$	50.0	Income Approach	Discount Rate	12.0	%	—	12.0%	(12.0%)

	Fair Value as of December 31, 2013		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative asset	$	7.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-3.34	%	—	7.34%	(2.20%)
				National Health Care Expenditures	-0.77	%	—	9.46%	(3.63%)
Goodwill - Western Region reporting unit	$	565.9	Income Approach	Discount Rate	10.0	%	—	10.0%	(10.0%)
State-sponsored health plans settlement account deficit	$	62.9	Income Approach	Discount Rate	1.135	%	—	1.135%	(1.135%)

Valuation policies and procedures are managed by our finance group, which regularly monitors fair value measurements. Fair value measurements, including those categorized within Level 3, are prepared and reviewed on a quarterly basis and any third-party valuations are reviewed for reasonableness and compliance with the Fair Value Measurement Topic of the Accounting Standards Codification. Specifically, we compare prices received from our pricing service to prices reported by the custodian or third-party investment advisers, and we perform a review of the inputs, validating that they are reasonable and observable in the marketplace, if applicable. For our embedded contractual derivative asset and/or liability, we use internal historical and projected health care expenditure data and the national health care expenditures as reflected in the National External Trend Standards, which is published by CMS, to estimate the unobservable inputs. The growth rates in each of these health care expenditures are modeled using the Monte Carlo simulation approach, and the resulting value is discounted to the valuation date. We estimate our recurring Level 3 state-sponsored health plans settlement account deficit asset using the income approach based on discounted cash flows. We estimate our non-recurring Level 3 asset and goodwill for our Western Region Operations reporting unit using the income approach based on discounted cash flows. We estimate our non-recurring Level 3 assets held for sale based on a combination of the discounted total consideration expected to be received in connection with the services and asset sale agreements, income approach based on a discounted cash flow methodology, and replacement cost methodology.

The significant unobservable inputs used in the fair value measurement of our embedded contractual derivative are the estimated growth in Health Net health care expenditures and the estimated growth in national health care expenditures. Significant increases (decreases) in the estimated growth in Health Net health care expenditures or decreases (increases) in the estimated growth in national health expenditures would result in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of our state-sponsored health plans settlement account deficit asset is our discount rate. Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement.

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Stock Repurchase Program

9 Months Ended

Sep. 30, 2014

Class of Stock Disclosures [Abstract]

Stock Repurchase Program

STOCK REPURCHASE PROGRAM

On May 2, 2011, our Board of Directors authorized our stock repurchase program pursuant to which a total of $300 million of our outstanding common stock could be repurchased. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program, which, when taken together with the remaining authorization at that time, brought our total authorization up to $400.0 million.

Subject to the approval of our Board of Directors, we may repurchase our common stock under our stock repurchase program from time to time in privately negotiated transactions, through accelerated stock repurchase programs or open market transactions, including pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended. The timing of any repurchases and the actual number of shares of stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the Company’s debt obligations, and other market and economic conditions. Our stock repurchase program may be suspended or discontinued at any time.

During the three months ended September 30, 2013, we made no share repurchases and during the nine months ended September 30, 2013, we repurchased approximately 2.7 million shares of our common stock for aggregate consideration of $70.0 million under our stock repurchase program. As of December 31, 2013, the remaining authorization under our stock repurchase program was $280.0 million. During the three and nine months ended September 30, 2014, we repurchased approximately 1.5 million shares of our common stock for aggregate consideration of $69.0 million under our stock repurchase program. The remaining authorization under our stock repurchase program as of September 30, 2014 was $211.0 million.

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Financing Arrangements

9 Months Ended

Sep. 30, 2014

Financing Arrangements [Abstract]

Financing Arrangements

FINANCING ARRANGEMENTS

Revolving Credit Facility

In October 2011, we entered into a $600 million unsecured revolving credit facility due in October 2016, which includes a $400 million sublimit for the issuance of standby letters of credit and a $50 million sublimit for swing line loans (which sublimits may be increased in connection with any increase in the credit facility described below). In addition, we have the ability from time to time to increase the credit facility by up to an additional $200 million in the aggregate, subject to the receipt of additional commitments. As of September 30, 2014, $100.0 million was outstanding under our revolving credit facility, and the maximum amount available for borrowing under the revolving credit facility was $491.3 million (see "—Letters of Credit" below).

Amounts outstanding under our revolving credit facility bear interest, at the Company’s option, at either (a) the base rate (which is a rate per annum equal to the greatest of (i) the federal funds rate plus one-half of one percent, (ii) Bank of America, N.A.’s “prime rate” and (iii) the Eurodollar Rate (as such term is defined in the credit facility) for a one-month interest period plus one percent) plus an applicable margin ranging from 45 to 105 basis points or (b) the Eurodollar Rate plus an applicable margin ranging from 145 to 205 basis points. The applicable margins are based on our consolidated leverage ratio, as specified in the credit facility, and are subject to adjustment following the Company’s delivery of a compliance certificate for each fiscal quarter.

Our revolving credit facility includes, among other customary terms and conditions, limitations (subject to specified exclusions) on our and our subsidiaries’ ability to incur debt; create liens; engage in certain mergers, consolidations and acquisitions; sell or transfer assets; enter into agreements that restrict the ability to pay dividends or make or repay loans or advances; make investments, loans, and advances; engage in transactions with affiliates; and make dividends. In addition, we are required to be in compliance at the end of each fiscal quarter with a specified consolidated leverage ratio and consolidated fixed charge coverage ratio. As of September 30, 2014, we were in compliance with all covenants under the revolving credit facility.

Our revolving credit facility contains customary events of default, including nonpayment of principal or other amounts when due; breach of covenants; inaccuracy of representations and warranties; cross-default and/or cross-acceleration to other indebtedness of the Company or our subsidiaries in excess of $50 million; certain ERISA-related events; noncompliance by the Company or any of our subsidiaries with any material term or provision of the HMO Regulations or Insurance Regulations (as each such term is defined in the credit facility) in a manner that could reasonably be expected to result in a material adverse effect; certain voluntary and involuntary bankruptcy events; inability to pay debts; undischarged, uninsured judgments greater than $50 million against us and/or our subsidiaries that are not stayed within 60 days; actual or asserted invalidity of any loan document; and a change of control. If an event of default occurs and is continuing under the revolving credit facility, the lenders thereunder may, among other things, terminate their obligations under the facility and require us to repay all amounts owed thereunder.

Letters of Credit

Pursuant to the terms of our revolving credit facility, we can obtain letters of credit in an aggregate amount of $400 million and the maximum amount available for borrowing is reduced by the dollar amount of any outstanding letters of credit. As of September 30, 2014 and December 31, 2013, we had outstanding letters of credit of $8.7 million and $7.5 million, respectively, resulting in a maximum amount available for borrowing of $491.3 million and $492.5 million, respectively. As of September 30, 2014 and December 31, 2013, no amounts had been drawn on any of these letters of credit.

Senior Notes

In 2007, we issued $400 million in aggregate principal amount of 6.375% Senior Notes due 2017 ("Senior Notes"). The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge or sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified period, we will be required to make an offer to purchase the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid interest to the date of repurchase. As of September 30, 2014, no default or event of default had occurred under the indenture governing the Senior Notes.

The Senior Notes may be redeemed in whole at any time or in part from time to time, prior to maturity at our option, at a redemption price equal to the greater of:

• 100% of the principal amount of the Senior Notes then outstanding to be redeemed; or

• the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Notes to be redeemed (not including any portion of such payments of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve30-day months) at the applicable treasury rate plus 30 basis points

plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.

Each of the following will be an Event of Default under the indenture governing the Senior Notes:

• failure to pay interest for 30 days after the date payment is due and payable; provided that an extension of an interest payment period by us in accordance with the terms of the Senior Notes shall not constitute a failure to pay interest;

• failure to pay principal or premium, if any, on any note when due, either at maturity, upon any redemption, by declaration or otherwise;

• failure to perform any other covenant or agreement in the notes or indenture for a period of 60 days after notice that performance was required;

• (A) our failure or the failure of any of our subsidiaries to pay indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, at the later of final maturity and the expiration of any related applicable grace period and such defaulted payment shall not have been made, waived or extended within 30 days after notice or (B) acceleration of the maturity of indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, if that acceleration results from a default under the instrument giving rise to or securing such indebtedness for money borrowed and such indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days after notice; or

• events in bankruptcy, insolvency or reorganization of our Company.

Our Senior Notes payable balances were $399.5 million as of September 30, 2014 and $399.3 million as of December 31, 2013.

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Legal Proceedings

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings

LEGAL PROCEEDINGS

Overview

We record reserves and accrue costs for certain legal proceedings and regulatory matters to the extent that we determine an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect our best estimate of the probable loss for such matters, our recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to that they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings, each with a wide range of potential outcomes; or result in a change of business practices. Further, there may be various levels of judicial review available to the Company in connection with any such proceeding in the event damages are awarded or a fine or penalty is assessed. As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual period our financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including those described below in this Note 9 under the heading “Military and Family Life Counseling Program Putative Class and Collective Actions,” depending, in part, upon our financial condition, results of operations, cash flow or liquidity in such period, and our reputation may be adversely affected. Except for the regulatory and legal proceedings discussed in this Note 9 under the heading “Military and Family Life Counseling Program Putative Class and Collective Actions,” management believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against us should not have a material adverse effect on our financial condition, results of operations, cash flow and liquidity.

Military and Family Life Counseling Program Putative Class and Collective Actions

We are a defendant in three related litigation matters pending in the United States District Court for the Northern District of California (the “Northern District of California”) relating to the independent contractor classification of counselors (“MFLCs”) who contracted with our subsidiary, MHN Government Services, Inc. (“MHNGS”), to provide short-term, non-medical counseling at U.S. military installations throughout the country under our Military and Family Life Counseling (formerly Military and Family Life Consultants) program.

On June 14, 2011, two former MFLCs filed a putative class action in the Superior Court of the State of Washington for Pierce County against Health Net, Inc., MHNGS, and MHN Services d/b/a MHN Services Corporation (also a subsidiary), on behalf of themselves and a proposed class of current and former MFLCs who have performed services as independent contractors in the state of Washington from June 14, 2008 to the present. Plaintiffs claim that MFLCs were misclassified as independent contractors under Washington law and are entitled to the wages and overtime pay that they would have received had they been classified as non-exempt employees. Plaintiffs seek unpaid wages, overtime pay, statutory penalties, attorneys’ fees and interest. We moved to compel the case to arbitration, and the court denied the motion on September 30, 2011. We appealed the decision. The Washington Supreme Court affirmed the trial court’s decision on August 15, 2013. On February 26, 2014, we removed this case to the United States District Court for the Western District of Washington, pursuant to the Class Action Fairness Act.

On May 15, 2012, the same two MFLCs who filed the Washington action, as well as 12 other named plaintiffs, filed a proposed collective action lawsuit against the same defendants in the United States District Court for the Western District of Washington on behalf of themselves and other current and former MFLCs who have performed services as independent contractors nationwide from May 15, 2009 to the present. They allege misclassification under the federal Fair Labor Standards Act (“FLSA”) and seek unpaid wages, unpaid benefits, overtime pay, statutory penalties, attorneys’ fees and interest. They also seek penalties under California Labor Code section 226.8. The court has since transferred the case to the Northern District of California to relate it to a virtually identical suit filed on October 2, 2012 against MHNGS and Managed Health Network, Inc. (“MHN”) (also a subsidiary).

The third October 2012 suit alleges misclassification under the FLSA on behalf of a nationwide class, as well under several state laws on behalf of MFLCs who worked in California, New Mexico, Hawaii, Kentucky, New York, Nevada, and North Carolina. On October 24, 2013, the parties agreed to toll the statutes of limitations for overtime violations in the following states: Alaska, Colorado, Illinois, Maine, Maryland, Massachusetts, Montana, New Jersey, North Dakota, Ohio, and Pennsylvania.

On November 1, 2012, we moved to compel arbitration in the Northern District of California, and the court denied the motion on April 3, 2013. We noticed our appeal of that decision to the United States Court of Appeals for the Ninth Circuit on April 8, 2013. On April 25, 2013, the district court granted Plaintiffs’ motion for conditional FLSA collective action certification to allow notice to be sent to the FLSA collective action members. The court stayed all other proceedings pending an outcome in the Ninth Circuit appeal, which is scheduled for hearing on November 18, 2014.

On March 28, 2014, the original Washington case was transferred to the Northern District of California to relate it to the two FLSA suits pending there. On April 11, 2014, we moved to stay the suit pending the Ninth Circuit appeal. We also filed two alternative motions seeking an order to either compel the case to arbitration or dismiss Plaintiffs’ class claims and California Labor Code section 226.8 claims. On June 3, 2014, the court granted our motion to stay, and denied the later alternative motions without prejudice to renewal after the stay is lifted.

We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to many uncertainties.

Miscellaneous Proceedings

In the ordinary course of our business operations, we are subject to periodic reviews, investigations and audits by various federal and state regulatory agencies, including, without limitation, CMS, DMHC, the Office of Civil Rights of HHS and state departments of insurance, with respect to our compliance with a wide variety of rules and regulations applicable to our business, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, rules relating to pre-authorization penalties, payment of out-of-network claims, timely review of grievances and appeals, and timely and accurate payment of claims, any one of which may result in remediation of certain claims, contract termination, the loss of licensure or the right to participate in certain programs, and the assessment of regulatory fines or penalties, which could be substantial. From time to time, we receive subpoenas and other requests for information from, and are subject to investigations by, such regulatory agencies, as well as from state attorneys general. There also continues to be heightened review by regulatory authorities of, and increased litigation regarding, the health care industry’s business practices, including, without limitation, information privacy, premium rate increases, utilization management, appeal and grievance processing, rescission of insurance coverage and claims payment practices.

In addition, in the ordinary course of our business operations, we are party to various other legal proceedings, including, without limitation, litigation arising out of our general business activities, such as contract disputes, employment litigation, wage and hour claims, including, without limitation, cases involving allegations of misclassification of employees and/or failure to pay for off-the-clock work, real estate and intellectual property claims, claims brought by members or providers seeking coverage or additional reimbursement for services allegedly rendered to our members, but which allegedly were denied, underpaid, not timely paid or not paid, and claims arising out of the acquisition or divestiture of various business units or other assets. We also are subject to claims relating to the performance of contractual obligations to providers, members, employer groups and others, including the alleged failure to properly pay claims and challenges to the manner in which we process claims, and claims alleging that we have engaged in unfair business practices. In addition, we are subject to claims relating to information security incidents and breaches, reinsurance agreements, rescission of coverage and other types of insurance coverage obligations and claims relating to the insurance industry in general. In our role as a federal and state government contractor, we are, and may be in the future, subject to qui tam litigation brought by individuals who seek to sue on behalf of the government for violations of, among other things, state and federal false claims laws. We are, and may be in the future, subject to class action lawsuits brought against various managed care organizations and other class action lawsuits.

We intend to vigorously defend ourselves against the miscellaneous legal and regulatory proceedings to which we are currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against us, substantial non-economic or punitive damages are being sought.

Potential Settlements

We regularly evaluate legal proceedings and regulatory matters pending against us, including those described above in this Note 9, to determine if settlement of such matters would be in the best interests of the Company and its stockholders. The costs associated with any settlement of the various legal proceedings and regulatory matters to which we are or may be subject from time to time, including those described above in this Note 9, could be substantial and, in certain cases, could result in a significant earnings charge or impact on our cash flow in any particular quarter in which we enter into a settlement agreement and could have a material adverse effect on our financial condition, results of operations, cash flow and/or liquidity and may affect our reputation.

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Significant Accounting Policies (Accounting for Certain Provisions of the ACA) (Details) (USD $)	3 Months Ended		9 Months Ended			3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended			9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 ACA Health Insurer Fee [Member]	Sep. 30, 2014 ACA Health Insurer Fee [Member]	Sep. 30, 2014 ACA Reinsurance Recovery [Member]	Sep. 30, 2014 ACA Reinsurance Recovery [Member]	Sep. 30, 2014 ACA Risk Adjustment [Member]	Sep. 30, 2014 ACA Risk Adjustment [Member]	Sep. 30, 2014 ACA Risk Corridor [Member]	Sep. 30, 2014 ACA Risk Corridor [Member]	Mar. 31, 2014 No Risk [Member]	Dec. 31, 2013 No Risk [Member]	Jun. 30, 2014 Full Risk [Member]	Sep. 30, 2014 Medicaid Premium Revenue [Member]	Sep. 30, 2013 Medicaid Premium Revenue [Member]	Sep. 30, 2014 Medicaid Premium Revenue [Member]	Sep. 30, 2013 Medicaid Premium Revenue [Member]	Sep. 30, 2014 CALIFORNIA Medicaid Premium Revenue [Member] Customers	Sep. 30, 2014 ARIZONA Medicaid Premium Revenue [Member] Customers
Supplementary Insurance Information, by Segment [Line Items]
ACA Health Insurer Fee Payment							$ 141,400,000
Deferred cost, amortization expense						31,900,000	106,100,000
Other assets	157,066,000		157,066,000		132,683,000	35,300,000	35,300,000
Other noncurrent assets	173,230,000		173,230,000		162,551,000							72,000,000	72,000,000
Number of Customers																					1,500,000	80,000
Other receivables	307,369,000		307,369,000		68,919,000			142,600,000	142,600,000	69,900,000	69,900,000
Accounts payable and other liabilities	540,968,000		540,968,000		397,036,000					117,600,000	117,600,000
Health plans services premiums	3,631,617,000	2,606,754,000	9,774,840,000	7,817,697,000						(17,600,000)	(47,700,000)	44,700,000	72,000,000	0	4,400,000	154,700,000	1,397,700,000	641,600,000	3,381,600,000	1,833,600,000
Health plan services expenses	3,104,010,000	2,196,561,000	8,269,531,000	6,657,215,000				(32,000,000)	(142,600,000)					0	0	144,000,000
General and administrative expenses	373,623,000	267,683,000	1,079,380,000	804,355,000										0	4,400,000	0
Administrative services fees and other income	1,106,000	7,659,000	(3,108,000)	11,036,000										1,400,000	6,500,000	(7,900,000)
Pretax income	$ 22,723,000	$ 108,580,000	$ 183,485,000	$ 241,911,000										$ 1,400,000	$ 6,500,000	$ 2,800,000

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Legal Proceedings (Details) (Litigation Related to Military Family Life Consultants [Member])	Sep. 30, 2014 actions
Litigation Related to Military Family Life Consultants [Member]
Commitments and Contingencies [Line Items]
Number of pending litigations	3
Number of former MFLCs filing putative class action	2
Number of other named plaintiffs	12

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting Information, Additional Information [Abstract]

Segment Information

Our segment information for the three and nine months ended September 30, 2014 and 2013 is as follows:

	Western Region Operations		Government Contracts		Corporate/Other/ Eliminations			Total
	(Dollars in millions)
Three months ended September 30, 2014
Revenues from external sources	$	3,643.7	$	146.2	$	—		$	3,789.9
Intersegment revenues	3.1		—		(3.1		)	—
Segment pretax income (loss)	105.9		22.6		(105.8		)	22.7
Three months ended September 30, 2013
Revenues from external sources	$	2,625.7	$	149.3	$	—		$	2,775.0
Intersegment revenues	2.7		—		(2.7		)	—
Segment pretax income (loss)	85.2		23.5		(0.1		)	108.6
Nine months ended September 30, 2014
Revenues from external sources	$	9,805.8	$	444.4	$	—		$	10,250.2
Intersegment revenues	9.2		—		(9.2		)	—
Segment pretax income (loss)	239.6		57.1		(113.2		)	183.5
Nine months ended September 30, 2013
Revenues from external sources	$	7,886.7	$	423.8	$	—		$	8,310.5
Intersegment revenues	8.4		—		(8.4		)	—
Segment pretax income (loss)	204.3		50.6		(13.0		)	241.9

Premium Revenue by Line of Business

Our health plan services premium revenue by line of business is as follows:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
	(Dollars in millions)
Commercial premium revenue	$	1,430.8	$	1,279.8	$	4,072.4	$	3,903.8
Medicare premium revenue	763.3		685.4		2,275.7		2,080.3
Medicaid premium revenue	1,397.7		641.6		3,381.6		1,833.6
Dual Eligibles premium revenue	39.8		—		45.1		—
Total health plan services premiums	$	3,631.6	$	2,606.8	$	9,774.8	$	7,817.7

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Significant Accounting Policies (Health Plan Services Revenue Recognition) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Dec. 31, 2012
Health Care Organizations [Line Items]
Health plan services premiums	$ 3,631,617,000	$ 2,606,754,000	$ 9,774,840,000	$ 7,817,697,000
State Settlement Account Surplus	7,500,000		7,500,000
Commercial Premium Revenue [Member]
Health Care Organizations [Line Items]
MLR Rebate, Premium refund	0		0
Health plan services premiums	1,430,800,000	1,279,800,000	4,072,400,000	3,903,800,000
Medicare Premium Revenue [Member]
Health Care Organizations [Line Items]
Health plan services premiums	763,300,000	685,400,000	2,275,700,000	2,080,300,000
Medicaid Premium Revenue [Member]
Health Care Organizations [Line Items]
MLR Rebate Payable	45,300,000		45,300,000
MLR Rebate, Premium refund	(45,300,000)
Profit Sharing, Premium Refund			(11,900,000)
Health plan services premiums	1,397,700,000	641,600,000	3,381,600,000	1,833,600,000
Settlement account balance, beginning						0
Settlement account payment, maximum			264,000,000
Settlement account payment, current balance	0		0		62,900,000
Receivable with imputed interest, discount					4,400,000
Medicare Risk adjustment [Member] | Medicare Premium Revenue [Member]
Health Care Organizations [Line Items]
Health plan services premiums	(5,500,000)	1,000,000	14,500,000	(8,500,000)
Medicaid Retro Rate Adjustment [Member] | Medicaid Premium Revenue [Member]
Health Care Organizations [Line Items]
Health plan services premiums		32,100,000		74,300,000
State-sponsored health plans settlement account deficit [Member] | Medicaid Premium Revenue [Member]
Health Care Organizations [Line Items]
Health plan services premiums	$ (9,600,000)	$ 16,300,000	$ (62,900,000)	$ 51,700,000
Minimum [Member] | Medicaid Premium Revenue [Member]
Health Care Organizations [Line Items]
MLR Rebate Threshold	85.00%
Maximum [Member] | Medicaid Premium Revenue [Member]
Health Care Organizations [Line Items]
MLR Rebate Threshold	95.00%

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Fair Value Measurements (Assets Held-for-Sale) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Impairment Charges	$ 84,690,000	$ 0	$ 84,690,000	$ 0
Goodwill allocated to sale of business	0		0
Assets held for sale	50,000,000		50,000,000		0
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Property and equipment, net	50,000,000		50,000,000
Goodwill allocated to sale of business	0		0
Assets held for sale	50,000,000		50,000,000
Cognizant Technology Solutions [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Property and equipment, net	50,000,000		50,000,000
Property, Plant and Equipment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Impairment Charges	77,700,000
Goodwill [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Impairment Charges	$ 7,000,000

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Investments (Unrealized Loss Position for Investments) (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	$ 313.7	$ 925.6
Less than 12 Months, Unrealized Losses	(2.4)	(40.4)
12 Months or More, Fair Value	385.5	108.9
12 Months or More, Unrealized Losses	(8.7)	(8.0)
Total, Fair Value	699.2	1,034.5
Total, Unrealized Losses	(11.1)	(48.4)
Current [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	82.1	225.3
Less than 12 Months, Unrealized Losses	(0.4)	(7.9)
12 Months or More, Fair Value	148.0	22.5
12 Months or More, Unrealized Losses	(3.8)	(0.8)
Total, Fair Value	230.1	247.8
Total, Unrealized Losses	(4.2)	(8.7)
Current [Member] | U.S. Government and Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		4.0
Less than 12 Months, Unrealized Losses		0
12 Months or More, Fair Value		0
12 Months or More, Unrealized Losses		0
Total, Fair Value		4.0
Total, Unrealized Losses		0
Current [Member] | Obligations of States and Other Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	7.8	453.5
Less than 12 Months, Unrealized Losses	(0.1)	(23.5)
12 Months or More, Fair Value	169.0	79.7
12 Months or More, Unrealized Losses	(3.0)	(6.8)
Total, Fair Value	176.8	533.2
Total, Unrealized Losses	(3.1)	(30.3)
Current [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	223.8	242.8
Less than 12 Months, Unrealized Losses	(1.9)	(9.0)
12 Months or More, Fair Value	68.5	6.7
12 Months or More, Unrealized Losses	(1.9)	(0.4)
Total, Fair Value	292.3	249.5
Total, Unrealized Losses	(3.8)	(9.4)
Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	0.5	25.4
Less than 12 Months, Unrealized Losses	(0.1)	(3.2)
12 Months or More, Fair Value	2.6	34.4
12 Months or More, Unrealized Losses	(0.4)	(4.9)
Total, Fair Value	3.1	59.8
Total, Unrealized Losses	(0.5)	(8.1)
Noncurrent [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	0	0.5
Less than 12 Months, Unrealized Losses	0	(0.1)
12 Months or More, Fair Value	0.6	0.7
12 Months or More, Unrealized Losses	(0.2)	(0.1)
Total, Fair Value	0.6	1.2
Total, Unrealized Losses	(0.2)	(0.2)
Noncurrent [Member] | Obligations of States and Other Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		17.4
Less than 12 Months, Unrealized Losses		(2.2)
12 Months or More, Fair Value		29.6
12 Months or More, Unrealized Losses		(4.1)
Total, Fair Value		47.0
Total, Unrealized Losses		(6.3)
Noncurrent [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	0.5	7.5
Less than 12 Months, Unrealized Losses	(0.1)	(0.9)
12 Months or More, Fair Value	2.0	4.1
12 Months or More, Unrealized Losses	(0.2)	(0.7)
Total, Fair Value	2.5	11.6
Total, Unrealized Losses	$ (0.3)	$ (1.6)

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Premiums receivable, allowance for doubtful accounts	$ 1,279	$ 643
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	350,000,000	350,000,000
Common stock, shares issued	152,276,000	150,224,000
Treasury stock, shares	72,847,000	70,704,000
Current [Member]
Investments available for sale, amortized cost	1,656,529	1,602,456
Noncurrent [Member]
Investments available for sale, amortized cost	$ 3,538	$ 67,943

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Assets Held for Sale

9 Months Ended

Sep. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Assets Held for Sale

ASSETS HELD FOR SALE

On November 2, 2014, we signed a definitive seven-year master services agreement with Cognizant to provide consulting, technology and administrative services to us in the following areas: claims management, membership and benefits configuration, customer contact center services, information technology, quality assurance, appeals and grievance services and non-clinical medical management support. In addition, we have entered into an asset purchase agreement with Cognizant for the sale of certain of our software system assets to Cognizant for $50 million. The transaction, including the related asset purchase (the "Cognizant Transaction"), is expected to close in the first half of 2015, subject to the receipt of required regulatory approvals.

We have determined that the sale of these software system assets constitutes a sale of a business, and the requirements to classify these software system assets as held-for-sale have been met as of September 30, 2014. Assets held for sale are measured at the lower of carrying value or fair value less cost to sell. Accordingly, we have classified $50.0 million in assets as assets held for sale. The following table presents the major classes of assets included in this amount (dollars in millions):

	Assets Classified as Held for Sale		Impairment Loss			Assets Held for Sale as of September 30, 2014
Property and equipment, net	$	127.7	$	(77.7	)	$	50.0
Goodwill allocated to sale of business	7.0		(7.0		)	—
Assets held for sale	$	134.7	$ (	84.7	)	$	50.0

In connection with the pending sale, we have assessed the recoverability of goodwill and our long-lived assets, including property and equipment. As a result, in the three months ended September 30, 2014, we recorded $84.7 million in total asset impairments, including goodwill impairment of $7.0 million (see Note 2) and impairment of property and equipment of $77.7 million (see Note 8).

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Significant Accounting Policies (Health Plan Services Health Care Cost) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Health Care Organization Revenue and Expense [Line Items]
Prior Years Unfavorable Reserve Development	$ 9,700,000
Prior Years Favorable Reserve Development			16,900,000
Health plan services (excluding depreciation and amortization)	3,104,010,000	2,196,561,000	8,269,531,000	6,657,215,000
Provision For Adverse Deviation, Release	700,000		51,400,000
Provision For Adverse Deviation	77,000,000		77,000,000		53,400,000
Unfavorable Development [Member]
Health Care Organization Revenue and Expense [Line Items]
Health plan services (excluding depreciation and amortization)	$ 10,400,000		$ 34,500,000

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Investments (Fair Value of Investments Available-for-Sale) (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Carrying Value, Current	$ 1,664,830,000	$ 1,567,020,000
Carrying Value, Noncurrent	3,055,000	59,768,000
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,656,529,000	1,602,456,000
Gross Unrealized Holding Gains	19,400,000	12,900,000
Gross Unrealized Holding Losses	(11,100,000)	(48,400,000)
Carrying Value, Current	1,664,800,000	1,567,000,000
Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,538,000	67,943,000
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	(500,000)	(8,100,000)
Carrying Value, Noncurrent	3,100,000	59,800,000
Asset-Backed Securities [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	400,300,000	394,700,000
Gross Unrealized Holding Gains	2,800,000	3,400,000
Gross Unrealized Holding Losses	(4,200,000)	(8,700,000)
Carrying Value, Current	398,900,000	389,400,000
Asset-Backed Securities [Member] | Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	800,000	1,300,000
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	(200,000)	(200,000)
Carrying Value, Noncurrent	600,000	1,100,000
U.S. Government and Agencies [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	23,600,000	23,700,000
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	0	0
Carrying Value, Current	23,600,000	23,700,000
Obligations of States and Other Political Subdivisions [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	698,300,000	734,300,000
Gross Unrealized Holding Gains	13,900,000	5,900,000
Gross Unrealized Holding Losses	(3,100,000)	(30,300,000)
Carrying Value, Current	709,100,000	709,900,000
Obligations of States and Other Political Subdivisions [Member] | Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		53,400,000
Gross Unrealized Holding Gains		0
Gross Unrealized Holding Losses		(6,300,000)
Carrying Value, Noncurrent		47,100,000
Corporate Debt Securities [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	534,300,000	449,800,000
Gross Unrealized Holding Gains	2,700,000	3,600,000
Gross Unrealized Holding Losses	(3,800,000)	(9,400,000)
Carrying Value, Current	533,200,000	444,000,000
Corporate Debt Securities [Member] | Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,800,000	13,200,000
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	(300,000)	(1,600,000)
Carrying Value, Noncurrent	$ 2,500,000	$ 11,600,000

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Assets Held for Sale (Tables)

9 Months Ended

Sep. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Schedule of assets held for sale

The following table presents the major classes of assets included in this amount (dollars in millions):

	Assets Classified as Held for Sale		Impairment Loss			Assets Held for Sale as of September 30, 2014
Property and equipment, net	$	127.7	$	(77.7	)	$	50.0
Goodwill allocated to sale of business	7.0		(7.0		)	—
Assets held for sale	$	134.7	$ (	84.7	)	$	50.0