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, 2012

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 November 2, 2012 was 81,273,053 (excluding 67,420,878 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, 2012 and 2011	3
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011	4
Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	5
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2012 and 2011	6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011	7
Condensed Notes to Consolidated Financial Statements	8
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3—Quantitative and Qualitative Disclosures About Market Risk	56
Item 4—Controls and Procedures	57
Part II—OTHER INFORMATION
Item 1—Legal Proceedings	58
Item 1A—Risk Factors	58
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3—Defaults Upon Senior Securities	58
Item 4—Mine Safety Disclosures	58
Item 5—Other Information	58
Item 6—Exhibits	59
Signatures	60

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,
	2012			2011		2012			2011
Revenues
Health plan services premiums	$	2,578,689		$	2,487,767	$	7,818,565		$	7,379,951
Government contracts	169,811			175,845		527,421			1,221,987
Net investment income	16,355			15,188		63,356			64,114
Administrative services fees and other income	1,854			2,174		16,300			6,974
Divested operations and services revenue	12,863			10,976		25,668			34,446
Total revenues	2,779,572			2,691,950		8,451,310			8,707,472
Expenses
Health plan services (excluding depreciation and amortization)	2,281,388			2,149,310		6,983,502			6,389,881
Government contracts	151,815			127,884		467,531			1,080,864
General and administrative	222,425			215,952		688,457			822,083
Selling	61,053			57,965		181,004			175,947
Depreciation and amortization	7,907			6,937		22,722			24,066
Interest	8,021			7,774		24,895			23,632
Divested operations and services expenses	17,587			32,873		59,973			133,558
Adjustment to loss on sale of Northeast health plan subsidiaries	—			315		—			(40,822		)
Total expenses	2,750,196			2,599,010		8,428,084			8,609,209
Income from continuing operations before income taxes	29,376			92,940		23,226			98,263
Income tax provision	8,898			35,131		5,712			80,268
Income from continuing operations	20,478			57,809		17,514			17,995
Discontinued operations:
Income (loss) from discontinued operation, net of tax	—			4,003		(18,452		)	(6,078		)
(Adjustment to) gain on sale of discontinued operation, net of tax	(2,450		)	—		116,990			—
(Loss) income on discontinued operation, net of tax	(2,450		)	4,003		98,538			(6,078		)
Net income	$	18,028		$	61,812	$	116,052		$	11,917
Net income per share—basic:
Income from continuing operations	$	0.25		$	0.66	$	0.21		$	0.20
(Loss) income on discontinued operation, net of tax	$	(0.03	)	$	0.05	$	1.20		$	(0.07	)
Net income per share—basic	$	0.22		$	0.71	$	1.41		$	0.13
Net income per share—diluted:
Income from continuing operations	$	0.25		$	0.65	$	0.21		$	0.20
(Loss) income on discontinued operation, net of tax	$	(0.03	)	$	0.05	$	1.18		$	(0.07	)
Net income per share—diluted	$	0.22		$	0.70	$	1.39		$	0.13
Weighted average shares outstanding:
Basic	81,607			87,675		82,451			90,479
Diluted	82,039			88,874		83,447			91,899

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,
	2012			2011			2012			2011
Net income	$	18,028		$	61,812		$	116,052		$	11,917
Other comprehensive income before tax:
Unrealized gains (losses) on investments available-for-sale:
Unrealized holding gains arising during the period	36,554			16,219			64,126			44,604
Less: Reclassification adjustments for gains included in earnings	(4,272		)	(5,369		)	(29,661		)	(32,320		)
Unrealized gains on investments available-for-sale, net	32,282			10,850			34,465			12,284
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	1,038			157			3,114			471
Defined benefit pension plans, net	1,038			157			3,114			471
Other comprehensive income, before tax	33,320			11,007			37,579			12,755
Income tax expense related to components of other comprehensive income	13,065			4,286			26,280			5,141
Other comprehensive income, net of tax	20,255			6,721			11,299			7,614
Comprehensive income	$	38,283		$	68,533		$	127,351		$	19,531

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,
	2012			2011
ASSETS
Current Assets:
Cash and cash equivalents	$	312,579		$	230,253
Investments-available-for-sale (amortized cost: 2012-$1,607,413, 2011-$1,528,091)	1,671,678			1,557,997
Premiums receivable, net of allowance for doubtful accounts (2012-$2,854, 2011-$3,318)	310,804			251,911
Amounts receivable under government contracts	206,560			234,740
Other receivables	244,924			225,004
Deferred taxes	40,647			46,659
Other assets	151,042			117,876
Total current assets	2,938,234			2,664,440
Property and equipment, net	174,932			145,302
Goodwill	565,886			605,886
Other intangible assets, net	18,128			20,699
Deferred taxes	5,737			49,685
Investments-available-for-sale-noncurrent (amortized cost: 2012-$0, 2011-$2,450)	—			2,147
Other noncurrent assets	107,386			119,510
Total Assets	$	3,810,303		$	3,607,669
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Reserves for claims and other settlements	$	1,032,248		$	912,126
Health care and other costs payable under government contracts	58,410			88,440
Unearned premiums	128,194			176,733
Accounts payable and other liabilities	325,636			240,281
Total current liabilities	1,544,488			1,417,580
Senior notes payable	399,044			398,890
Borrowings under revolving credit facility	100,000			112,500
Other noncurrent liabilities	220,489			235,553
Total Liabilities	2,264,021			2,164,523
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 2012-148,689 shares; 2011-146,804 shares )	149			147
Additional paid-in capital	1,323,150			1,278,037
Treasury common stock, at cost (2012- 67,419 shares of common stock; 2011-64,847 shares of common stock)	(2,092,459		)	(2,023,129		)
Retained earnings	2,287,511			2,171,459
Accumulated other comprehensive income	27,931			16,632
Total Stockholders’ Equity	1,546,282			1,443,146
Total Liabilities and Stockholders’ Equity	$	3,810,303		$	3,607,669

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, 2011	145,121	$	145	$	1,221,301	(50,474	)	$	(1,626,856	)	$	2,099,339	$	487	$	1,694,416
Net income											11,917				11,917
Other comprehensive income													7,614		7,614
Exercise of stock options and vesting of restricted stock units	1,604	2		27,209											27,211
Share-based compensation expense				21,345											21,345
Tax benefit related to equity compensation plans				1,113											1,113
Repurchases of common stock						(11,706	)	(325,212		)					(325,212		)
Balance as of September 30, 2011	146,725	$	147	$	1,270,968	(62,180	)	$	(1,952,068	)	$	2,111,256	$	8,101	$	1,438,404
Balance as of January 1, 2012	146,804	$	147	$	1,278,037	(64,847	)	$	(2,023,129	)	$	2,171,459	$	16,632	$	1,443,146
Net income											116,052				116,052
Other comprehensive income													11,299		11,299
Exercise of stock options and vesting of restricted stock units	1,885	2		16,587											16,589
Share-based compensation expense				23,413											23,413
Tax benefit related to equity compensation plans				5,113											5,113
Repurchases of common stock						(2,572	)	(69,330		)					(69,330		)
Balance as of September 30, 2012	148,689	$	149	$	1,323,150	(67,419	)	$	(2,092,459	)	$	2,287,511	$	27,931	$	1,546,282

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,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	116,052		$	11,917
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Amortization and depreciation	22,722			24,066
Adjustment to loss on sale of business	—			(40,822		)
Gain on sale of discontinued operation	(116,990		)	—
Share-based compensation expense	23,413			21,345
Deferred income taxes	24,883			(14,400		)
Excess tax benefit on share-based compensation	(6,059		)	(1,279		)
Net realized (gain) loss on investments	(29,661		)	(32,320		)
Other changes	6,832			11,679
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Premiums receivable and unearned premiums	(173,387		)	305,568
Other current assets, receivables and noncurrent assets	(78,203		)	(70,468		)
Amounts receivable/payable under government contracts	3,218			26,453
Reserves for claims and other settlements	158,581			(68,987		)
Accounts payable and other liabilities	47,765			50,445
Net cash (used in) provided by operating activities	(834		)	223,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments	1,132,836			1,632,037
Maturities of investments	97,815			148,196
Purchases of investments	(1,283,227		)	(1,742,649		)
Purchases of property and equipment	(55,030		)	(32,136		)
Net cash received from sale of business	248,238			—
Purchase price adjustment on sale of Northeast Health Plans	—			82,101
Sales (purchases) of restricted investments and other	6,024			(9,647		)
Net cash provided by investing activities	146,656			77,902
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock purchases	16,589			12,309
Excess tax benefit on share-based compensation	6,059			1,279
Repurchases of common stock	(69,330		)	(313,440		)
Borrowings under financing arrangements	110,000			697,500
Repayment of borrowings under financing arrangements	(122,500		)	(552,500		)
Net increase (decrease) in checks outstanding, net of deposits	34			(40,817		)
Customer funds administered	(4,348		)	(79,232		)
Net cash used in financing activities	(63,496		)	(274,901		)
Net increase in cash and cash equivalents	82,326			26,198
Cash and cash equivalents, beginning of period	230,253			350,138
Cash and cash equivalents, end of period	$	312,579		$	376,336
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	$	16,990		$	16,783
Income taxes paid	5,058			28,209

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 consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011 (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 April 1, 2012, we completed the sale of the business operations of our Medicare stand-alone Prescription Drug Plan (Medicare PDP) business to Pennsylvania Life Insurance Company, a subsidiary of CVS Caremark Corporation (CVS Caremark). As a result of the sale, the operating results of our Medicare PDP business, previously reported within our Western Region Operations reportable segment, have been reclassified as discontinued operations in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011. See Note 3 for more information on the sale of our Medicare PDP business.

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 checks outstanding, net of deposits, of $34,000 as of September 30, 2012 and $0 as of December 31, 2011. 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 ended September 30, 2012 and 2011, 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

8

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 $417.8 million and $423.1 million as of September 30, 2012 and December 31, 2011, respectively. For the periods ending September 30, 2012 and December 31, 2011, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $112.5 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 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 can also 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 such as our Seniors and Persons with Disabilities population in California, 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. In each of the reporting periods for the three months ended September 30, 2012 and 2011, there were no material reserve developments related to prior years. For the nine months ended September 30, 2012, health care cost was impacted by approximately $33 million attributable to the revision of the previous estimate of incurred claims for prior years as a result of adverse prior year development. We believe this unfavorable reserve development for the nine months ended September 30, 2012 was primarily due to significant delays in claims submissions for the fourth quarter of 2011 arising from issues related to a new billing format required by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) coupled with an unanticipated flattening of commercial trends and higher commercial large group claims trend. For the nine months ended September 30, 2011,

9

health care cost was impacted by approximately $97 million of favorable reserve development related to prior years. This favorable development was primarily due to adjustments to our reserves that related to variables and uncertainties associated with our assumptions. As our reserve balance for older months of service decreased, and estimates of our incurred costs for older dates of service became more certain and predictable, our estimates of incurred claims related to prior periods were adjusted accordingly.

There were nomaterial changes to the provision for adverse deviation for the three and nine months ended September 30, 2012 and 2011.

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.

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 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 Centers for Medicare & Medicaid Services (CMS) for coverage of Medicare-eligible individuals. Furthermore, all of our Medicaid/Medi-Cal revenue is derived in California through our relationship with the State of California Department of Health Care Services (DHCS). As a result, 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.

10

Our accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 is 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, 2011	$	6.0	$	(4.6	)	$	1.4
Other comprehensive income for the three months ended September 30, 2011	6.6		0.1			6.7
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of July 1, 2012	$	19.6	$	(11.9	)	$	7.7
Other comprehensive income for the three months ended September 30, 2012	19.6		0.6			20.2
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9
Nine Months Ended September 30:
Balance as of January 1, 2011	$	5.3	$	(4.8	)	$	0.5
Other comprehensive income for the nine months ended September 30, 2011	7.3		0.3			7.6
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of January 1, 2012	$	29.8	$	(13.2	)	$	16.6
Other comprehensive income for the nine months ended September 30, 2012	9.4		1.9			11.3
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9

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 and nine months ended September 30, 2012, respectively, 432,000 and 996,000 shares of dilutive common stock equivalents were outstanding. For the three and nine months ended September 30, 2011, respectively, 1,199,000 and 1,420,000 shares of dilutive common stock equivalents were outstanding.

For the three and nine months ended September 30, 2012, respectively, an aggregate of 4,342,000 and 1,819,000 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, 2011, respectively, 2,853,000 and 2,165,000 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 April 2019.

In March 2010, our Board of Directors authorized a $300 million stock repurchase program (2010 stock repurchase program). We completed our 2010 stock repurchase program in April 2011. In May 2011, our Board of Directors authorized a new stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (2011 stock repurchase program). As of December 31, 2011, the remaining authorization under our 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. The remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 million. See Note 6 for more information regarding our 2010 and 2011 stock repurchase programs.

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Goodwill and Other Intangible Assets

We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2012 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, 2011	$605.9	$605.9
Goodwill allocated to Medicare PDP business sold	(40.0)	(40.0)
Balance as of September 30, 2012	$565.9	$565.9

On April 1, 2012, we completed the sale of our Medicare PDP business. See Note 3 for additional information regarding the sale of our Medicare PDP business. Our Medicare PDP business was previously reported as part of our Western Region Operations reporting unit. As of March 31, 2012, we re-allocated a portion of the Western Region Operations reporting unit goodwill to the Medicare PDP business based on relative fair values of the reporting unit with and without the Medicare PDP business. Our measurement of fair value is based on a combination of the income approach based on a discounted cash flow methodology and the discounted total consideration received in connection with the sale of our Medicare PDP business. 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 value to the related carrying value and concluded that no impairment to either the carrying value of our Medicare PDP business or our Western Region Operations reporting unit had occurred. Based on the result of the first step test, we did not need to complete the second step test. 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, the Company’s ability to adequately incorporate into its premium rates the future costs of premium-based assessments imposed by the Patient Protection and Affordable Care Act and the Health Care and Reconciliation Act of 2010, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of the dual eligibles pilot program. 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 June 30, 2011 and June 30, 2012, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 180% and 115%, 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, 2012:
Provider networks	$40.5	$(34.4)	$6.1	19.4
Customer relationships and other	29.5	(17.5)	12.0	11.1
	$70.0	$(51.9)	$18.1
As of December 31, 2011:
Provider networks	$40.5	$(33.6)	$6.9	19.4
Customer relationships and other	29.5	(15.7)	13.8	11.1
	$70.0	$(49.3)	$20.7

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
2012	$	3.4
2013	3.4
2014	2.8
2015	2.6
2016	2.0

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, 2012 and December 31, 2011, the restricted cash and cash equivalents balances totaled $0.9 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $26.2 million and $20.7 million as of September 30, 2012 and December 31, 2011, respectively, and are included in investments available-for-sale.

Divested Operations and Services

Divested operations and services revenues and expenses include items related to the run-out of our Northeast business that was sold on December 11, 2009. Prior to the first quarter of 2012, these line items had been called Northeast administrative services fees and other revenues and expenses. Due to the sale of our Medicare PDP business on April 1, 2012, starting with the first quarter of 2012, Divested operations and services revenues and expenses also include transition-related revenues and expenses related to the sale of our Medicare PDP business. We provide Medicare PDP transition-related services to CVS Caremark in connection with the transaction. We expect to continue to provide the majority of these services through December 31, 2012, although certain transition-related services may continue through December 31, 2013. See Note 3 for additional information regarding the sale of our Medicare PDP business and the sale of our Northeast business, and see Note 4 for information regarding the change to our reportable segments as a result of the sale of our Medicare PDP business.

Government Contracts

On April 1, 2011, we began delivering administrative services under a new Managed Care Support Contract (T-3) with the United States Department of Defense (DoD) for the TRICARE North Region. The T-3 contract was awarded to us on May 13, 2010. We were the managed care contractor for the DoD's previous TRICARE contract in the North Region, which ended on March 31, 2011.

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The T-3 contract has five one-year option periods. On March 15, 2011, the DoD exercised option period 2 (without exercising option period 1), due to a delay of approximately one year in the government's initial award of the T-3 contract. Accordingly, option period 2 commenced on April 1, 2011. On March 22, 2012, the DoD exercised option period 3, which commenced on April 1, 2012. If all remaining option periods are exercised, the T-3 contract would conclude on March 31, 2015.

We provide various types of administrative services under the contract, including: provider network management, referral management, medical management, disease management, enrollment, customer service, clinical support service, and claims processing. We also provided assistance in the transition into the T-3 contract, and will provide assistance in any transition out of the T-3 contract. 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.

In accordance with GAAP, we evaluate, at the inception of the contract and as services are delivered, all deliverables in the service arrangement to determine whether they represent separate units of accounting. The delivered items are considered separate units of accounting if the delivered items have value to the customer on a standalone basis (i.e., they are sold separately by any vendor) and no general right of return exists relative to the delivered item. While we identified two separate units of accounting within the T-3 contract, no determination of estimated selling price was performed because both units of accounting are performed ratably over the option periods and, accordingly, the same methodology of revenue recognition applies to both units of accounting.

Therefore, we recognize revenue related to administrative services on a straight-line basis over the option period, when the fees become fixed and determinable.

The T-3 contract 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.

The transition-in process for the T-3 contract began in the second quarter of 2010. We had deferred transition-in costs of $43.8 million, which we began amortizing on April 1, 2011 on a straight-line basis, and we had related deferred revenues of $52.5 million, which are being amortized over the customer relationship period. Fulfillment costs associated with the T-3 contract are expensed as incurred.

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

The TRICARE 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. Health care costs for the T-3 contract that are paid and reimbursable amounted to $638.8 million and $1,957.2 million for the three and nine months ended September 30, 2012, respectively, and amounted to $569.4 million and $991.0 million for the three and nine months ended September 30, 2011, respectively.

In addition to the beneficiaries that we service under the T-3 contract, we provide behavioral health services to military families under the DoD Military and Family Life Counseling, formerly Military and Family Life Consultant (MFLC) program. On August 15, 2012, we entered into a new MFLC contract awarded by the DoD. The new contract has a five-year term that includes a 12-month base period and four 12-month option periods. As a result of the revised terms and structure of the new MFLC contract and the government's decision to award the new MFLC contract to multiple contractors, we anticipate that the revenues we receive from the new contract will be substantially reduced in comparison to our original MFLC contract.

CMS Risk Adjustment Data Validation Audit Methodology

On February 24, 2012, CMS published its final payment error calculation methodology for Medicare Advantage risk adjustment data validation contract-level audits (RADV audits). CMS will begin applying the final methodology for RADV audits of the 2011 payment year. The final methodology provides for payment recovery based on extrapolated estimates of payment error rates. However, the final methodology also includes, among other things, a fee-for-service adjuster, which would limit our payment liability to an error rate in excess of CMS' own fee-for-service error rate. CMS' final methodology is complex and we continue to evaluate its potential impact on us, but potential payment adjustments could have a material adverse effect on our results of operations and financial condition.

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3. SALE OF MEDICARE PDP BUSINESS AND NORTHEAST BUSINESS

Sale of Medicare PDP Business

On April 1, 2012, our subsidiary Health Net Life Insurance Company (HNL) sold substantially all of the assets, properties and rights of HNL used primarily or exclusively in our Medicare PDP business to CVS Caremark and CVS Caremark assumed certain related liabilities and obligations of HNL as set forth in the related Asset Purchase Agreement. At the closing of the sale, CVS Caremark paid to us $169.9 million (PDP Purchase Price) in cash, representing $400 multiplied by 424,820, the number of individuals enrolled as members of a PDP plan of HNL as of the closing date. The PDP Purchase Price was subject to adjustment based on pretax cash flow, net asset valuation and prepaid expenses (the financial adjustment) and enrollee numbers related to our Medicare PDP business, each as set forth in the Asset Purchase Agreement. In June 2012, we received $78.3 million in cash from CVS Caremark, which represented the net financial adjustment to the PDP Purchase Price. We recognized a $132.8 million pretax gain on the sale of our Medicare PDP business, or $117.0 million net of tax, and this after tax gain was reported as Gain on sale of discontinued operation, net of tax.

In connection with the transaction, we are not permitted to offer Medicare PDP plans for one year following the closing, subject to certain exceptions. We continue to provide prescription drug benefits as part of our Medicare Advantage plan offerings.

In addition, we provide Medicare PDP transition-related services to CVS Caremark in connection with the transaction. We expect to continue to provide the majority of these services through December 31, 2012, although certain transition-related services may continue through December 31, 2013. We recognized the value of future transition-related services to be provided under the Asset Purchase Agreement of $12.0 million as deferred revenue at fair value as of April 1, 2012. This deferred revenue is amortized on a straight-line basis over a nine-month period. The fair value of such deferred revenue was estimated using the income approach based on discounted cash flows. This fair value measurement is based on significant unobservable Level 3 inputs, which include costs associated with providing the transition-related and other services and a discount rate of 1.2 percent. See Note 8 for additional information regarding the fair value measurement of this deferred revenue. Revenues and expenses from these transition-related services are reported as part of Divested operations and services revenue and expenses (see Notes 2 and 4).

As a result of the sale, the operating results of our Medicare PDP business, previously reported within the Western Region Operations reportable segment, have been reclassified as discontinued operations in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011. Our revenues related to our Medicare PDP business were $0 and $191.8 million for the three and nine months ended September 30, 2012, respectively, and $94.6 million and $381.5 million for the three and nine months ended September 30, 2011, respectively. These revenues were excluded from our continuing operating results and included in income (loss) from discontinued operation. Our Medicare PDP business had a pretax income (loss) of $0 and $(28.8) million for the three and nine months ended September 30, 2012, respectively, and $6.2 million and $(9.5) million for the three and nine months ended September 30, 2011, respectively. As of September 30, 2011, we had approximately 381,000 Medicare stand-alone Prescription Drug Plan members. As of September 30, 2012, we had no Medicare stand-alone Prescription Drug Plan members.

Northeast Sale

On December 11, 2009, we completed the sale (the Northeast Sale) of all of the outstanding shares of capital stock of our health plan subsidiaries that were domiciled and had conducted businesses in Connecticut, New Jersey, New York and Bermuda (Acquired Companies) to an affiliate of UnitedHealth Group Incorporated (United). As part of the Northeast Sale, we were required to continue to serve the members of the Acquired Companies and provide certain administrative services to United until July 1, 2011 under administrative services agreements, and we are required to provide run-out support services under claims servicing agreements with United, which will be in effect until the last run out claim under the applicable claims servicing agreement has been adjudicated. All revenues and expenses related to the Northeast Sale, including those relating to the administrative services and/or claims servicing agreements and any revenues and expenses related to the run-out, are reported as part of Divested operations and services revenue and expenses. During the three and nine months ended September 30, 2012, we recorded no adjustment to the loss on sale of Northeast health plan subsidiaries, and during the three and nine months ended September 30, 2011, we recorded a $0.3 million addition and $40.8 million reduction to the loss on sale of Northeast health plan subsidiaries, respectively.

4. SEGMENT INFORMATION

Following the execution of the Asset Purchase Agreement to sell our Medicare PDP business in the first quarter

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of 2012, we reviewed our reportable segments. As a result of this review, beginning in the first quarter of 2012, our Divested Operations and Services reportable segment, formerly called the "Northeast Operations" reportable segment, also includes the transition-related expenses of our Medicare PDP business that was sold on April 1, 2012. Accordingly, all services provided in connection with divested businesses are now reported as part of our Divested Operations and Services reportable segment.

We operate within three reportable segments, Western Region Operations, Government Contracts and Divested Operations and Services. Our Western Region Operations reportable segment includes the operations of our commercial, Medicare and Medicaid health plans, our health and life insurance companies, and our behavioral health and pharmaceutical services subsidiaries. These operations are conducted primarily in California, Arizona, Oregon and Washington. As a result of the classification of our Medicare PDP business as discontinued operations, our Western Region Operations reportable segment excludes the operating results of our Medicare PDP business for the three and nine months ended September 30, 2012 and 2011. Our Government Contracts reportable segment includes government-sponsored managed care and administrative services contracts through the TRICARE program, the Department of Defense MFLC program and other health care-related government contracts. For the three and nine months ended September 30, 2011, our Divested Operations and Services reportable segment included the operations of our businesses that provided administrative services to United in connection with the Northeast Sale. Beginning in the first quarter of 2012, our Divested Operations and Services reportable segment also includes the transition-related revenues and expenses of our Medicare PDP business that was sold on April 1, 2012. Prior period segment information has been conformed to this current presentation in this Quarterly Report on Form 10-Q. See Note 3 for more information regarding the sale of our Medicare PDP business and the Northeast Sale.

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 that 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 our reportable segments are the same as those described in Note 2 to the consolidated financial statements included in our Form 10-K, 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 operations strategy and corporate overhead cost reduction efforts, as well as asset impairments, are reported as part of Corporate/Other.

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Our segment information for the three and nine months ended September 30, 2012 and 2011 is as follows:

	Western Region Operations		Government Contracts		Divested Operationsand Services			Corporate/Other/ Eliminations			Total
	(Dollars in millions)
Three Months Ended September 30, 2012
Revenues from external sources	$	2,596.9	$	169.8	$	12.9		$	—		$	2,779.6
Intersegment revenues	2.7		—		—			(2.7		)	—
Segment pretax income (loss)	20.2		21.1		(4.7		)	(7.2		)	29.4
Three Months Ended September 30, 2011
Revenues from external sources	$	2,505.1	$	175.9	$	11.0		$	—		$	2,692.0
Intersegment revenues	3.0		—		—			(3.0		)	—
Segment pretax income (loss)	71.8		48.1		(22.4		)	(4.6		)	92.9
Nine Months Ended September 30, 2012
Revenues from external sources	7,898.2		527.4		25.7			—			8,451.3
Intersegment revenues	8.3		—		—			(8.3		)	—
Segment pretax income (loss)	12.6		66.6		(34.4		)	(21.6		)	23.2
Nine Months Ended September 30, 2011
Revenues from external sources	7,448.6		1,222.0		36.9			—			8,707.5
Intersegment revenues	8.9		—		—			(8.9		)	—
Segment pretax income (loss)	207.1		146.2		(58.9		)	(196.1		)	98.3

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(Dollars in millions)
Commercial premium revenue	$	1,420.4	$	1,494.8	$	4,310.0	$	4,466.0
Medicare premium revenue	682.9		605.3		2,089.4		1,844.8
Medicaid premium revenue	475.4		387.7		1,419.2		1,066.9
Total Western Region Operations health plan services premiums	2,578.7		2,487.8		7,818.6		7,377.7
Total Divested Operations and Services health plan services premiums	—		—		—		2.3
Total health plan services premiums	$	2,578.7	$	2,487.8	$	7,818.6	$	7,380.0

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 available-for-sale investments 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, 2012 and 2011, we recognized no losses from other-than-temporary impairments of our cash equivalents and available-for-sale investments.

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We had no noncurrent available-for-sale investments as of September 30, 2012. As of December 31, 2011, we classified $2.1 million as investments available-for-sale-noncurrent because we did not intend to sell and we believed it may take longer than a 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 value as of December 31, 2011.

As of September 30, 2012 and December 31, 2011, 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, 2012
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	575.0	$	22.9	$	—		$	597.9
U.S. government and agencies	26.0		—		—			26.0
Obligations of states and other political subdivisions	609.9		23.6		—			633.5
Corporate debt securities	396.5		17.9		(0.1		)	414.3
	$	1,607.4	$	64.4	$	(0.1	)	$	1,671.7

	December 31, 2011
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	611.9	$	10.6	$	(0.2	)	$	622.3
U.S. government and agencies	32.5		—		—			32.5
Obligations of states and other political subdivisions	498.7		19.5		(0.1		)	518.1
Corporate debt securities	385.0		4.3		(4.2		)	385.1
	$	1,528.1	$	34.4	$	(4.5	)	$	1,558.0
Noncurrent:
Corporate debt securities	$	2.4	$	—	$	(0.3	)	$	2.1

As of September 30, 2012, the contractual maturities of our current investments available-for-sale were as follows:

	Amortized Cost		Estimated Fair Value
Current:	(Dollars in millions)
Due in one year or less	$	33.0	$	33.1
Due after one year through five years	190.4		197.2
Due after five years through ten years	406.4		427.2
Due after ten years	402.6		416.3
Asset-backed securities	575.0		597.9
Total current investments available-for-sale	$	1,607.4	$	1,671.7

Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2012 were $117.6 million and $1,132.8 million, respectively. Gross realized gains and losses totaled $4.3 million and $36,000, respectively, for the three months ended September 30, 2012, and $30.1 million and $0.4 million, respectively, for the nine months ended September 30, 2012. Proceeds from sales of investments available-for-sale

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during the three and nine months ended September 30, 2011 were $434.2 million and $1,632.0 million, respectively. Gross realized gains and losses totaled $7.9 million and $2.5 million, respectively, for the three months ended September 30, 2011, and $37.2 million and $4.9 million, respectively, for the nine months ended September 30, 2011.

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, 2012 and December 31, 2011. 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 may also be negatively impacted by illiquidity in the market.

The following table shows our current investments' fair values and gross unrealized losses for individual securities in a continuous loss position as of September 30, 2012:

	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	$	6.0	$	—		$	—	$	—	$	6.0	$	—
U.S. government and agencies	10.3		—			—		—		10.3		—
Obligations of states and other political subdivisions	9.8		—			0.3		—		10.1		—
Corporate debt securities	8.5		(0.1		)	—		—		8.5		(0.1		)
	$	34.6	$	(0.1	)	$	0.3	$	—	$	34.9	$	(0.1	)

The following table shows the number of our individual securities-current that have been in a continuous loss position at September 30, 2012:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	9	1	10
U.S. government and agencies	2	—	2
Obligations of states and other political subdivisions	5	1	6
Corporate debt securities	8	—	8
	24	2	26

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, 2011:

	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	$	30.5	$	(0.2	)	$	1.1	$	—		$	31.6	$	(0.2	)
U.S. government and agencies	—		—			—		—			—		—
Obligations of states and other political subdivisions	7.5		—			3.0		(0.1		)	10.5		(0.1		)
Corporate debt securities	149.3		(4.1		)	1.4		(0.1		)	150.7		(4.2		)
	$	187.3	$	(4.3	)	$	5.5	$	(0.2	)	$	192.8	$	(4.5	)

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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 December 31, 2011:

	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in millions)
Corporate debt securities	$	2.1	$	(0.3	)	$	—	$	—	$	2.1	$	(0.3	)

6. STOCK REPURCHASE PROGRAM

On March 18, 2010, our Board of Directors authorized our 2010 stock repurchase program pursuant to which a total of $300 million of our common stock could be repurchased. We completed our 2010 stock repurchase program in April 2011. During the nine months ended September 30, 2011, we repurchased 4.9 million shares of our common stock for aggregate consideration of approximately $149.8 million under our 2010 stock repurchase program. As of December 31, 2011, we had repurchased an aggregate of 10.8 million shares of our common stock under our 2010 stock repurchase program at an average price of $27.80 per share for aggregate consideration of $300.0 million.

On May 2, 2011, our Board of Directors authorized our 2011 stock repurchase program pursuant to which a total of $300.0 million of our outstanding common stock could be repurchased. As of December 31, 2011, the remaining authorization under our 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. Subject to the approval of our Board of Directors, we may repurchase our common stock under our 2011 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 2011 stock repurchase program may be suspended or discontinued at any time.

During the three and nine months ended September 30, 2012, we repurchased 1.5 million shares and 2.1 million shares, respectively, of our common stock for aggregate consideration of $36.1 million and $50.0 million, respectively, under our 2011 stock repurchase program. The remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 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 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, 2012, $100.0 million was outstanding under our revolving credit facility and the maximum amount available for borrowing under the revolving credit facility was $440.6 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.

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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.

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, 2012 and December 31, 2011, we had outstanding letters of credit of $59.4 million and $59.4 million, respectively, resulting in a maximum amount available for borrowing of $440.6 million and $428.1 million, respectively. As of September 30, 2012 and December 31, 2011, 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, 2012, 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.

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Our Senior Notes payable balances were $399.0 million as of September 30, 2012 and $398.9 million as of December 31, 2011.

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. The investments included in Level 3 are auction rate securities that have experienced failed auctions at one time or are experiencing failed auctions and thus have minimal liquidity. These bonds have frequent reset of coupon rates and have extended to the legal final maturity. The coupons are based on a margin plus a LIBOR rate and continue to pay above market rates. As with most variable or floating rate securities, we believe that based on a market approach, the fair values of these securities are equal to their par values due to the short time periods between coupon resets and based on each issuer’s credit worthiness. Also included in the Level 3 category is an embedded contractual derivative 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.

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, 2012 and December 31, 2011, 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- current		Level 2- noncurrent		Level 3		Total
As of September 30, 2012:
Assets:
Cash and cash equivalents	$	312.6	$	—	$	—	$	—	$	312.6
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	372.0	$	—	$	—	$	372.0
Commercial mortgage-backed securities	—		201.7		—		—		201.7
Other asset-backed securities	—		24.2		—		—		24.2
U.S. government and agencies:
U.S. Treasury securities	26.0		—		—		—		26.0
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		633.3		—		0.2		633.5
Corporate debt securities	—		414.3		—		—		414.3
Total investments at fair value	$	26.0	$	1,645.5	$	—	$	0.2	$	1,671.7
Embedded contractual derivative	—		—		—		7.2		7.2
Total assets at fair value	$	338.6	$	1,645.5	$	—	$	7.4	$	1,991.5

	Level 1		Level 2- current		Level 2- noncurrent		Level 3		Total
As of December 31, 2011:
Assets:
Cash and cash equivalents	$	230.3	$	—	$	—	$	—	$	230.3
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	495.3	$	—	$	—	$	495.3
Commercial mortgage-backed securities	—		94.4		—		—		94.4
Other asset-backed securities	—		32.6		—		—		32.6
U.S. government and agencies:
U.S. Treasury securities	25.5		—		—		—		25.5
U.S. Agency securities	—		7.0		—		—		7.0
Obligations of states and other political subdivisions	—		517.9		—		0.2		518.1
Corporate debt securities	—		385.1		2.1		—		387.2
Total investments at fair value	$	25.5	$	1,532.3	$	2.1	$	0.2	$	1,560.1
Embedded contractual derivative	—		—		—		5.3		5.3
Total assets at fair value	$	255.8	$	1,532.3	$	2.1	$	5.5	$	1,795.7

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, 2012 and 2011. 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.

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The changes in the balances of Level 3 financial assets for the three months endedSeptember 30, 2012 and 2011 were as follows (dollars in millions):

	Three Months Ended September 30,
	2012								2011
	Available-For-Sale Investments		Embedded Contractual Derivative			Total			Available-For-Sale Investments			Embedded Contractual Derivative		Total
Opening balance	$	0.2	$	15.0		$	15.2		$	9.9		$	0.8	$	10.7
Transfers into Level 3	—		—			—			—			—		—
Transfers out of Level 3	—		—			—			—			—		—
Total gains or losses for the period
Realized in net income	—		(7.8		)	(7.8		)	(2.4		)	0.7		(1.7		)
Unrealized in accumulated other comprehensive income	—		—			—			—			—		—
Purchases, issues, sales and settlements
Purchases/additions	—		—			—			—			—		—
Issues	—		—			—			—			—		—
Sales	—		—			—			(7.3		)	—		(7.3		)
Settlements	—		—			—			—			—		—
Closing balance	$	0.2	$	7.2		$	7.4		$	0.2		$	1.5	$	1.7
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 endedSeptember 30, 2012 and 2011 were as follows (dollars in millions):

	Nine Months Ended September 30,
	2012						2011
	Available-For-Sale Investments		Embedded Contractual Derivative		Total		Available-For-Sale Investments			Embedded Contractual Derivative		Total
Opening balance	$	0.2	$	5.3	$	5.5	$	9.9		$	—	$	9.9
Transfers into Level 3	—		—		—		—			—		—
Transfers out of Level 3	—		—		—		—			—		—
Total gains or losses for the period
Realized in net income	—		1.9		1.9		(2.4		)	1.5		(0.9		)
Unrealized in accumulated other comprehensive income	—		—		—		—			—		—
Purchases, issues, sales and settlements
Purchases/additions	—		—		—		—			—		—
Issues	—		—		—		—			—		—
Sales	—		—		—		(7.3		)	—		(7.3		)
Settlements	—		—		—		—			—		—
Closing balance	$	0.2	$	7.2	$	7.4	$	0.2		$	1.5	$	1.7
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—	$	—		$	—	$	—

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The following table presents information about financial assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (dollars in millions):

	Level 1		Level 2		Level 3		Total
Goodwill allocated to Medicare PDP business sold	$	—	$	—	$	—	$	—
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale	$	—	$	—	$	4.0	$	4.0

The changes in the balances of Level 3 financial assets and liabilities that are fair valued on a non-recurring basis for the three and nine months ended September 30, 2012 were as follows (dollars in millions):

	Three Months Ended September 30, 2012					Nine Months Ended September 30, 2012
	Goodwill allocated to Medicare PDP business sold		Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale			Goodwill allocated to Medicare PDP business sold			Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale
Beginning balance: goodwill of discontinued operation held for sale and deferred revenues	$	—	$	8.0		$	40.0		$	—
Goodwill allocated to Medicare PDP business sold and deferred revenue, realized in net income	—		(4.0		)	(40.0		)	(8.0		)
Additions	—		—			—			12.0
Ending balance	$	—	$	4.0		$	—		$	4.0

The following table presents quantitative information about Level 3 Fair Value Measurements (dollars in millions):

	Fair Value as of September 30, 2012		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative	$	7.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-2.2		%	—	13.0%	(2.2%)
				National Health Care Expenditures	-1.6		%	—	7.9%	(3.1%)
Goodwill - Western Region reporting unit	$	565.9
			Income Approach	Discount Rate	9		%	—	9%	(9%)
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale	$	4.0		Monthly costs estimated in connection with providing transition-related and other services	$	4.9		—	$4.9	($4.9)
			Income Approach	Discount rate	1.2		%	—	1.2%	(1.2%)

Valuation policies and procedures are managed by our finance group, which regularly monitors fair value

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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 advisors 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, 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 estimated our non-recurring Level 3 assets of discontinued operation held for sale, goodwill allocated to our Medicare PDP business, which was sold on April 1, 2012, goodwill for our Western Region Operations reporting unit and the deferred revenues related to transition-related services provided in connection with the sale of our Medicare PDP business using the income approach based on discounted cash flows. See Note 3 for additional information regarding the sale of our Medicare PDP business and the deferred revenues related to the transition-related services provided in connection with such sale.

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.

9. LEGAL PROCEEDINGS

Litigation and Investigations Related to Unaccounted-for Server Drives

We are a defendant in three related litigation matters pending in California state and federal courts relating to information security issues. On January 21, 2011, International Business Machines Corp. (IBM), which handles our data center operations, notified us that it could not locate several hard disk drives that had been used in our data center located in Rancho Cordova, California. We have since determined that personal information of approximately two million former and current Health Net members, employees and health care providers is on the drives. Commencing on March 14, 2011, we provided written notification to the individuals whose information is on the drives. To help protect the personal information of affected individuals, we offered them two years of free credit monitoring services, in addition to identity theft insurance and fraud resolution and restoration of credit files services, if needed.

On March 18, 2011, a putative class action relating to this incident was filed against us in the U.S. District Court for the Central District of California (the Central District of California), and similar actions were later filed against us in other federal and state courts in California. A number of those actions were transferred to and consolidated in the U.S. District Court for the Eastern District of California (the Eastern District of California), and the two remaining actions are currently pending in the Superior Court of California, County of San Francisco (San Francisco County Superior Court) and the Superior Court of California, County of Sacramento (Sacramento County Superior Court). The consolidated amended complaint in the federal action pending in the Eastern District of California was filed on behalf of a putative class of over 800,000 of our current or former members who received the written notification, and also named IBM as a defendant. It sought to state claims for violation of the California Confidentiality of Medical Information Act and the California Customer Records Act, and sought statutory damages of up to $1,000 for each class member, as well as injunctive and declaratory relief, attorneys’ fees and other relief. On August 29, 2011, we filed a motion to dismiss the consolidated complaint. On January 20, 2012, the district court issued an order dismissing the consolidated complaint on the grounds that the plaintiffs lacked standing to bring their action in federal court. On April 20, 2012, an amended complaint with a new plaintiff was filed against us, but no longer asserted claims against IBM. The amended complaint asserted the same causes of action and sought the same relief as the earlier complaint. On June 18, 2012, we filed a motion to dismiss the amended complaint, which is currently pending.

An additional lawsuit was instituted on July 7, 2011 in the Superior Court of California, County of Riverside and was brought on behalf of a putative nationwide class of all former and current members affected by this incident, and sought to state similar claims against us, as well as a claim for invasion of privacy. We removed this case to the Central District of California on August 1, 2011. On August 26, 2011, the plaintiff filed a motion to remand the case to state court. That motion was granted on September 30, 2011. On October 10, 2011, we filed an application for leave to appeal the remand order to the United States Court of Appeals for the Ninth Circuit. On January 30, 2012, the Court of Appeals granted the motion for leave to appeal and ordered the parties to submit briefs. On March 20, 2012, the Court of Appeals issued an opinion reversing the district court's ruling and instructing the district court to review the motion to remand in accordance with the Court of Appeals' opinion. Following the issuance of that opinion, we filed a request with the district court seeking to have the case transferred to the Eastern District of California to be assigned to the

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same judge handling the other lawsuit in that court. That request was granted and the matter was ordered to be transferred on May 1, 2012. On June 8, 2012, the judge handling the lawsuit in the Eastern District of California ordered that this case be consolidated with the lawsuit currently pending in that court.

The San Francisco County Superior Court proceeding was instituted on March 28, 2011 and is brought on behalf of a putative class of California residents who received the written notification, and seeks to state similar claims against us, as well as claims for violation of California's Unfair Competition Law, and seeks similar relief. We moved to compel arbitration of the two named plaintiffs’ claims. The court granted our motion as to one of the named plaintiffs and denied it as to the other. We are appealing the latter ruling. Thereafter, the plaintiff as to whom our motion to compel arbitration was granted filed an application for a writ of mandate with the California Court of Appeal seeking review of that ruling, which writ was ultimately granted. We filed a petition for review by the California Supreme Court, which was denied, and on July 9, 2012, the Court of Appeal issued a peremptory writ of mandate directing the Superior Court to vacate its order granting the motion to compel arbitration and to enter an order denying the motion to compel.

The Sacramento County Superior Court proceeding was instituted on April 3, 2012 and is brought on behalf of a putative class of California members whose information was contained on the unaccounted for drives. The action was filed by many of the same plaintiffs' lawyers, contains the same claims, and seeks the same relief as the case pending in the Eastern District of California. On June 18, 2012, we filed a demurrer seeking dismissal of this complaint, which is currently pending.

We have also been informed that a number of regulatory agencies are investigating the incident, including the California Department of Managed Health Care (DMHC), the California Department of Insurance, the California Attorney General, the Massachusetts Office of Consumer Affairs and Business Regulation and the Office of Civil Rights of the U.S. Department of Health and Human Services.

We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to many uncertainties. At this time we cannot reasonably estimate the range of loss that may result from these legal and regulatory proceedings in light of the facts that (i) legal and regulatory proceedings are inherently unpredictable, (ii) there are multiple parties in each of the disputes (and uncertainty as to how liability, if any, may be shared among the defendants), (iii) the proceedings are in their early stages and discovery is not complete, (iv) there are significant facts in dispute, (v) the matters present legal uncertainties, (vi) there is a wide range of potential outcomes in each dispute and (vii) there are various levels of judicial review available to us in each matter in the event damages are awarded or fines or penalties are assessed. Nevertheless, an adverse resolution of or development in the proceedings could have a material adverse effect on our financial condition, results of operations, cash flow and liquidity and could affect our reputation.

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 the U.S. Department of Health and Human Services 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, HIPAA, 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, 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 are also 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

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agreements, rescission of coverage and other types of insurance coverage obligations and claims relating to the insurance industry in general. 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.

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, 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, or could 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. 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 above in this Note 9 under the heading “Litigation and Investigations Related to Unaccounted-for Server Drives,” 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 “Litigation and Investigations Related to Unaccounted-for Server Drives,” 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.

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 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.

AmCareco Judgment

We were previously a defendant in two related litigation matters (the AmCareco litigation) related to claims asserted by three separate state receivers overseeing the liquidation of three health plans previously owned by one of our former subsidiaries that merged into Health Net, Inc. in January 2001. As a result of a judgment in April 2011 by the Louisiana Supreme Court, we recorded a pretax charge of $181 million in general and administrative expense in the nine months ended September 30, 2011.

10.     INCOME TAXES

Continuing Operations

The effective income tax rate from continuing operations was 30.3% and 37.8% for the three months ended September 30, 2012 and 2011, respectively, and 24.6% and 81.7% for the nine months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2011, a judgment was rendered in the AmCareco litigation (see Note 9) that resulted in deferred tax assets of $51.1 million. Realization of these deferred tax assets was uncertain and therefore, a valuation allowance for the full amount was established. The most significant change in the effective income tax rate from 2011 to 2012 is a result of the absence of such litigation effects in 2012. Additionally, our tax rates for the three and nine months ended September 30, 2012 are lower than the statutory federal rate of 35% primarily due to reductions of valuation allowances against deferred assets as a result of the gain on sale of the Medicare PDP business.

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Discontinued Operation

On April 1, 2012, we completed the sale of our Medicare PDP business to CVS Caremark. For the nine months ended September 30, 2012, we recorded tax expense of $15.8 million net against the gain on sale of discontinued operation. For the three months ended September 30, 2012, $2.5 million of tax expense was recorded for the effects of a valuation allowance adjustment. No gain or loss on sale of discontinued operation was recorded in the period. See Note 3 for additional information regarding the sale of our Medicare PDP business.

Also in connection with the sale, we classified the operating results of the Medicare PDP business as discontinued operation, and accordingly, reclassified our results of operations for the three and nine months ended September 30, 2011. We recorded tax expense of $2.2 million net against the income from discontinued operation for the three months ended September 30, 2011. No income or loss from discontinued operation and no tax expense or benefit were recorded for the three months ended September 30, 2012. We recorded tax benefits of $10.3 million and $3.4 million against losses from discontinued operation for the nine months ended September 30, 2012 and 2011, respectively.

11.     SUBSEQUENT EVENT

On November 2, 2012, our wholly owned subsidiaries, Health Net of California, Inc. and Health Net Community Solutions, Inc., entered into a settlement agreement (Agreement) with the DHCS to settle historical rate disputes with respect to our participation in the state Medicaid program in California (Medi-Cal), for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS has agreed, among other things, to (1) an extension of all of our existing Medi-Cal managed care contracts for an additional five years from their current expiration dates; (2) a settlement account applicable to all of our state-sponsored health care programs, including Medi-Cal, Healthy Families, Seniors and Persons with Disabilities, the dual eligibles pilot programs that are expected to begin in 2013 and any potential future Medicaid expansion under federal health care reform (our “state-sponsored health care programs”), as discussed in more detail below; (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early; and (4) cooperate in good faith to develop an alternative rate dispute resolution process.

Effective January 1, 2013, the settlement account (Account) will be established with an initial balance of zero. The balance in the Account will be adjusted annually to reflect a calendar year deficit or surplus. A deficit or surplus will result to the extent our actual pre-tax margin (as defined in the Agreement) on our state-sponsored healthcare programs is below or above a pre-determined pre-tax margin target. 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 healthcare 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).

The Agreement will not have any impact on our consolidated financial statements for the year ending December 31, 2012.

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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, 2011 (the "Form 10-K"), our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, and the risks discussed in this Quarterly Report on 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 Quarterly Report on 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 of this report.

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 5.4 million individuals across the country through group, individual, Medicare, Medicaid, U.S. Department of Defense (“Department of Defense” or “DoD”), including TRICARE, and Veterans Affairs programs. Our behavioral health services subsidiary, Managed Health Network, Inc., provides behavioral health, substance abuse and employee assistance programs to approximately 4.9 million individuals, including our own health plan members. Our subsidiaries also offer 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

We operate within three reportable segments, Western Region Operations, Government Contracts and Divested Operations and Services, 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 and Medicaid health plans, our health and life insurance companies, and our behavioral health and pharmaceutical services

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subsidiaries. As of September 30, 2012, we had approximately 2.6 million members in our Western Region Operations reportable segment. On April 1, 2012, we completed the sale of our Medicare stand-alone prescription drug plan business ("Medicare PDP business") to Pennsylvania Life Insurance Company, a subsidiary of CVS Caremark Corporation ("CVS Caremark"). As a result, the operating results related to our Medicare PDP business have been excluded from continuing operations results and are classified in this Quarterly Report on Form 10-Q as discontinued operations for the three and nine months ended September 30, 2012 and 2011. Accordingly, the information included in this Quarterly Report on Form 10-Q regarding our Western Region Operations reportable segment excludes the operating results of our Medicare PDP business for the three and nine months ended September 30, 2012 and 2011. For additional information regarding the sale of our Medicare PDP business, see Note 3 to our consolidated financial statements.

Our Government Contracts segment includes our government-sponsored managed care federal contract with the DoD under the TRICARE program in the North Region and other health care related government contracts. On April 1, 2011, we began delivery of administrative services under a new Managed Care Support Contract (“T-3 contract”) for the TRICARE North Region. Under the T-3 contract for the TRICARE North Region, we provide administrative services to approximately 2.9 million Military Health System (“MHS”) eligible beneficiaries. See Note 2 to our consolidated financial statements under the heading “T-3 TRICARE Contract” for additional information on the T-3 contract. In addition, we also provide behavioral health services to military families under the Department of Defense Military and Family Life Counseling, formerly Military and Family Life Consultant (“MFLC”) contract, which is also included in our Government Contracts segment.

Prior to its conclusion on March 31, 2011, our previous TRICARE contract for the North Region was included in our Government Contracts segment. Under our previous TRICARE contract for the North Region, we provided health care services to approximately 3.1 million MHS eligible beneficiaries, including 1.8 million TRICARE eligible beneficiaries for whom we provided health care and administrative services and 1.3 million other MHS eligible beneficiaries for whom we provided administrative services only ("ASO").

As a result of entering into a definitive agreement in January 2012 to sell our Medicare PDP business, we reviewed our reportable segments in the first quarter of 2012. Following this review, all services provided in connection with divested businesses, including those relating to the sale of our Medicare PDP business and the Northeast Sale (as defined below), were reported as part of our Divested Operations and Services reportable segment beginning in the first quarter of 2012.

Prior to the sale of our Medicare PDP business, our Divested Operations and Services reportable segment, formerly called the "Northeast Operations" reportable segment, included the operations of our businesses that provided administrative and run-out support services to an affiliate of UnitedHealth Group Incorporated ("United") and its affiliates under administrative services and claims servicing agreements in connection with the sale of all of the outstanding shares of capital stock of our health plan subsidiaries that were domiciled and had conducted businesses in Connecticut, New Jersey, New York and Bermuda to United (the "Northeast Sale"). Beginning in the first quarter of 2012, this segment also includes the transition-related expenses of our divested Medicare PDP business. See Notes 2, 3 and 4 to our consolidated financial statements for additional information regarding our reportable segments, the Northeast Sale and the sale of our Medicare PDP business.

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 costs 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, and 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 medical care ratio (“MCR”) and pretax income. MCR is calculated as health plan services expense divided by health plan services premiums. Pretax income is calculated as health plan services premiums and administrative services fees and other income less health plan services expense and G&A, selling and other net expenses. See “—Results of Operations—Western Region Operations Reportable Segment—Western Region Operations Segment Results” for a calculation of MCR and pretax income.

Health plan services premiums include health maintenance organization (“HMO”), point of service (“POS”) and preferred provider organization (“PPO”) premiums from employer groups and individuals and from Medicare

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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, and revenue under Medicare risk contracts to provide care to enrolled Medicare recipients. Medicare revenue can also 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 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 those costs related to employees and benefits, consulting and professional fees, marketing, business expansion initiatives, premium taxes and assessments, occupancy costs and litigation and regulatory-related costs. Such costs are driven by membership levels, introduction of new products, 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, 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. We also provide assistance in the transition into and out of the T-3 contract. 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 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. See Note 2 to our consolidated financial statements under the heading “T-3 TRICARE Contract” for additional information on our T-3 contract.

Under our previous TRICARE contract for the North Region, Government Contracts revenue was made up of two major components: health care and administrative services. The health care component included revenue recorded for health care costs for the provision of services to our members, including paid claims and estimated incurred but not reported claims (“IBNR”) expenses for which we were at risk, and underwriting fees earned for providing the health care and assuming underwriting risk in the delivery of care. The administrative services component encompassed fees received for all other services provided to both the government customer and to beneficiaries, including services such as medical management, claims processing, enrollment, customer services and other services unique to the managed care support contract with the government. Government Contracts revenue and expenses included the impact from underruns and overruns relative to our target cost under the applicable contracts.

We measure our Divested Operations and Services segment profitability based on pretax income. This pretax income is calculated as Divested Operations and Services segment total revenues less Divested Operations and Services segment total expenses. See “—Results of Operations—Divested Operations and Services Reportable Segment Results” for a calculation of our pretax income.

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Health Care Reform Legislation

During the first quarter of 2010, the President signed into law both the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), which is causing and will continue to cause significant changes to the U.S. health care system and alter the dynamics of the health care insurance industry. The legislation includes provisions, which, among other things, impose significant new non-deductible premium-based taxes (technically taking the form of "fees") on health insurers, effective for calendar years beginning after December 31, 2013. If these new non-deductible premium-based taxes and fees are imposed as enacted by the legislation, and we are not able to incorporate the costs of the premium-based assessments into setting our premium rates, or if we are unable to otherwise adjust our business to address these additional new costs, our financial condition and results of operations may be materially adversely affected. Payment of these new non-deductible premium-based taxes and fees will not be due until 2014; however, they may impact us starting in 2013 since our premium rates are set a year in advance, and the tax amounts for 2014 depend on net premiums written in 2013. Additionally, regulations have not yet been issued by the Internal Revenue Service (“IRS”), making payment procedures, timing and financial reporting requirements unclear. Further, it is not yet clear how state regulators will respond to rate filings that include requests to increase premiums to cover increased costs resulting from these premium based assessments, particularly in light of recent heightened regulatory scrutiny of premium rates.

Other provisions of the legislation include requiring states to expand Medicaid eligibility to all individuals with incomes up to 133 percent of the federal poverty level, commonly referred to as “Medicaid expansion” (as discussed below, this provision was made optional for states under the Supreme Court's ruling on the ACA); imposing an excise tax on high premium insurance policies; requiring premium rate reviews in certain market segments; stipulating a minimum medical loss ratio (as adopted by the Secretary of the U.S. Department of Health and Human Services (“HHS”)); limiting Medicare Advantage payment rates; increasing mandated benefits in some market segments; specifying certain actuarial value and cost-sharing requirements; eliminating medical underwriting for medical insurance coverage decisions, or “guaranteed issue”; increasing restrictions on rescinding coverage; prohibiting some annual and all lifetime limits on amounts paid on behalf of or to our members; limiting the ability of health plans to vary premiums based on assessments of underlying risk; limiting the amount of compensation paid to health insurance executives that is tax deductible; creating federal regulations that impact premium rate increase requests; requiring that most individuals obtain health care coverage or pay a penalty, commonly referred to as the “individual mandate”; creating state-based and federally facilitated “exchanges” where individuals and small business groups may purchase health coverage; imposing a sales tax on medical device manufacturers; increasing fees on pharmaceutical manufacturers; establishing a risk adjustment program for individual and small group markets; creating a transitional "risk corridor" program to help protect against rate-setting uncertainty in the initial years of the exchanges; and requiring contributions for a transitional reinsurance program.

Implementation of the provisions of the ACA generally varies from as early as enactment to as late as 2018. However, in addition to the non-deductible premium-based taxes and fees described above, some other potentially significant provisions of the ACA will not become effective until 2014 or later, including, but not limited to, the excise tax on high premium insurance policies, increased taxes on medical device manufacturers, increased fees on pharmaceutical manufacturers, the guaranteed issue requirement, the individual mandate and the creation of exchanges. However, these provisions may have an earlier impact on our operations, including in connection with the setting of our premium rates.

Various aspects of the ACA, including those referenced above, could have an adverse impact on the cost of operating our business, and our revenues, enrollment and premium growth in certain products and market segments. For example, among other things, the ACA will require premium rate review in certain market segments and will require that premium rebates be paid to policyholders in the event certain specified minimum medical loss ratios are not met. Based on our calculations, we were not required to pay any rebates with respect to our 2011 business, however, we cannot be certain that we will not be required to pay material amounts in rebates in the future. The legislation may also make it more difficult for us to attract and retain members, and will increase the amount of certain taxes and fees we pay, the latter of which is expected to increase our effective tax rate in future periods. We are unable to estimate the amount of these fees and taxes or the increase in our effective tax rate because material information and guidance regarding the calculations of these fees and taxes has not been issued. The sales tax on medical device manufacturers and increase in the amount of fees pharmaceutical manufacturers pay imposed by the ACA, could, in turn, also increase our medical costs.

We could also face additional competition as competitors seize on opportunities to expand their business as a result of the ACA, though there remains considerable uncertainty about the impact of the legislation on the health insurance market as a whole and what actions our competitors could take in response to the legislation. The response

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of other companies to the ACA and related adjustments to their offerings, if any, could cause meaningful disruption in the local health care markets. For example, companies could modify their product features or benefits, change their pricing relative to others in the market, adjust their mix of business or even exit segments of the market, among other things. Companies could also seek to adjust their operating costs to support reduced premiums by making changes to their distribution arrangements, decreasing spending on non-medical product features and services, or otherwise reducing general and administrative expenses.

There are numerous steps required to implement the ACA, and clarifying regulations and other guidance are expected over several years. Additional guidance and regulations on certain provisions of the ACA have been issued, but we are still awaiting further final guidance or regulations on a number of key provisions. These provisions include the definition of essential health benefits and the calculation of the new non-deductible premium-based taxes and fees on health insurers, among others. The final regulations relating to the Medicare Shared Savings program reflecting the use of accountable care organizations, or “ACOs”, have been issued and are intended to create incentives for health care providers to work together to treat an individual across different care settings. However, the impact of these new regulations on the healthcare market and the role to be played by health plans in the operation of ACOs remains to be determined. Though the federal government has in certain instances issued final regulations, there remains considerable uncertainty around the ultimate requirements of the legislation, as the final regulations are sometimes unclear or incomplete, and are subject to further change. The federal government has also issued additional forms of guidance that may not be consistent with the final regulations. As a result, many of the impacts of health care reform will not be known for certain until the ultimate requirements of the legislation have been definitively determined. Because of the magnitude, scope and complexity of the ACA, we also need to dedicate substantial resources and incur material expenses to implement the legislation, including implementing the current and future regulations that will provide guidance and clarification on important parts of the legislation. 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 and actions of our competitors could result in operational disruptions, disputes with our providers or members, regulatory issues, damage to our existing or potential member relationships or other adverse consequences.

On June 28, 2012, the U.S. Supreme Court issued a decision in NFIB v. Sebelius, a major legal challenge to the ACA. The Supreme Court upheld the legislation's individual mandate as valid under Congress' taxing power. Provisions relating to the Medicaid expansion were partially upheld: the Supreme Court ruled that states that choose to accept the Medicaid expansion can continue to go forward and receive associated additional funding, but the Supreme Court also ruled that states must have the option of rejecting the Medicaid expansion without losing existing Medicaid funding. Although many states may continue to consider extending coverage to the uninsured through Medicaid expansions, the Supreme Court's decision to overturn the part of the ACA that conditions ongoing funding for Medicaid on participation by states in the Medicaid expansion may cause some states to choose not to expand Medicaid coverage as required in the initial legislation. Further, there is uncertainty as to how the Supreme Court's decision will be interpreted at the federal and state levels, which has created greater uncertainty with regard to which states will choose to accept the Medicaid expansion and the future size and scope of state Medicaid programs. The State of California has indicated that it expects to address the issue of Medicaid expansion in a special legislative session in early 2013.

Although the Supreme Court has issued a decision in NFIB v. Sebelius, other legal challenges to the ACA have been threatened or are still pending at lower court levels. These challenges could result in portions of the ACA being struck down. Opponents of the ACA have also discussed challenging the IRS's official position that premium tax credits are available to low-income individuals who purchase insurance through federally facilitated exchanges. A successful challenge in this area could significantly affect the affordability of insurance to low-income individuals in states that do not administer their own exchanges.

Congress has also proposed a number of legislative initiatives, including possible repeal of the ACA. In 2011, the President signed legislation to eliminate $2.2 billion of the $6 billion in start-up funding that the ACA provided to support the launch of health insurance cooperatives, and Congress may also withhold the funding necessary to implement the ACA. In addition, should some of the provisions of the ACA fail to withstand potential future legal challenges, Congress or state legislatures may respond by considering various bills that propose to enact laws identical or similar to provisions ultimately struck down or repealed from the ACA. At this time, it remains unclear whether there will be any changes made to the ACA, whether to certain provisions or its entirety. If the individual mandate is repealed, but provisions relating to “guaranteed issue” are maintained, people with greater needs for health care services could make up a greater portion of our membership, which would have an adverse impact on our medical loss ratios, profitability and earnings. These effects could be exacerbated if we are unable to obtain, or are delayed in obtaining, regulatory approval of adequate premium rates for the risk we assume.

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Various health insurance reform proposals are also emerging at the state level. Many of the states in which we operate are already implementing parts of the ACA and many states have added new requirements that are more exacting than the ACA's requirements. States may also mandate minimum medical loss ratios, implement rate reforms and enact benefit mandates that go beyond provisions included in the ACA. For example, while recently proposed legislation in the California legislature that would require prior approval of premium rates did not pass, an initiative measure in California to require prior approval for individual and small group rates has qualified for the 2014 ballot. In addition, some states have passed legislation or are considering proposals to establish an insurance exchange within the state to comply with provisions of the ACA that become effective in 2014. For example, California passed legislation in 2010 establishing a state-based insurance exchange and authorizing an oversight board to negotiate the price of plans sold on the insurance exchange. At least some states and possibly the federal government may condition health carrier participation in an exchange on a number of factors, which could mean that some carriers would be excluded from participation. Further, some states may not create state-operated exchanges, in which case the federal government will manage exchanges in those states. These kinds of state regulations and legislations could limit our ability to increase premiums even where actuarially supported and thereby could negatively impact our revenues and profitability. This also could increase the competition we face from companies that have lower health care or administrative costs than we do and therefore can price their premiums at lower levels than we can. Further, if other states in which we operate adopt a format for their exchanges that is similar to that included in the California legislation, the competition that we face and the pressure on us to contain our premiums could be increased. Even in cases where state action is limited to implementing federal reforms, new or amended state laws will be required in many cases. States also may disagree in their interpretations of the federal statute and regulations, and state “guidance” that is issued could be unclear or untimely. The interaction of new federal regulations and the implementation efforts of the various states in which we do business will continue to create substantial uncertainty for us and other health insurance companies about the requirements under which we must operate.

Due to the unsettled nature of these reforms and the numerous steps required to implement them, we cannot predict how future regulations and laws, including state laws, implementing the health care reform legislation will impact our business. To date, the legislation has not had a material adverse impact on our business, financial results and results of operations. However, in the future, depending in part on the ultimate requirements of the legislation, it could have a material adverse effect on our business, financial condition and results of operations.

Recent Developments

Medi-Cal Rate Settlement Agreement

On November 2, 2012, our wholly owned subsidiaries, Health Net of California, Inc. and Health Net Community Solutions, Inc., entered into a settlement agreement (the “Agreement”) with the Department of Health Care Services of the State of California (“DHCS”) to settle historical rate disputes with respect to our participation in the state Medicaid program in California ("Medi-Cal") for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS has agreed, among other things, to (1) an extension of all of our existing Medi-Cal managed care contracts for an additional five years from their current expiration dates; (2) a settlement account applicable to all of our state-sponsored health care programs, including Medi-Cal, Healthy Families, Seniors and Persons with Disabilities ("SPD"), the dual eligibles pilot programs that are expected to begin in 2013 and any potential future Medicaid expansion under federal health care reform (our “state-sponsored health care programs”); (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early; and (4) cooperate in good faith to develop an alternative rate dispute resolution process.

The Agreement provides for the establishment of a settlement account (the “Account”). The Account will be created on January 1, 2013 with an initial balance of zero, and will be settled in cash on December 31, 2019, except that under certain circumstances DHCS may extend the final settlement for up to three additional one-year periods (as may be extended, the “Term”). During the Term, the balance in the Account will be adjusted annually to reflect a calendar year deficit or surplus as follows:

(a)    During the first year of the Term (2013), if our pre-tax margin (as defined in the Agreement) on our state-sponsored healthcare programs is less than 3.25%, then a deficit results for such year. The amount of the deficit is calculated as follows: (i) 3.25% minus our actual pretax-margin for 2013, multiplied by (ii) 75% of the total premiums earned (as defined in the Agreement) on our state-sponsored healthcare programs business for 2013. If the actual pre-tax margin is greater than 3.25% during the first year of the Term, then a surplus results for such year. The amount of the surplus is calculated as follows: (i) our actual pre-tax margin minus 3.25%, multiplied by (ii) 75% of the total premiums earned on our state-

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sponsored healthcare programs business.

(b)    For each of the next three years of the Term (2014-2016), if our pre-tax margin on our state-sponsored healthcare programs is less than 3.25% for the year, then a deficit results for such year. The amount of the deficit is calculated as follows: (i) 3.25% minus our actual pre-tax margin for such year, multiplied by (ii) 50% of the total premiums earned on our state-sponsored healthcare programs business for such year. Alternatively, if our actual pre-tax margin for the year is greater than 3.25%, then a surplus results for such year. The amount of the surplus is calculated as follows: (i) our actual pre-tax margin for such year minus 3.25%, multiplied by (ii) 50% of the total premiums earned on our state-sponsored healthcare programs business for such year.

(c)    For each year after 2016, the balance in the Account shall be adjusted annually as follows:

(i)    If our actual pre-tax margin for the year is between 1.25% and 3.25%, then there shall be no change in the Account balance.

(ii)    If our actual pre-tax margin for the year is less than 1.25%, then a deficit results for such year. The amount of the deficit is calculated as follows: (i) 1.25% minus our actual pre-tax margin for such year, multiplied by (ii) 50% of the total premiums earned on our state-sponsored healthcare programs business for such year.

(iii)    If our actual pre-tax margin for the year is greater than 3.25%, then a surplus results for such year. The amount of the surplus is calculated as follows: (i) our actual pre-tax margin for such year minus 3.25%, multiplied by (ii) 50% of the total premiums earned on our state-sponsored healthcare programs business for such year.

The deficit or surplus will be calculated annually and the resulting balance in the Account will be adjusted accordingly. Cash settlement of the Account will occur upon expiration of the Term as provided in the Agreement, subject to certain provisions for interim partial settlement payments to us in the event that DHCS terminates any of our state-sponsored healthcare 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. The alternative minimum amount is calculated as follows: (i) $264 million, minus (ii) any partial settlement payments previously made to us by DHCS, minus (iii) 50% of the pre-tax income on our state-sponsored healthcare programs business in excess of a 2.0% pre-tax margin for each calendar year of the Term. Under the Agreement, DHCS will make an interim partial settlement payment to us based on a pro-rata portion of the alternative minimum amount if it terminates any of our state-sponsored healthcare programs contracts early. We believe that the use of the Account will help promote greater financial stability and predictability in our state health care programs business during the Term.

The Agreement also provides that the parties will cooperate in good faith to develop an alternative rate dispute resolution process within 90 days of the execution of the Agreement or such later date as the parties agree. There can be no assurance that the parties will ultimately reach agreement on such a rate dispute resolution process. If the parties are unable to reach such an agreement, future rate disputes will be handled through the process currently in effect.

MFLC Contract Award

On August 15, 2012, our wholly owned subsidiary, MHN Government Services, Inc. , entered into a new MFLC contract awarded by the Department of Defense. The newly awarded contract is a second-generation contract under the MFLC program. The new contract has a five-year term that includes a 12-month base period and four 12-month option periods. For further information on the new MFLC contract, see "—Government Contracts Reportable Segment" below. MHN Government Services was the sole contractor under the original MFLC contract, and is one of three contractors initially selected to participate in the MFLC program under the new MFLC contract.

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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, 2012 and 2011.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
	(Dollars in thousands, except per share data)
Revenues
Health plan services premiums	$	2,578,689		$	2,487,767	$	7,818,565		$	7,379,951
Government contracts	169,811			175,845		527,421			1,221,987
Net investment income	16,355			15,188		63,356			64,114
Administrative services fees and other income	1,854			2,174		16,300			6,974
Divested operations and services revenue	12,863			10,976		25,668			34,446
Total revenues	2,779,572			2,691,950		8,451,310			8,707,472
Expenses
Health plan services (excluding depreciation and amortization)	2,281,388			2,149,310		6,983,502			6,389,881
Government contracts	151,815			127,884		467,531			1,080,864
General and administrative	222,425			215,952		688,457			822,083
Selling	61,053			57,965		181,004			175,947
Depreciation and amortization	7,907			6,937		22,722			24,066
Interest	8,021			7,774		24,895			23,632
Divested operations and services expenses	17,587			32,873		59,973			133,558
Adjustment to loss on sale of Northeast health plan subsidiaries	—			315		—			(40,822		)
Total expenses	2,750,196			2,599,010		8,428,084			8,609,209
Income from continuing operations before income taxes	29,376			92,940		23,226			98,263
Income tax provision	8,898			35,131		5,712			80,268
Income from continuing operations	20,478			57,809		17,514			17,995
Discontinued operations:
Income (loss) from discontinued operation, net of tax	—			4,003		(18,452		)	(6,078		)
(Adjustment to) gain on sale of discontinued operation, net of tax	(2,450		)	—		116,990			—
(Loss) income on discontinued operation, net of tax	(2,450		)	4,003		98,538			(6,078		)
Net income	$	18,028		$	61,812	$	116,052		$	11,917
Net income per share—basic:
Income from continuing operations	$	0.25		$	0.66	$	0.21		$	0.20
(Loss) income on discontinued operation, net of tax	$	(0.03	)	$	0.05	$	1.20		$	(0.07	)
Net income per share—basic	$	0.22		$	0.71	$	1.41		$	0.13
Net income per share—diluted:
Income from continuing operations	$	0.25		$	0.65	$	0.21		$	0.20
(Loss) income on discontinued operation, net of tax	$	(0.03	)	$	0.05	$	1.18		$	(0.07	)
Net income per share—diluted:	$	0.22		$	0.70	$	1.39		$	0.13

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On April 1, 2012, we completed the sale of our Medicare PDP business to CVS Caremark. See Note 3 to our consolidated financial statements for more information. As a result of the sale, our results of operations for the three and nine months ended September 30, 2012 include loss from discontinued operation of $0 and $(18.5) million, respectively, related to our Medicare PDP business as compared to income (loss) from discontinued operation of $4.0 million and $(6.1) million, respectively, for the same periods in 2011. Additionally, as a result of this sale, we recorded a gain on sale of discontinued operation in the amount of $132.8 million pretax, or $117.0 million after-tax, for the nine months ended September 30, 2012. As of September 30, 2011, we had approximately 381,000 Medicare stand-alone Prescription Drug Plan members. As of September 30, 2012, we had no Medicare stand-alone Prescription Drug Plan members.

For the three and nine months ended September 30, 2012, we reported net income of $18.0 million or $0.22 per diluted share and net income of $116.1 million or $1.39 per diluted share, respectively, as compared to net income of $61.8 million or $0.70 per diluted share and net income of $11.9 million or $0.13 per diluted share, respectively, for the same periods in 2011. For the three and nine months ended September 30, 2012, we reported net income from continuing operations of $20.5 million and $17.5 million, respectively, as compared to net income from continuing operations of $57.8 million and $18.0 million for the same periods in 2011. Pretax margins from continuing operations were 1.1 percent and 0.3 percent for the three and nine months ended September 30, 2012 compared to 3.5 percent and 1.1 percent for the same periods in 2011.

Our total revenues increased 3.3 percent for the three months endedSeptember 30, 2012 to $2.8 billion from $2.7 billion for the same period in 2011 and decreased 2.9 percent for the nine months ended September 30, 2012 to $8.5 billion from $8.7 billion in the same period in 2011. The increase for the three months ended September 30, 2012 was primarily due to an increase in health plan services premiums. The decrease for the nine months ended September 30, 2012 was primarily driven by the decline in our Government Contracts revenue due to the impact of the change to the T-3 contract as described below.

Our Government Contracts revenues decreased by 3.4 percent for the three months endedSeptember 30, 2012 to $169.8 million from $175.8 million in the same period in 2011, and decreased by 56.8 percent for the nine months endedSeptember 30, 2012 to $527.4 million from $1,222.0 million in the same period in 2011. Our Government Contracts costs increased by 18.7 percent for the three months endedSeptember 30, 2012 to $151.8 million from $127.9 million in the same period in 2011, and decreased by 56.7 percent for the nine months endedSeptember 30, 2012 to $467.5 million from $1,080.9 million in the same period in 2011. The declines in our Government Contracts revenues and costs for the nine months ended September 30, 2012 were primarily due to the change from our prior contract for the TRICARE North Region, which was a risk-based contract, to the new T-3 contract, which is a cost reimbursement plus fixed fee contract. As a result of this change, health care costs and related reimbursements that were included in our consolidated statements of operations under the prior contract were subsequently excluded under the T-3 contract. For additional information on our T-3 contract, see “—Government Contracts Reportable Segment” and Note 2 to our consolidated financial statements.

Health plan services premium revenues increased by 3.7 percent to $2.6 billion for the three months ended September 30, 2012, compared with $2.5 billion for the same period in 2011, and by 5.9 percent to $7.8 billion for the nine months endedSeptember 30, 2012, compared with $7.4 billion for the same period in 2011. Health plan services expenses increased by 6.1 percent from $2.1 billion for the three months ended September 30, 2011 to $2.3 billion for the three months ended September 30, 2012, and increased by 9.3 percent from $6.4 billion for the nine months endedSeptember 30, 2011 to $7.0 billion for the nine months endedSeptember 30, 2012. Investment income increased to $16.4 million for the three months ended September 30, 2012 and decreased to $63.4 million for the nine months ended September 30, 2012, respectively, compared with $15.2 million and $64.1 million for the three and nine months ended September 30, 2011, respectively.

For the nine months ended September 30, 2012, health care cost was impacted by approximately $33 million of adverse development related to prior years. We believe this unfavorable reserve development for the nine months ended September 30, 2012 was primarily due to significant delays in claims submissions for the fourth quarter of 2011 arising from issues related to a new billing format required by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") coupled with an unanticipated flattening of commercial trends and higher commercial large group claims trend. For the nine months ended September 30, 2011, health care cost was impacted by approximately $97 million of favorable reserve development related to prior years. This favorable development was primarily due to adjustments to our reserves that related to variables and uncertainties associated with our assumptions. As our reserve balance for older months of service decreased, and estimates of our incurred costs for older dates of service became more certain and predictable, our estimates of incurred claims related to prior periods were adjusted accordingly. These unfavorable and favorable prior period reserve developments were recorded as part of health care costs. Our operating results for the nine months ended September 30, 2011 were impacted by a $181 million pretax expense incurred in

38

connection with a judgment rendered in the AmCareco litigation. For additional information regarding the AmCareco litigation, see Note 9 to our consolidated financial statements under the heading, "AmCareco Judgment." This expense was recorded as part of our G&A expenses. Our operating results for the nine months ended September 30, 2011 were also impacted by a $40.8 million favorable adjustment to loss on sale of Northeast health plan subsidiaries.

Days Claims Payable

Days claims payable ("DCP") for the third quarter of 2012 was 41.6 days compared with 37.4 days in the third quarter of 2011. Adjusted DCP, which we calculate in accordance with the paragraph below, for the third quarter of 2012 was 57.7 days compared with 51.7 days in the third quarter of 2011.

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. For the third quarter of 2011, adjusted DCP also subtracts reserve for claims and other settlements related to discontinued operations from the Claims Reserve. 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. In addition, solely with respect to the third quarter of 2011, adjusted DCP excludes from Claims Reserve the reserves relating to discontinued operations. 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.

	Three Months Ended September 30,
	2012			2011
	(Dollars in millions)
Reconciliation of Days Claims Payable:
(1) Reserve for Claims and Other Settlements—GAAP	$	1,032.2		$	873.0
Less: Reserve for Claims and Other Settlements Related to Discontinued Operations	—			(30.7		)
Reserve for Claims and Other Settlements excluding Discontinued Operations	$	1,032.2		$	842.3
Less: Capitation, Provider and Other Claim Settlements and MAPD Payables	(126.3		)	(61.5		)
(2) Reserve for Claims and Other Settlements—Adjusted	$	905.9		$	780.8
(3) Health Plan Services Cost—GAAP	$	2,281.4		$	2,149.3
Less: Capitation, Provider and Other Claim Settlements and MAPD Costs	(835.9		)	(759.5		)
(4) Health Plan Services Cost—Adjusted	$	1,445.5		$	1,389.8
(5) Number of Days in Period	92			92
(1) / (3) * (5) Days Claims Payable on GAAP Basis—(using end of period reserve amount)	41.6			37.4
(2) / (4) * (5) Days Claims Payable—Adjusted (using end of period reserve amount)	57.7			51.7

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Income Tax Provision

Our income tax expense (benefit) and the effective income tax rate for the three and nine months ended September 30, 2012, and 2011 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(Dollars in millions)
Continuing Operations:
Income tax expense from continuing operations	$8.9		$35.1		$5.7		$80.3
Effective income tax rate for continuing operations	30.3	%	37.8	%	24.6	%	81.7	%
Discontinued Operation:
Income tax expense (benefit) from discontinued operation A	—		$2.2		$(10.3)		$(3.4)
Effective income tax rate for discontinued operation A	—		35.8	%	35.8	%	35.8	%
Income tax expense from gain on sale of discontinued operation B, C	$2.5		—		$15.8		—
Effective income tax rate for gain on sale of discontinued operation B C	—		—		11.9	%	—

________

A - For the three months ended September 30, 2012, there was no income tax provision from discontinued operation;

therefore, effective income rate tax for discontinued operation is not applicable.

B - For the three and nine months ended September 30, 2011, we had no sale of a discontinued operation;

therefore, income tax expense from gain on sale of discontinued operation is not applicable.

C - For the three months ended September 30, 2012 tax expense was recorded for the effects of a valuation allowance adjustment. No gain or loss on sale of discontinued operation was recorded in the period; therefore, an effective tax rate from gain on sale of discontinued operation is not applicable.

Continuing Operations

The effective income tax rate for continuing operations was 30.3% and 37.8% for the three months ended September 30, 2012 and 2011, respectively, and 24.6% and 81.7% for the nine months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2011, a judgment was rendered in the AmCareco litigation (see Note 9 to our consolidated financial statements for additional information regarding the AmCareco litigation) that resulted in deferred tax assets of $51.1 million. Realization of these deferred tax assets was uncertain and therefore, a valuation allowance for the full amount was established. The most significant change in the effective income tax rates from the 2011 to 2012 periods presented above is a result of the absence of such litigation effects in 2012. Additionally, our tax rates for the three and nine months ended September 30, 2012 are lower than the statutory federal rate of 35% primarily due to reductions of valuation allowances against deferred assets as a result of the gain on sale of the Medicare PDP business.

Discontinued Operation

On April 1, 2012, we completed the sale of our Medicare PDP business to CVS Caremark. For the nine months ended September 30, 2012, we recorded tax expense of $15.8 million net against the gain on sale of discontinued operation. For the three months ended September 30, 2012, $2.5 million of tax expense was recorded for the effects of a valuation allowance adjustment. No gain or loss on sale of discontinued operation was recorded for the three months ended September 30, 2012. See Note 3 for additional information regarding the sale of our Medicare PDP business. An effective tax rate was only applicable to the nine months ended September 30, 2012 because that is the only period for which gain on sale of discontinued operation was recorded.

Also in connection with the sale of our Medicare PDP business, we classified the operating results of our Medicare PDP business as discontinued operation, and accordingly, reclassified our results of operations for the three and nine

40

months ended September 30, 2011. We recorded tax expense of $2.2 million net against the income from discontinued operation for the three months ended September 30, 2011. No income or loss and no tax expense or benefit were recorded for the three months ended September 30, 2012. We recorded tax benefits of $10.3 million and $3.4 million against losses from discontinued operation for the nine months ended September 30, 2012 and 2011, respectively. The effective income tax rates related to income or loss from discontinued operation remained constant throughout 2011 and 2012 at slightly above the federal statutory tax rate of 35% due to state income taxes.

Western Region Operations Reportable Segment

Our Western Region Operations segment includes the operations of our commercial, Medicare and Medicaid health plans, the operations of our health and life insurance companies primarily in California, Arizona, Oregon and Washington and our behavioral health and pharmaceutical services subsidiaries in several states including Arizona, California and Oregon. Our Western Region Operations segment excludes the operating results of our Medicare PDP business, which has been reclassified as discontinued operations for the nine months endedSeptember 30, 2012 and 2011, respectively.

Western Region Operations Segment Membership (in thousands)

	September 30, 2012	September 30, 2011	Increase/ (Decrease)		% Change
California
Large Group	714	837	(123	)	(14.7	)%
Small Group and Individual	307	318	(11	)	(3.5	)%
Commercial Risk	1,021	1,155	(134	)	(11.6	)%
Medicare Advantage	143	124	19		15.3	%
Medi-Cal/Medicaid	1,069	988	81		8.2	%
Total California	2,233	2,267	(34	)	(1.5	)%
Arizona
Large Group	84	76	8		10.5	%
Small Group and Individual	59	61	(2	)	(3.3	)%
Commercial Risk	143	137	6		4.4	%
Medicare Advantage	43	40	3		7.5	%
Total Arizona	186	177	9		5.1	%
Oregon (including Washington)
Large Group	30	50	(20	)	(40.0	)%
Small Group and Individual	58	41	17		41.5	%
Commercial Risk	88	91	(3	)	(3.3	)%
Medicare Advantage	45	39	6		15.4	%
Total Oregon (including Washington)	133	130	3		2.3	%
Total Health Plan Enrollment
Large Group	828	963	(135	)	(14.0	)%
Small Group and Individual	424	420	4		1.0	%
Commercial Risk	1,252	1,383	(131	)	(9.5	)%
Medicare Advantage	231	203	28		13.8	%
Medi-Cal/Medicaid	1,069	988	81		8.2	%
	2,552	2,574	(22	)	(0.9	)%

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Total Western Region Operations enrollment was approximately 2.6 million members as of September 30, 2012, a decrease of 0.9 percent compared with enrollment at September 30, 2011. Total enrollment in our California health plan decreased by 1.5 percent from approximately 2.3 million members at September 30, 2011 to approximately 2.2 million members at September 30, 2012.

Western Region Operations commercial enrollment declined by 9.5 percent from approximately 1.4 million members at September 30, 2011 to approximately 1.3 million members at September 30, 2012, primarily due to increasingly competitive markets. Enrollment in our large group segment decreased by 14.0 percent, or 135,000 members from 963,000 members at September 30, 2011 to 828,000 members at September 30, 2012. Enrollment in our small group and individual segment in our Western Region Operations segment increased by 1.0 percent, from 420,000 members at September 30, 2011 to 424,000 members at September 30, 2012. Membership in our tailored network products was essentially flat from September 30, 2011 to September 30, 2012. As of September 30, 2012, membership in tailored network products accounted for 34.6 percent of our Western Region Operations commercial enrollment compared with 31.2 percent at September 30, 2011.

Enrollment in our Medicare Advantage plans in our Western Region Operations segment at September 30, 2012 was 231,000 members, an increase of 13.8 percent compared with 203,000 members at September 30, 2011. The overall increase in Medicare Advantage membership was due to gains of 19,000 members in California, 6,000 members in Oregon and 3,000 members in Arizona.

We participate in the state Medicaid program in California, where the program is known as Medi-Cal. Medicaid enrollment in California increased by 81,000 members or 8.2 percent to 1.1 million members at September 30, 2012 compared with 1.0 million members at September 30, 2011. The increase in the Medicaid membership includes the impact of our participation in California's SPD program. On November 2, 2010, CMS approved California's Section 1115 Medicaid waiver proposal, which, among other things, authorized mandatory enrollment of SPDs in managed care programs to help achieve care coordination and better manage chronic conditions. The mandatory SPD enrollment period began in June 2011 and ended on May 31, 2012. As of September 30, 2012, we had approximately 115,000 total SPD members, of which 85,000 are from the newly mandated transition of those members to managed care that began in June 2011.

We are the sole commercial plan contractor with the DHCS to provide Medi-Cal services in Los Angeles County, California. Approximately 51 percent of our Medi-Cal enrollment is located in Los Angeles County. As part of our recent 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 current expiration dates. Accordingly, our Medi-Cal contract for Los Angeles County is scheduled to expire in April 2019. For additional information on our recent settlement agreement with DHCS, see "—Recent Developments" above.

Dual Eligibles Pilot Programs

On April 4, 2012, DHCS selected us to participate in its proposed “dual eligibles” pilot program for both Los Angeles County and San Diego County. Dual eligibles are persons that are eligible for both Medicare and Medi-Cal benefits. The stated purpose of the pilot program is to provide a more efficient health care delivery system and improved coordination of care to dual eligibles than that which is currently provided to these individuals separately through the Medicare and Medi-Cal programs.

The DHCS initially has selected the counties of Los Angeles, Orange, San Diego and San Mateo to participate in the pilot program. The DHCS will also be implementing the pilot program in the counties of Alameda, Riverside, San Bernardino and Santa Clara. We could seek to participate in these other counties directly or as a subcontractor of another health plan where an appropriate business opportunity exists or where we have been asked to participate as a subcontracting plan.

Health plans selected in the pilot program in a given county will be required to provide a full range of medical services, including primary care and specialty physician, hospital and ancillary services, as well as behavioral and long-term services and in-home and other support services to dual eligibles in that county. We currently do not provide all of the benefits required for participation in the pilot program, including, among others, custodial care in nursing homes and in-home support services. We will need to make arrangements to provide such services either directly or by subcontracting with other parties prior to the commencement of the pilot program.

Dual eligibles are expected to receive advance notice regarding their enrollment options by county. As currently proposed, the pilot program would continue for a three-year term beginning no sooner than June 1, 2013 with initial enrollment occurring on a phased in basis based on birth date. Dual eligibles may choose to opt out of the pilot

42

program and continue to receive separate fee-for-service Medicare benefits. Those who do not opt out of the pilot program may elect to choose a plan or be automatically enrolled through the passive enrollment process in one of the pilot plan choices on the planned phased in basis. Participation in the demonstration pilot would require us to enter into a three way agreement with the DHCS and CMS, under which, among other things, we would receive prospective blended capitated payments in an amount to be determined to provide coverage for dual eligibles.

The DHCS has selected Health Net and the local initiative plan, L.A. Care Health Plan (“L.A. Care”), for the pilot program in Los Angeles County. L.A. Care is a public agency that serves low-income persons in Los Angeles County through health coverage programs such as Medi-Cal. Dual eligibles in Los Angeles County will be able to choose between an “opt out” option or choose either L.A. Care or us for benefits under the pilot program. If no selection is made, the dual eligibles would be passively enrolled and allocated to either L.A. Care or us. The methodology for this allocation process has yet to be determined.

The DHCS has selected us and three other health plans for the pilot program in San Diego County. Dual eligibles in San Diego County will be able to select to receive benefits from any one of these health plans, or elect the “opt out” option. If no selection is made, the dual eligibles will be passively enrolled and allocated to one of the health plans. The methodology for this allocation process has yet to be determined.

The pilot program is subject to the approval of CMS. Prior to CMS' determination on whether to approve the pilot program, various stakeholders have been given the opportunity to comment on the program, which may impact CMS' decision. In addition, on October 1, 2012, the Department of Managed Health Care (the “DMHC”) approved certain modifications to the internal organizational structure of our subsidiaries related to our participation in the pilot program, and we will likely be required to make other required filings with, and obtain other approvals from, the DMHC in connection with our participation in the pilot program.

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Western Region Operations Segment Results

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Dollars in thousands, except PMPM data)
Health plan services premiums	$	2,578,689		$	2,487,754		$	7,818,565		$	7,377,608
Net investment income	16,355			15,188			63,356			64,043
Administrative services fees and other income	1,843			2,174			16,289			6,974
Total revenues	2,596,887			2,505,116			7,898,210			7,448,625
Health plan services	2,281,354			2,149,269			6,989,131			6,389,402
General and administrative	218,400			211,401			667,893			628,876
Selling	61,053			57,940			181,004			175,750
Depreciation and amortization	7,907			6,937			22,721			24,054
Interest	8,021			7,774			24,895			23,447
Total expenses	2,576,735			2,433,321			7,885,644			7,241,529
Income from continuing operations before income taxes	20,152			71,795			12,566			207,096
Income tax (benefit) provision	1,640			26,143			(2,497		)	75,910
Income from continuing operations	$	18,512		$	45,652		$	15,063		$	131,186
Pretax margin	0.8		%	2.9		%	0.2		%	2.8		%
Commercial premium yield	4.7		%	5.1		%	4.9		%	5.2		%
Commercial premium PMPM (d)	$	376.89		$	359.96		$	374.78		$	357.35
Commercial health care cost trend	7.1		%	3.2		%	9.2		%	4.0		%
Commercial health care cost PMPM (d)	$	326.60		$	305.08		$	333.27		$	305.19
Commercial MCR (e)	86.7		%	84.8		%	88.9		%	85.4		%
Medicare Advantage MCR (e)	90.1		%	90.7		%	90.0		%	90.2		%
Medicaid MCR (e)	91.6		%	86.0		%	90.0		%	85.4		%
Health plan services MCR (a)	88.5		%	86.4		%	89.4		%	86.6		%
G&A expense ratio (b)	8.5		%	8.5		%	8.5		%	8.5		%
Selling costs ratio (c)	2.4		%	2.3		%	2.3		%	2.4		%

__________

(a) Health plan services Medical Care Ratio ("MCR") is calculated as health plan services cost divided by health plan services premiums revenue.

(b) The G&A expense ratio is computed as general and administrative expenses divided by the sum of health plan services premiums 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 ASO member months.

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

Revenues

Total revenues in our Western Region Operations segment increased 3.7 percent to $2.6 billion for the three months ended September 30, 2012 and increased 6.0 percent to $7.9 billion for the nine months ended September 30, 2012 compared to the same periods in 2011, primarily due to increases in premium revenues. Health plan services premium revenues in our Western Region Operations segment increased 3.7 percent to $2.6 billion for the three months ended September 30, 2012 and increased 6.0 percent to $7.8 billion for the nine months ended September 30, 2012, compared to the same periods in 2011, primarily due to increases in Medicaid premium revenues.

Investment income in our Western Region Operations segment increased to $16.4 million for the three months ended September 30, 2012 from $15.2 million for the same period in 2011 and decreased to $63.4 million for the nine months ended September 30, 2012 from $64.0 million for the same period in 2011. The decline in investment income for the nine months ended September 30, 2012 was due to a decrease in realized gains.

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Health Plan Services Expenses

Health plan services expenses in our Western Region Operations segment were $2.3 billion and $7.0 billion for the three and nine months ended September 30, 2012, respectively, compared to $2.1 billion and $6.4 billion for the three and nine months ended September 30, 2011, respectively. We believe the increase in health plan services expenses for the nine months ended September 30, 2012 was primarily caused by adverse development that occurred in the first and second quarters of 2012 primarily due to significant delays in claims submissions for the fourth quarter of 2011 arising from issues related to a new billing format required by HIPAA coupled with an unanticipated flattening of commercial trends and higher commercial large group claims trend.

Commercial Premium Yields and Health Care Cost Trends

In our Western Region Operations segment, commercial premium PMPM for the three months ended September 30, 2012 was approximately $377, a 4.7 percent increase over the commercial premium PMPM of approximately $360 for the same period of 2011. Commercial premium PMPM increased 5.1 percent for the three months ended September 30, 2011 as compared with the same period of 2010. Commercial premium PMPM for the nine months ended September 30, 2012 was approximately $375, a 4.9 percent increase over the commercial premium PMPM of approximately $357 for the same period of 2011. Commercial premium PMPM increased 5.2 percent for the nine months ended September 30, 2011 as compared with the same period of 2010.

Commercial health care costs PMPM for the three months ended September 30, 2012 in our Western Region Operations segment were approximately $327, a 7.1 percent increase over the commercial health care costs PMPM of $305 for the same period of 2011. Commercial health care costs PMPM increased 3.2 percent for the three months ended September 30, 2011 as compared with the same period of 2010. Commercial health care costs PMPM for the nine months ended September 30, 2012 were approximately $333, a 9.2 percent increase over the commercial health care costs PMPM of approximately $305 for the same period of 2011. Commercial health care costs increased 4.0 percent for the nine months ended September 30, 2011 as compared with the same period of 2010. We believe the main cause of the increase in the commercial health care costs for the nine months ended September 30, 2012 was adverse development that occurred in the first and second quarters of 2012 primarily due to significant delays in claims submissions for the fourth quarter of 2011 arising from issues related to a new billing format required by HIPAA coupled with an unanticipated flattening of commercial trends and higher commercial large group claims trend.

Medical Care Ratios

The health plan services MCR in our Western Region Operations segment was 88.5 percent and 89.4 percent for the three and nine months ended September 30, 2012, respectively, compared with 86.4 percent and 86.6 percent for the three and nine months ended September 30, 2011, respectively.

Commercial MCR in our Western Region Operations segment was 86.7 percent and 88.9 percent for the three and nine months ended September 30, 2012, respectively, compared with 84.8 percent and 85.4 percent for the three and nine months ended September 30, 2011, respectively. The deterioration of 350 basis points in commercial MCR for the nine months ended September 30, 2012 was primarily due to adverse prior period development that occurred in the first and second quarters of 2012.

The Medicare Advantage MCR in our Western Region Operations segment was 90.1 percent and 90.0 percent for the three and nine months ended September 30, 2012, respectively, compared with 90.7 percent and 90.2 percent for the three and nine months ended September 30, 2011, respectively. The Medicare Advantage MCR improved 60 basis points and 20 basis points for the three and nine months ended September 30, 2012, respectively, primarily due to enrollment growth combined with moderate cost trends.

The Medicaid MCR in our Western Region Operations segment was 91.6 percent and 90.0 percent for the three and nine months ended September 30, 2012, respectively, compared with 86.0 percent and 85.4 percent for the three and nine months ended September 30, 2011, respectively. The increases in the MCR for the three and nine monthsended September 30, 2012, respectively were primarily due to higher claims experience in SPD membership. Our SPD members have a higher MCR than our non-SPD members.

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G&A, Selling and Interest Expenses

G&A expense in our Western Region Operations segment was $218.4 million and $667.9 million for the three and nine months ended September 30, 2012, respectively, compared with $211.4 million and $628.9 million for the three and nine months ended September 30, 2011, respectively. The G&A expense ratio remained flat at 8.5 percent for each of the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011.

Selling expense in our Western Region Operations segment was $61.1 million and $181.0 million for the three and nine months ended September 30, 2012, respectively, compared with $57.9 million and $175.8 million for the three and nine months ended September 30, 2011, respectively. The selling costs ratio was 2.4 percent and 2.3 percent for the three and nine months ended September 30, 2012, respectively, compared to 2.3 percent and 2.4 percent for the three and nine months ended September 30, 2011, respectively.

Interest expense in our Western Region Operations segment was $8.0 million and $24.9 million for the three and nine months ended September 30, 2012, respectively, compared with $7.8 million and $23.4 million for the three and nine months ended September 30, 2011, respectively. These increases are primarily due to higher interest rates under our revolving credit facility in the three and nine months ended September 30, 2012 compared to the same periods in 2011.

Government Contracts Reportable Segment

On April 1, 2011, we began delivery of administrative services under our T-3 contract for the TRICARE North Region. The T-3 contract was awarded to us on May 13, 2010. Under the T-3 contract for the TRICARE North Region, we provide administrative services to approximately 2.9 million MHS eligible beneficiaries as of September 30, 2012.

For a description of the T-3 contract, see "Overview—How We Measure Our Profitability" and Note 2 to our consolidated financial statements under the heading “T-3 TRICARE Contract.”

In addition to the beneficiaries that we service under the T-3 contract, we administer contracts with the U.S. Department of Veterans Affairs to manage community based outpatient clinics in seven states covering approximately 15,000 enrollees and provide behavioral health services to military families under the Department of Defense sponsored MFLC program. On August 15, 2012, our wholly owned subsidiary, MHN Government Services, entered into a new MFLC contract awarded by the Department of Defense. The newly awarded contract is a second-generation contract under the MFLC program. The new contract has a five-year term that includes a 12-month base period and four 12-month option periods. MHN Government Services was the sole contractor under the original MFLC contract, and is one of three contractors initially selected to participate in the MFLC program under the new MFLC contract. As a result of the revised terms and structure of the new MFLC contract and the government's decision to award the new MFLC contract to multiple contractors, we anticipate that the revenues we receive from the new contract will be substantially reduced in comparison to the original MFLC contract. MHN Government Services is currently providing counseling services to military service members and their families under the new MFLC contract as part of a transition-in phase, and simultaneously is transitioning out of the original MFLC contract. Revenues from the original MFLC contract were $65.0 million and $181.2 million for the three and nine months ended September 30, 2012, 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, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(Dollars in thousands)
Government contracts revenues	$	169,811	$	175,845	$	527,421	$	1,221,987
Government contracts costs	148,705		127,707		460,733		1,075,808
Income from continuing operations before income taxes	21,106		48,138		66,688		146,179
Income tax provision	8,372		19,509		26,453		59,239
Income from continuing operations	$	12,734	$	28,629	$	40,235	$	86,940

Government Contracts revenues decreased by $6.0 million, or 3.4 percent, for the three months ended September 30, 2012 and decreased by $694.6 million, or 56.8 percent, for the nine months ended September 30, 2012

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as compared to the same periods in 2011. Government Contracts costs increased by $21.0 million or 16.4 percent for the three months ended September 30, 2012 and decreased by $615.1 million, or 57.2 percent for the nine months ended September 30, 2012 as compared to the same periods in 2011. Decreases in revenues and increases in costs for the three months ended September 30, 2012 were primarily due to adjustments related to the closeout of our previous TRICARE contract in the North Region. Declines in Government Contracts revenues and costs for the nine months ended September 30, 2012 were primarily due to the impact of replacing our previous TRICARE contract in the North Region with the new T-3 contract. This change replaced a risk-based contract with a cost reimbursement plus fixed fee contract, as a result of which, health care costs and related reimbursements that were included in our consolidated statements of operations under the prior contract were subsequently excluded under the T-3 contract.

Divested Operations and Services Reportable Segment Results

The following table summarizes the operating results for our Divested Operations and Services reportable segment for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Health plan services premiums	$	—		$	13		$	—		$	2,343
Net investment income	—			—			—			71
Administrative services fees and other income	11			—			11			—
Divested operations and services revenue	12,863			10,976			25,668			34,446
Total revenues	12,874			10,989			25,679			36,860
Health plan services	34			213			174			951
General and administrative	(90)			(12)			(92)			1,706
Selling	—			25			—			197
Depreciation and amortization	—			—			1			12
Interest	—			—			—			185
Divested operations and services expenses	17,587			32,873			59,973			133,558
Adjustment to loss on sale of Northeast health plan subsidiaries	—			315			—			(40,822)
Total expenses	17,531			33,414			60,056			95,787
Loss from continuing operations before income taxes	(4,657)			(22,425)			(34,377)			(58,927)
Income tax benefit	(1,946)			(8,608)			(13,329)			(27,644)
Net loss from continuing operations	$	(2,711	)	$	(13,817	)	$	(21,048	)	$	(31,283	)

As a result of entering into a definitive agreement in January 2012 to sell our Medicare PDP business, we reviewed our reportable segments in the first quarter of 2012. For additional information on the sale of our Medicare PDP business, see Note 3 to our consolidated financial statements. As a result of our review of our reportable segments, all services provided in connection with divested businesses, including the Northeast Sale and the sale of our Medicare PDP business, are now reported as part of our Divested Operations and Services reportable segment. See Note 4 to our consolidated financial statements for more information regarding our reportable segments.

Our operating results for the three and nine months ended September 30, 2011 were impacted by a $0.3 million addition and a $40.8 million reduction, respectively, to loss on sale of our Northeast health plan subsidiaries. See Note 3 to our consolidated financial statements for additional information regarding the Northeast Sale.

Corporate/Other

The following table summarizes the Corporate/Other segment for the three and nine months ended September 30, 2012 and 2011:

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Costs included in health plan services costs	$	—		$	(172	)	$	(5,803	)	$	(472	)
Costs included in government contract costs	3,110			177			6,798			5,056
Costs included in G&A	4,115			4,563			20,656			191,501
Loss from continuing operations before income taxes	(7,225		)	(4,568		)	(21,651		)	(196,085		)
Income tax expense (benefit)	832			(1,913		)	(4,915		)	(27,237		)
Net loss from continuing operations	$	(8,057	)	$	(2,655	)	$	(16,736	)	$	(168,848	)

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

Our operating results in our Corporate/Other segment for the three months ended September 30, 2012 were impacted primarily by $7.2 million in pretax costs related to our G&A cost reduction efforts. Our operating results in our Corporate/Other segment for the nine months ended September 30, 2012 were impacted primarily by $27.5 million in pretax costs related to our G&A cost reduction efforts and $0.7 million in pretax litigation reserve true-ups, partially reduced by a $6.5 million insurance reimbursement related to a prior class action settlement.

Our operating results for the three months ended September 30, 2011 were impacted by $4.7 million in pretax costs related to our cost management initiatives, reduced by a $0.2 million benefit from a litigation reserve true-up. Our operating results for the nine months ended September 30, 2011 were impacted by a $181 million pretax charge related to the judgment in the AmCareco litigation and $18.7 million in pretax costs related to our cost management initiatives. See Note 9 to our consolidated financial statements for additional information regarding the AmCareco litigation.

LIQUIDITY AND CAPITAL RESOURCES

Market and Economic Conditions

The current state of the global economy and market conditions continue to be challenging with relatively high levels of unemployment, diminished business and consumer confidence, and volatility 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 or 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.

Cash and Investments

As of September 30, 2012, the fair value of our investment securities available-for-sale was $1.7 billion, all in current investments. We hold high-quality fixed income securities primarily comprised of corporate bonds, 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.

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Our investment holdings are currently 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, 2012, our investment portfolio includes $597.9 million, or 35.8% 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, 2012, our investment portfolio also included $633.5 million, or 37.9% of our portfolio holdings, of obligations of state and other political subdivisions and $414.3 million, or 24.8% of our portfolio holdings, of corporate debt securities.

We had gross unrealized losses of $0.1 million as of September 30, 2012, and $4.8 million as of December 31, 2011. Included in the gross unrealized losses as of December 31, 2011 are $0.3 million 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 material other-than-temporary impairments may be recorded in future periods. No impairment was recognized during the three and nine months ended September 30, 2012 or 2011.

Liquidity

We believe that expected cash flow from operating activities, any existing cash reserves and other working capital and lines of credit are adequate to allow us to fund existing obligations, repurchase shares under our stock repurchase program, introduce new products and services, enter into new lines of business and continue to operate and develop health care-related businesses at least for the next twelve months. We regularly evaluate cash requirements for current operations and commitments, for acquisitions and other strategic transactions and for business expansion opportunities, such as the state of California's dual eligibles pilot program. 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 the implementation of health care reform legislation 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. Our receivable from CMS related to our Medicare business was $218.6 million as of September 30, 2012 and $198.5 million as of December 31, 2011. The receivable from DHCS related to our California Medicaid business was $126.3 million as of September 30, 2012 and $87.4 million as of December 31, 2011. Our receivable from the DoD relating to our current and prior contracts for the TRICARE North Region were $206.6 million and $234.7 million as of September 30, 2012 and December 31, 2011, respectively. The timing of collection of such receivables is impacted by government audit and can extend for periods beyond a year.

Operating Cash Flows

Our net cash flow (used in) provided by operating activities for the nine months ended September 30, 2012 compared to the same period in 2011 is as follows:

	September 30,	September 30,	Change Period over Period
	2012	2011
	(Dollars in millions)
Net cash (used in) provided by operating activities	$(0.8)	$223.2	$(224.0)

The decrease of $224.0 million in operating cash flow is primarily due to the timing of receipts of Medicare payments from CMS.

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Investing Activities

Our net cash flow provided by investing activities for the nine months ended September 30, 2012 compared to the same period in 2011 is as follows:

	September 30,	September 30,	Change Period over Period
	2012	2011
	(Dollars in millions)
Net cash provided by investing activities	$146.7	$77.9	$68.8

Net cash provided by investing activities increased by $68.8 million during the nine months ended September 30, 2012 as compared to the same period in 2011. This increase is primarily due to $248.2 million received for the sale of our Medicare PDP business during 2012, partially offset by a $90.2 million decrease in net sales and maturities of available-for-sale securities and $82.1 million received from United for additional consideration related to the Northeast sale during the first nine months of 2011.

Financing Activities

Our net cash flow used in financing activities for the nine months ended September 30, 2012 compared to the same period in 2011 is as follows:

	September 30,	September 30,	Change Period over Period
	2012	2011
	(Dollars in millions)
Net cash used in financing activities	$(63.5)	$(274.9)	$211.4

Net cash used in financing activities decreased by $211.4 million during the nine months ended September 30, 2012 as compared to the same period in 2011 primarily due to a $244.1 million decrease in stock repurchases, a $74.9 million decrease in customer funds administered and a $40.9 increase in checks outstanding, all partially offset by a net decrease in revolving credit facility borrowings of $157.5 million in 2012.

Capital Structure

Our debt-to-total capital ratio was 24.4 percent as of September 30, 2012 compared with 26.2 percent as of December 31, 2011. This decrease was driven by a decrease in borrowings and an increase in equity resulting from net income during the first nine months of 2012.

Share Repurchases. On March 18, 2010, our Board of Directors authorized our 2010 stock repurchase program pursuant to which a total of $300 million of our common stock could be repurchased. During the three and nine months ended September 30, 2011, we repurchased 0 shares and 4.9 million shares, respectively, of our common stock for aggregate consideration of approximately $0 and $149.8 million, respectively, under our 2010 stock repurchase program. We completed our 2010 stock repurchase program in April 2011 after repurchasing an aggregate of 10.8 million shares of our common stock at an average price of $27.80 per share for aggregate consideration of $300.0 million.

On May 2, 2011, our Board of Directors authorized our 2011 stock repurchase program pursuant to which a total of $300.0 million of our outstanding common stock could be repurchased. As of December 31, 2011, the remaining authorization under the 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. During the three and nine months ended September 30, 2012, we repurchased 1.5 million shares and 2.1 million shares, respectively, of our common stock for aggregate consideration of $36.1 million and $50.0 million, respectively, under our 2011 stock repurchase program. The remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 million. For additional information on our 2010 and 2011 stock repurchase programs, see Note 6 to our consolidated financial statements.

Under our various stock option and long-term incentive plans, 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 either of our stock repurchase programs.

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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, 2012:

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	—		$	—	$	—	—	$	76,341,683
February 1—February 29	488,964	(c)	39.28		19,205,186		—	$	76,341,683
March 1—March 31	857	(c)	38.59		33,072		—	$	400,000,000
April 1—April 30	—		—		—		—	$	400,000,000
May 1—May 31	—		—		—		—	$	400,000,000
June 1—June 30	561,600		24.75		13,899,362		561,600	$	386,100,638
July 1—July 31	1,182,859	(c)	24.88		29,428,383		1,182,400	$	356,682,688
August 1—August 31	336,279	(c)	19.95		6,709,955		334,761	$	350,000,012
September 1—September 30	1,401	(c)	23.25		32,573		—	$	350,000,012
	2,571,960		$	26.95	$	69,308,531	2,078,761

________

(a) During the nine months ended September 30, 2012, we did not repurchase any shares of our common stock outside our 2011 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 our 2011 stock repurchase program, pursuant to which a total of $300.0 million of our common stock can be repurchased. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. Our 2011 stock repurchase program does not have an expiration date. During the nine months ended September 30, 2012, 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. We utilized proceeds of the initial borrowing on the closing date of this credit facility to refinance our obligations under our previous revolving credit facility. As of September 30, 2012, $100.0 million was outstanding under our revolving credit facility and the maximum amount available for borrowing under the revolving credit facility was $440.6 million (see "—Letters of Credit" below). As of November 2, 2012, 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, 2012, 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, 2012 and as of November 2, 2012, we had outstanding letters of credit of $59.4 million, resulting in a maximum amount available for borrowing of $440.6 million as of September 30, 2012 and $440.6 million as of November 2, 2012. As of September 30, 2012 and November 2, 2012, 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, 2012, 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. Management believes that as of September 30, 2012, all of our active health plans and insurance subsidiaries met 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 risk-based capital (“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 are also 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. Although RBC standards are not yet applicable to all of our regulated subsidiaries, we generally manage our aggregate regulated subsidiary capital and surplus at approximately 400% of ACL. In certain interim periods, we may manage our aggregate regulated subsidiary capital and surplus below 400% of ACL.

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 DMHC to restrict dividends and loans to affiliates, to the extent that the payment of such would reduce such entities' TNE below 130% of the minimum requirement, or reduce the cash-to-claims ratio below 1:1. At September 30, 2012, all of our subsidiaries subject to the TNE requirements and the undertakings to DMHC exceeded the minimum requirements.

As necessary, we make contributions to and issue standby letters of credit on behalf of our subsidiaries to meet RBC or other statutory capital requirements under state laws and regulations. During the nine months ended September 30, 2012, we made no such capital contributions. In addition, Health Net, Inc. made no capital contributions to any of its subsidiaries to meet RBC or other statutory capital requirements under state laws and regulations thereafter through November 2, 2012.

Legislation has been or 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, 2011 in our Form 10-K and identified additional significant contractual obligations in our Form 10-Q for the quarter ended March 31, 2012. During the three months ended September 30, 2012, there were no significant changes to our contractual obligations as previously disclosed in our Form 10-K and Form 10-Q for the quarter ended March 31, 2012.

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OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2012, 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, which affect the more significant estimates and assumptions used in preparing our consolidated financial statements. Those policies include revenue recognition, health care costs, reserves for contingent liabilities, amounts receivable or payable under government contracts, goodwill and recoverability of long-lived assets and investments, income taxes and the consolidation of variable interest entities. We have not changed existing policies from those previously disclosed in our Form 10-K. 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, 2012 is discussed below. Our critical accounting policy on goodwill impairment testing is also discussed below. There were no other significant changes to the critical accounting estimates as disclosed in our Form 10-K.

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 is also 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%	$ (51.9) million
1%	$ (26.5) million
(1)%	$ 27.6 million
(2)%	$ 56.3 million

Medical Cost Trend (b) Percentage-point Increase (Decrease) in Factor	Western Region Operations Health Plan Services Increase (Decrease) in Reserves for Claims
2%	$ 25.0 million
1%	$ 12.5 million
(1)%	$ (12.5) million
(2)%	$ (25.0) 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 the 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 such as our SPD population in California, 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. In each of the reporting periods for the three months ended September 30, 2012 and 2011, there were no material reserve developments related to prior years. For the nine months ended September 30, 2012, health care cost was impacted by approximately $33 million attributable to the revision of the previous estimate of incurred claims for prior years as a result of adverse prior year development. For the nine months ended September 30, 2011, health care cost was impacted by approximately $97 million of favorable reserve

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development related to prior years. There were no material changes to the provision for adverse deviation for the three and nine months ended September 30, 2012 and 2011.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise primarily as a result of various business acquisitions and consist of identifiable intangible assets acquired and the excess of the cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed (goodwill). Identifiable intangible assets primarily consist of the value of employer group contracts, provider networks and customer relationships, which are all subject to amortization.

On April 1, 2012, we completed the sale of our Medicare PDP business. Our Medicare PDP business was previously reported as part of our Western Region Operations reporting unit. As of March 31, 2012, we re-allocated a portion of the Western Region Operations reporting unit goodwill to the Medicare PDP business based on relative fair values of the reporting unit with and without the Medicare PDP business. Our measurement of fair value is based on a combination of the income approach based on a discounted cash flow methodology and the discounted total consideration received in connection with the sale of our Medicare PDP business. 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 value to the related carrying value and concluded that no impairment to either the carrying value of our Medicare PDP business or our Western Region Operations reporting unit had occurred. Based on the result of the first step test, we did not need to complete the second step test. See Note 3 to our consolidated financial statements for additional information regarding the sale of our Medicare PDP business and Note 8 to our consolidated financial statements for additional goodwill fair value measurement information.

We perform our annual impairment test on our recorded goodwill as of June 30 or more frequently if events or changes in circumstances indicate that we might not recover the carrying value of these assets for each of our reporting units. We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2012 for our Western Region Operations reporting unit, and no impairment was identified. We performed a two-step impairment test to determine the existence of impairment and the amount of the impairment. In the first step, we compared the fair values to the related carrying values and concluded that the carrying value of the Western Region Operations was not impaired. As a result, the second step was not performed. We also re-evaluated the useful lives of our other intangible assets and determined that the current estimated useful lives were properly reflected.

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, the Company’s ability to adequately incorporate into its 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 the dual eligibles pilot program. 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 June 30, 2011 and June 30, 2012, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 180% and 115%, respectively.

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, 2011.

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 Form 10-K.

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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 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 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 nine months ended September 30, 2012 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 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 Form 10-K, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, which could materially affect our business, financial condition, results of operations or future results. The risks described in our Form 10-K, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, 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. During the quarter ended September 30, 2012, there were no material changes to the risk factors disclosed in our Form 10-K, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

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 our 2011 stock repurchase program pursuant to which a total of $300.0 million of our outstanding common stock could be repurchased. As of December 31, 2011, the remaining authorization under the 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. Including the additional $323.7 million authorized repurchase authority, the remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 million.

Under the Company’s various stock option and long-term incentive plans, 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.

A description of our 2011 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—Share Repurchases.”

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

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	Amendment No. 3 to Master Services Agreement, dated as of August 9, 2012, by and between Cognizant Technology Solutions U.S. Corporation and Health Net, Inc.
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 filed herewith.
**101	The following materials from Health Net, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011, (2) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011, (3) Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (4) Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2012 and 2011, (5) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 and (6) Condensed Notes to Consolidated Financial Statements.

__________

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files referenced in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

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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 6, 2012	By:	/s/    JOSEPH C. CAPEZZA
			Joseph C. Capezza
			Executive Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer)
Date:	November 6, 2012	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	Amendment No. 3 to Master Services Agreement, dated as of August 9, 2012, by and between Cognizant Technology Solutions U.S. Corporation and Health Net, Inc.
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 filed herewith.
**101	The following materials from Health Net, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011, (2) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011, (3) Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (4) Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2012 and 2011, (5) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 and (6) Condensed Notes to Consolidated Financial Statements.

__________

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files referenced in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

EX-10.1

Exhibit 10.1

Final Execution Version

AMENDMENT NO. 3 TO

MASTER SERVICES AGREEMENT

This Amendment No. 3 to Master Services Agreement (“Amendment”) is made as of this August 9, 2012, (“Amendment 3 Effective Date”) by and between Cognizant Technology Solutions U.S. Corporation (“Supplier”) and Health Net, Inc., a Delaware corporation (“Health Net”) with reference to the following facts:

A.    Supplier and Health Net entered into a Master Services Agreement dated September 30, 2008, as previously amended (collectively the “Agreement”) which, among other things, requires Supplier to perform Services for Health Net;

B.    Supplier and Health Net wish to amend the Agreement to incorporate Exhibit A-1 (HNFS Requirements) in support of certain Health Net Federal Services, LLC applications; and

D.    Supplier and Health Net desire to modify certain terms and conditions contained in the Agreement as provided in this Amendment.

NOW, THEREFORE, in consideration of the mutual promises, covenants, agreements and other undertakings set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

1.    Definitions: Defined terms used in this Amendment shall have the same meaning as in the Agreement unless otherwise specifically defined herein.

2.    The Exhibit A-1 (HNFS Requirements) attached hereto is incorporated into to Schedule A of the Master Services Agreement and each party hereby agrees to comply with and adhere to all of its respective obligations and requirements in the HNFS Requirements document, as may be amended from time to time.

3.    With respect to the HNFS Requirements only and notwithstanding Section 25.11 (Order of Precedence) of the Agreement, in the event of a conflict between the HNFS Requirements and any other term or condition of the Agreement, the HNFS Requirements shall prevail.

4.    Except as amended and modified by this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. This Amendment may not be modified except in writing signed by both parties hereto. This Amendment, the Agreement and exhibits and schedules thereto constitute the entire agreement of the parties with respect to the subject matter contained therein and supersedes any and all prior or contemporaneous agreements between the parties, whether oral or written, concerning the subject matter contained herein.

IN WITNESS WHEREOF, the parties hereto by their duly authorized representatives executed this Amendment to be effective as of the Amendment Effective Date.

COGNIZANT TECHNOLOGY SOLUTIONS    HEALTH NET, INC.

U.S. CORPORATION

By    /s/ David Brown                By    /s/ Robert Bushey        

Name    David Brown                    Name    Robert Bushey            

VP, Strategic Sourcing &

Title    Senior Director                    Title    Procurement            

Exhibit A-1    A-1 - 1    Health Net / Cognizant Confidential

Final Execution Version

EXHIBIT A-1

HNFS REQUIREMENTS

Exhibit A-1    A-1 - 2    Health Net / Cognizant Confidential

Final Execution Version

EXHIBIT A-1

HNFS REQUIREMENTS

1. INTRODUCTION

1.1 Background.

(a) Health Net Federal Services, LLC (HNFS) is a business unitwithin Health Net.

(i) HNFS’ primary line of business is the TRICARE Program. The TRICARE program is a Department of Defense health care entitlement program, which is administered by private contractors who are selected for participation through a competitive procurement process.

(ii) In addition to the TRICARE line of business, HNFS has other revenue generating sources, including:

(A)     Veterans Administration (VA) Preferred Pricing Contract-Health Net is a subcontractor to our Service Disabled Veteran-Owned Small Business Partners, Enterprise Technology Solutions and Primeaux Health Strategies. Their contracts cover five regions. The five regions are made up of all 21 Veterans Integrated Service Networks (“VISNs”). VA’s Preferred Pricing Program services allow participating VA Medical Centers to share in savings available through discount agreements with Health Net’s nationwide provider network for a variety of health care services, including hospitalization, outpatient care, ambulatory surgery, behavioral health, ancillary and other services. (Note that this contract was terminated effective Friday, August 3, 2012, but the parties are working toward restoration of the contract.)

(B)     DRG Audit and Recovery Services - HNFS also provides the VA with a review of inpatient medical claims that the VA may have overpaid. HNFS currently holds a single contract to perform this service for all Veterans Administration Medical Centers (VAMCs) nationwide.

(C)     DoD Victims Advocate Program – HNFS currently provides Domestic Abuse Victim Advocates (DAVAs) at military installations around the US through a contract with the Department of Defense. The Advocates provide a range of support and advocacy services for victims of domestic violence, including initial response and safety planning and ongoing assistance. The Advocates are HNFS Associates and

Exhibit A-1    A-1 - 3    Health Net / Cognizant Confidential

Final Execution Version

are managed by the DAVA Management Team located in Johnstown, PA.

(D)     HNFS also bids on additional government health care programs that may include comprehensive medical and behavioral health benefits and/or unbundled administrative services applicable to such programs, including, but not limited to provider network, utilization management, claims administration and direct services.

(E)     VA Rural Mental Health Program-The VA Rural Mental Health Program is a pilot program authorized by Congress in Sec. 105 of P.L. 110-387 to provide mental health services to OIF/OEF Veterans who do not live in close proximity to VA Hospital or Community Based Outpatient Clinics. Health Net is the current contractor for VISNs 19 and 20 and the former contractor for the VISN 6’s Rural Mental Health initiative, which was largely based on the pilot.

(F)     California Department of Corrections and Rehabilitation contract whereby HNFS provides administrative support services, including preferred provider organization network services to the California State Prison system.

1.2 General Obligations.

(a) This Exhibit A-1 (HNFS Requirements) defines security requirements and related compliance requirements applicable to HNFS. Security requirements applicable to Health Net under the Agreement that are not in conflict with this Exhibit, shall also apply to HNFS.

(b) As of the Effective Date, Supplier shall comply with all HNFS security-related requirements, policies and standards that apply to the processes, systems, networks, personnel, and facilities that Supplier supports, each as explicitly set forth in this Exhibit A-1, and Supplier shall also comply with all other Health Net security policies and standards as set forth in the Agreement.

(c) For the avoidance of doubt, and except in the event of a Change Notice, the Production Support Charge shall be Supplier's sole compensation for Supplier's efforts in complying with and adhering to the obligations and requirements in this Exhibit A-1. Notwithstanding the foregoing, in accordance with Section 27.6(c) of the terms and conditions of the Agreement, a Regulatory Change may result in a Change pursuant to the Change Control Process.

2. SERVICE REQUIREMENTS

2.1 General.

Exhibit A-1    A-1 - 4    Health Net / Cognizant Confidential

Final Execution Version

(d) Supplier must comply with all security requirements applicable to HNFS, as explicitly set forth in this Exhibit A-1.

(e) Supplier must also comply with the following documents and guidelines in their support and operation of HNFS systems:

(i) “OMB M-06-16, Protection of Sensitive Agency Information” June 23, 2006: http://www.whitehouse.gov/omb/memoranda/fy2006/m06-16.pdf

(ii) DoD Directive 5400.11, “DoD Privacy Program,” September 1, 2011: http://www.dtic.mil/whs/directives/corres/pdf/540011p.pdf

(iii) DoD Publication 5200.2-R, “DoD Personnel Security Program,” January 1987: http://www.dtic.mil/whs/directives/corres/pdf/520002r.pdf

(iv) FIPS-140 Validated Cryptography: http://csrc.nist.gov/groups/STM/cmvp/validation.html

(f) Configuration and operation of systems supported by Supplier will be conducted in compliance with the Defense Information Systems Agency (DISA) Security Technical Implementation Guides (STIGs) and STIG checklists. Compliance with these guides is mandatory for all systems and applications that process, store, access, or transmit Department of Defense data, and associated critical security and support systems as defined by INFOSEC.

(i) DISA Security Technical Implementation Guides (STIGs) and checklists: http://iase.disa.mil/stigs/a-z.html

(g) Supplier must also comply with HIPAA Privacy and Security rules and corresponding DoD issuances, as described in the TRICARE Operations Manual (TOM) Chapter 19 Section 3 to assure that Military Health System (MHS) data is protected. The Military Health System is the enterprise within the United States Department of Defense responsible for providing health care to active duty and retired military personnel and their dependants.

(h) Supplier must also comply with Health Net Incident Response requirements, policies and processes as required by DoD 5400.11-R C4.5, DoD 6025.18-R and DoD 8580.02-R, HIPAA Breach rules

(i) Supplier must also comply with the Health Information Technology for Economic and Clinical Health (HITECH) Act, which is subject to regulatory enforcement by the HHS Office for Civil Rights (OCR).

(j) The provisions of the Military Family Life Consultant (“MFLC”) contract held by HNFS’ Affiliate, MHN Government Services, Inc. and any follow on contract under the MFLC program. To the extent any requirements or obligations change with respect to a follow-on contract, such changes would be subject to the Change Notice procedures set forth in the Agreement.

Exhibit A-1    A-1 - 5    Health Net / Cognizant Confidential

Final Execution Version

The remainder of this Exhibit A-1 summarizes and consolidates certain of the critical requirements referenced in the documents provided above, and provides additional requirements that Supplier must meet in support of the HNFS security programs.

(k) Background Investigations

(i) DoD Sensitive Information (DoD SI) includes Protected Health Information (PHI) and other Personally Identifiable Information (PII) associated with DoD personnel, as well as any other information that could adversely affect the DoD if it were disclosed (e.g. security vulnerabilities, troop data, etc.).

PII is defined as any information about an individual that identifies, links, relates, or is unique to, or describes him or her. This also includes information which can be used to distinguish or trace an individual's identity and any other personal information which is linked or linkable to a specified individual.

PHI is defined in Section A of Schedule K to the Terms and Conditions.

(ii) Supplier Personnel with permissions to access DoD SI on information systems must be US citizens and must be able to successfully pass a DoD background investigation (National Agency Check with Law Enforcement and Credit (NACLC)) providing an ADP/IT-II Position of Trust. This includes all Supplier Personnel with indirect or potential access to DoD SI as a result of their administrative privileges. The majority of HNFS production systems are involved in the storage or processing of DoD SI, and therefore these requirements apply to most personnel with access to those systems.

(iii) The Supplier will coordinate efforts to obtain ADP/IT-II Positions of Trust for its employees and subcontractors with Health Net Industrial Security. The Supplier is responsible for performing pre-employment background checks prior to submission for a Position of Trust to include:

(A) Verification of U.S Citizenship

(B) Criminal Background Check

(C) Credit Check

(D) Drug Screen

The background checks are valid for 90 days only. If a resource is not complete with the NACLC process within the 90 days of the completion of the background check, then the background check will need to be repeated. Supplier must

Exhibit A-1    A-1 - 6    Health Net / Cognizant Confidential

Final Execution Version

receive notification from Health Net’s Industrial Security Department before access to systems will be provided.

(iv) System access that requires ADP/IT-II Positions of Trust includes, but is not limited to, the following applications:

AHLTA

ART

B2B- Other (DISA)

CCDD

CCS

CHCS

Civilian PCM Panel Reassignment

CLR

CPPR

CRM

DCS

DEERS Security App

DEERS Web

DFAS (DISA)

Direct Care PCM Panel

DMDC/DWR

DOES

DS Logon

Duplicate Claims

Fastrieve (SourceCorp)

Fee interface

FS PEGA (UAT, Staging and Production)

GIQD

Information Warehouse

Mercury Products

MMS (UAT, Staging and Production)

Notifications (PNT)

OHI/SIT

Patient ID Service

PCDIS/TePRV (DHSS)

PCM Load

PCM Research

PEPR

PERR (Other Applications) DHSS

PGBA CCM

PGBA Claims

PGBA DocFinity

RRS

TED

TePRV Inquiry

TIP

TITAN

TRICARE Online (TOL)

VISTA

Exhibit A-1    A-1 - 7    Health Net / Cognizant Confidential

Final Execution Version

WFA

(l) Security & Privacy Training.

(i) Initially (within 30 days of assignment) and annually, all Supplier Personnel are required to take the Security Awareness training with the appropriate content provided by Health Net in advance. For Supplier Personnel who hold a Position of Trust (National Agency Check), they are required to take and pass the Security Baseline training course within five days of hire or prior to receiving any government system access. All Supplier Personnel who will have access to HNFS-related systems or data shall be trained in an expeditious manner during the Transition Period, or for Supplier Personnel who start work on the Health Net account after Transition, within five days of starting work (provided that in either case, such training shall occur prior to the applicable Supplier Personnel being granted access to any DoD SI or associated applications). Subsequent refresher training shall be conducted annually and must be completed within 30 days of assignment of the refresher requirement. This refresher training applies to all Supplier personnel regardless of holding an ADP/IT-II position of trust or not. Retraining may also be required as necessary if any material changes are made to HIPAA Rules affecting DoD or Health Net policies and procedures, and must occur within 30 days of assignment of the training.

(ii) In order to assist with Aerojet’s International Traffic in Arms Regulations (ITAR) and required Department of State (DoS) license and DoS approvals, Health Net has entered into an agreement with Aerojet, whereby employees and contractors who are Foreign Nationals (a Foreign National is an individual who is a citizen of any country other than the United States) and require unescorted access be granted at the Aerojet-Sacramento Facility, will comply with the requirements of Aerojet’s Foreign National Visitor Access Control Plan. Health Net associates and contractors who are Foreign Nationals shall be required to attend a briefing by Aerojet Security regarding identified areas where they are allowed and will wear an identification badge to delineate them as Foreign Nationals on a secured site. Aerojet Security will provide all training and badging services.

(iii) In addition to formal training, HNFS will email security newsletters and bulletins to all personnel (including Supplier Personnel) using or supporting HNFS systems throughout the year as a part of HNFS' security awareness

Exhibit A-1    A-1 - 8    Health Net / Cognizant Confidential

Final Execution Version

program. HNFS may also require certain security and privacy-related postings at various locations throughout the facilities supporting HNFS to serve as reminders of HNFS security polices and standards. Supplier Personnel shall at all times comply with all policies and standards referenced in such newsletters, bulletins or postings.

(iv) In addition to the training required in Schedule A and Section 2.8(c) of the General Terms and Conditions, Supplier Personnel supporting the HNFS applications are required to take the following Health Net provided training:

G&SS HIPPAA Privacy Training

GSS Security Awareness

GSS Records Management Training    

Security Baseline Training

ISO 101-2009

HNFS URAC CORE V3.0 (TRICARE ONLY)

URAC Applied Training (TRICARE ONLY)

HNFS Reporting Quality of Care and Serious

Reportable Events

(m) Security Audits and Assessments

(i) The HNFS NIST Authorization boundary includes all information systems that access, process, display, store or transmit DoD or Veterans Affairs (VA) SI, PII or PHI. It can also include any systems interconnected with these systems, including systems with which information is exchanged via messaging. It typically extends to all intended users of these systems, both directly and indirectly connected, who receive output from the system.

(ii) The supplier will support security audit and assessments as required to comply with the NIST SP 800-53 controls listed in the Checklist and Certification for Minimum Level of Enhanced Safeguarding for Unclassified DoD Information as referenced by TMA Policy no. 11-63 below:

http://www.tricare.mil/tma/ams/downloads/policyalerts/PA11-63att2.doc

The associated details for the NIST SP 800-53 control requirements listed in that checklist are provided in the following document: http://csrc.nist.gov/publications/

Exhibit A-1    A-1 - 9    Health Net / Cognizant Confidential

Final Execution Version

nistpubs/800-53-Rev3/sp800-53-Rev3/sp800-53-rev3-final_updated-errata_05-01-2010.pdf.

The Supplier will also support security audits and assessments for HNFS systems supporting any HNFS contract. The NIST authorization boundary for VA systems is categorized as NIST “System High.” Supplier will support those systems and associated audits to meet the system high requirements as specified by NIST SP 800-53.

(iii) Supplier shall provide documentation and support for NIST compliance assessments and any other audits or third-party assessments of applications and information systems that Supplier administers. Typically, this support will consist of requests for information relating to applicable security controls, user access, and system architecture or configuration for the systems and applications supported by the Supplier. However, in depth assessments may be conducted from 1-3 times per year that require extensive access to applications/systems and audit support from Supplier personnel. Supplier will provide adequate personnel to support such efforts. Such assessments may include, but are not limited to: (a) attending and supporting audit/assessment meetings; (b) supporting the INFOSEC team during system security testing and evaluation, including provisioning of access to systems and participating in the assessment process (c) participating in any other audit (i.e completing assessment checklists) as required; and (d) providing remediation and/or approved mitigating controls to address any deficiencies identified.

(n) Physical Security

(i) In the event that Supplier provides service from a non Health Net facility Supplier shall support physical security assessments performed by both Industrial Security and the MHS Information Assurance (external government auditors) assessment team using the criteria from the Physical Security Assessment Matrix in Schedule M (Policies and Procedures). Supplier shall correct any deficiencies of its physical security posture indentified.

(ii) Supplier facilities and data center(s) supporting HNFS functions will submit to a pre-audit physical security inspection performed by a member of the Industrial Security team and comply with all directives to ensure mitigation of findings.

(iii) In addition, a binder containing site security policies standards and procedures will be provided by Industrial

Exhibit A-1    A-1 - 10    Health Net / Cognizant Confidential

Final Execution Version

Security and maintained at each facility supporting HNFS functions.

(o) Security Administration.

(i) Supplier shall provide security administration support for all applications and systems supported by Supplier. Supplier shall provide an assigned point of contact (POC) for Information Security support of each application/system.

(ii) Each assigned POC will coordinate Supplier support for the security requirements detailed in this document with INFOSEC. They will act as the primary POCs for the notification and response for security vulnerabilities, will coordinate collection of information for each system/application, and will act as the primary POC for any audit/assessment-related activities for each supported system/application.

(p) Applications & Systems Inventory

(i) Supplier will provide an updated software inventory list for all supported systems and applications to INFOSEC on a monthly basis. The list provided will include the software name, manufacturer, version, patch level, installed modules or components, and a list of all host names where that software is installed.

(q) Data & Systems Network Security and Separation Requirements

(i) Non-DoD data may reside on systems within the NIST authorization boundary and access may be provided to that data as necessary as long as appropriate access control mechanisms are in place.

(ii) Physical hardware separation between NIST authorization boundary systems and non-NIST systems is required. Virtual server separation such as that provided by VMware or Citrix is not sufficient.

(iii) Systems that support VA contracts must be physically separated from all other systems. All VA sensitive information, PHI and PII must be encrypted (refer to Section 2.1(b)(iv) of this document for encryption standards) in transit and at rest.

(iv) Software supported by Supplier that is required to be included within the NIST Authorization boundary must be configured and installed in accordance with the network controls that define that boundary. Such software will be installed on the VLANs and subnets identified for NIST boundary systems and will comply with Health Net

Exhibit A-1    A-1 - 11    Health Net / Cognizant Confidential

Final Execution Version

network communications guidance for permitted ports and protocols.

(r) Change/Configuration Management.

(i) Any proposed changes to an information system within the NIST authorization boundary that could affect the security configuration of that system must be reviewed and approved by the INFOSEC team prior to implementation. Any such changes could result in additional testing and evaluation by the INFOSEC team.

(s) Disaster Recovery and Continuity of Operations.

(i) Without limiting Supplier’s obligations under Section 2.7 of Schedule A, Supplier shall provide input to HNFS’ Continuity of Operations Plan (COOP), revised on an annual basis, which provides for the continued operation of the systems and data that Supplier supports under Health Net’s TRICARE contract. It will include all actions that will be taken to continue operations should a disaster be declared and in the event of hardware, software and/or communications failures. It shall also include plans for relocation/recovery of operations, timeline for recovery, and relocation site information. It shall include connection to the DoD Business to Business (B2B) Gateway to and from the relocation/recovery site in compliance with all security requirements and associated B2B Gateway connectivity processes. Restoration of critical functions such as claims and enrollment is required within five days of the disaster. HNFS reserves the right to re-prioritize the functions and system interactions proposed in the COOP during the review and approval process for the COOP.

(ii) Annual disaster recovery testing of all aspects of the COOP for major HNFS functions is required in coordination with HNFS on a timeline agreed to with HNFS in coordination with the DoD and other contractors responsible for the transmission of DoD and/or HNFS data. In the event that any portion of the annual disaster recovery test fails, the Supplier will conduct problem resolutions and retesting of all Services test components in a timely manner.

(t) Security Documentation. Supplier will assist INFOSEC in developing and maintaining security and compliance related documentation by providing any information associated with the applications and systems that the Supplier supports as required. Examples include but are not limited to:

(i) Technical specifications

(ii) Security specifications

(iii) System/application architecture diagrams

Exhibit A-1    A-1 - 12    Health Net / Cognizant Confidential

Final Execution Version

(iv) Processes, procedures, and workflows

(v) Roles and responsibilities

(vi) Other information to support security review of applications and systems

(u) Information Assurance Vulnerability Management (IAVM).

(i) Supplier will comply with HNFS IAVM processes as detailed below. The IAVM process is a DoD-mandated patch management process that applies to all HNFS systems. The compliance window for IAVM Alerts (Information Assurance Vulnerability Alerts or IAVA’s) is determined by the DoD and is specific to each individual alert - it is typically 3 weeks, although they have varied from as few as 10 days to as long as a month. IAVA notifications are typically released a few weeks following vendor notifications for security patches, so it is possible that the appropriate patches may have been applied before the IAVA for those patches were received.

(ii) Supplier will provide:

(A) Acknowledgement of receipt within two days of delivery of IAVA’s, IAV Bulletins, or IAV Technical Advisories from INFOSEC.

(B) A list of applicable applications/systems that are supported by the Supplier and a detailed remediation plan for each within five days of delivery of the IAVA’s, IAV Bulletins, or IAV Technical Advisories.

(C) Remediation of applicable IAVA-identified vulnerabilities within the compliance date specified within the IAVA document.

(D) A detailed remediation report to INFOSEC upon the successful remediation of each vulnerability. The report must include a detailed description of the remediation steps taken and verification that the remediation was successful (e.g. screenshots, log files, monitoring reports, test results, etc.).

(iii) If remediation of an IAVA vulnerability is not reasonably achievable within the timeframe specified by the IAVA (as approved by INFOSEC), Supplier will

(A) Develop a detailed Plan of Action & Milestones (POA&M), (form to be provided by INFOSEC) within five days of delivery of the IAVA from INFOSEC.

(B) Document and implement mitigating control measures to reduce the associated security risk to a low risk (as determined by INFOSEC).

Exhibit A-1    A-1 - 13    Health Net / Cognizant Confidential

Final Execution Version

(C) Initiate projects or appropriate vendor software modifications as necessary to address the risk.

(v) Security Vulnerability Remediation.

Supplier will provide:

(i) Acknowledgement of receipt within two days of delivery of vulnerability information from INFOSEC.

(ii) A detailed remediation plan for all applicable vulnerabilities to INFOSEC within five days of the delivery of the vulnerability information from INFOSEC.

(iii) Remediation of all vulnerabilities (other than IAVA’s) within the timeframes described below:

Vulnerability Type	Required Remediation Timeframe (Upon Supplier receipt of vulnerability data)
Critical: DoD Category I findings and any High Risk findings as specified by INFOSEC	25 Days*
Non-Critical: All other findings	85 Days*

*For remediation efforts that would require a change by the vendor of Commercial Off the Shelf (products that are commercially available, or COTS) or Government Off the Shelf (products that are supplied and owned by the government, or GOTS product or if INFOSEC agrees that the finding should not be remediated due to other circumstances, Supplier will:

• Develop a detailed POA&M within five days of delivery of the vulnerability information or approval of the extended timeline by HNFS IA.

• Document and implement mitigating control measures to reduce the associated security risk to a low risk (as determined by INFOSEC).

• Initiate projects or appropriate vendor software modifications as necessary to address the risk.

(iv) A detailed remediation report to INFOSEC upon the successful remediation of each vulnerability. The report must include a detailed description of the remediation steps taken and verification that the remediation was successful (e.g. screenshots, log files, monitoring reports, test results, etc.).

All efforts associated with security remediation efforts will be considered Adaptive Maintenance as defined in the Agreement.

Exhibit A-1    A-1 - 14    Health Net / Cognizant Confidential

Final Execution Version

(w) Privacy & Security Incident Response

(i) The Health Net Incident Response team must be notified immediately regarding any potential or confirmed loss of Health Net Data, loss of assets, unauthorized access, exploit of a security vulnerability, or bypass of security controls identified by Supplier personnel.

(ii) The Supplier will immediately complete an Incident Report available from the following Lotus Notes Database entitled “Lotus Notes Privacy and Security Incident Report Database” as well as Health Net Connectˆ Business Unitsˆ HNFSˆ Quick Linksˆ Incident Reporting. If the database is not immediately available, Supplier will immediately report the incident to HNGSS_Incidents@healthnet.com             or by phone at 866-321-5876. Supplier will maintain and use the most recent reporting contact information as provided by Health Net.

(iii) Supplier will assist the Health Net Incident Response coordinators in addressing any security or privacy incidents in an expedient manner, providing investigative support (e.g. through event correlation, log analysis, and associated reporting) and remediation of any associated vulnerabilities within the timelines specified elsewhere within this document.

(iv) Detection and reporting of security events is a responsibility of the Supplier. When an event is reported as required, INFOSEC will track actions taken and build an accurate timeline of events while also providing analysis and direction to incident response actions. Accurate documentation is required from Supplier to provide accountability and tracking of incident response activities.

2.2 Additional Security Policies & Standards

In addition, there are a number of additional HNFS-specific security policies, procedures, processes and standards with which Supplier and its subcontractors must comply. They are available on the Health Net Intranet through HNConnect at the following links, and have been extracted and provided to Supplier separately from this SOW:

(a) Health Net Corporate Security Policy

http://hnconnect.healthnet.com/business_units/security/policies_and_procedures/list.jsp

(b) HNFS Information Security Policies, Procedures, & Processes

http://kb.hnfs.healthnet.com/hnfskb_itsec.htm

Exhibit A-1    A-1 - 15    Health Net / Cognizant Confidential

Final Execution Version

(c) HNFS Industrial Security Policies, Procedures, & Processes

http://kb.hnfs.healthnet.com/hnfskb_ssis.htm

(d) HNFS Privacy Compliance Policies, Procedures, & Processes

http://kb.hnfs.healthnet.com/hnfskb_ssprivacy.htm

(e) HNFS Records Schedule

http://kb.hnfs.healthnet.com/hnfskb_00003053.htm

3. SERVICE MANAGEMENT

3.1 Service availability:

Supplier will provide security administration support 24 x 7 x 365.

3.2 Escalation:

Supplier will notify INFOSEC and HNFS Industrial Security immediately if at any time current efforts will not meet the required timeframes. Escalation of issues encountered in the performance of this Exhibit A-1or of any non-compliance with this Exhibit A-1 will be addressed according to the issues resolution and escalation procedures defined elsewhere in the Agreement.

3.3 Points of Contact:

As of August 9, 2012, the following are points of contact for HNFS Security:

Billy Martin

Director of Information Security

billy.martin@healthnet.com

916-935-8151

Matt McCracken

Director of Industrial Security

matthew.t.mccracken@healthnet.com

916-985-1689

Exhibit A-1    A-1 - 16    Health Net / Cognizant Confidential

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 6, 2012	/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, Joseph C. Capezza, 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 6, 2012	/S/    JOSEPH C. CAPEZZA
	Joseph C. Capezza
	Chief Financial 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, 2012 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 Joseph C. Capezza, 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 6, 2012

/s/ Joseph C. Capezza

Joseph C. Capezza

Chief Financial Officer

November 6, 2012

XML

Investments (Number of Securities Included in Loss Position of Current and Noncurrent Investments) (Details) (Current [Member])	Sep. 30, 2012 Securities
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, number of securities	24
12 months or more, number of securities	2
Total, number of securities	26
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, number of securities	9
12 months or more, number of securities	1
Total, number of securities	10
U.S. Government and Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, number of securities	2
12 months or more, number of securities	0
Total, number of securities	2
Obligations of States and Other Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, number of securities	5
12 months or more, number of securities	1
Total, number of securities	6
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, number of securities	8
12 months or more, number of securities	0
Total, number of securities	8

XML

Subsequent Event (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Jan. 31, 2020
Subsequent Event [Line Items]
Maximum account deficit payment	$ 264

XML

Commitments and Contingencies (Details) (USD $)	9 Months Ended	12 Months Ended	9 Months Ended
	Sep. 30, 2011 AmCareco Litigation [Member]	Dec. 31, 2011 AmCareco Litigation [Member]	Sep. 30, 2012 Litigation Related to Lost Personal Information [Member] employees_members_providers actions claims	Mar. 18, 2011 Litigation Related to Lost Personal Information [Member] Customers
Litigation and Investigations Related to Unaccounted-for Server Drives [Abstract]
Number of pending litigations			3
Total number of people with information on drives			2,000,000
Period of free credit monitoring services			2 years
Remaining actions currently pending, after consolidation			2
Estimated putative class members				800,000
Damages sought for each class member			$ 1,000
Number of named plaintiffs' claims on which arbitration was requested			2
Number of motions for arbitration granted			1
Number of litigation matters		2
Number of separate state receivers		3
Number of health plans liquidated		3
Former subsidiary merged		1
Payments for legal settlements	$ 181,000,000

XML

Segment Information (Segment Information) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 segments	Sep. 30, 2011
Segment Reporting Information [Line Items]
Number of reportable segments (in segments)			3
Revenues from external sources	$ 2,779,600,000	$ 2,692,000,000	$ 8,451,300,000	$ 8,707,500,000
Intersegment revenues	0	0	0	0
Segment pretax income (loss)	29,376,000	92,940,000	23,226,000	98,263,000
Western Region Operations [Member]
Segment Reporting Information [Line Items]
Revenues from external sources	2,596,900,000	2,505,100,000	7,898,200,000	7,448,600,000
Intersegment revenues	2,700,000	3,000,000	8,300,000	8,900,000
Segment pretax income (loss)	20,200,000	71,800,000	12,600,000	207,100,000
Government Contracts [Member]
Segment Reporting Information [Line Items]
Revenues from external sources	169,800,000	175,900,000	527,400,000	1,222,000,000
Intersegment revenues	0	0	0	0
Segment pretax income (loss)	21,100,000	48,100,000	66,600,000	146,200,000
Divested Operations and Services [Member]
Segment Reporting Information [Line Items]
Revenues from external sources	12,900,000	11,000,000	25,700,000	36,900,000
Intersegment revenues	0	0	0	0
Segment pretax income (loss)	(4,700,000)	(22,400,000)	(34,400,000)	(58,900,000)
Corporate/Other/Eliminations [Member]
Segment Reporting Information [Line Items]
Revenues from external sources	0	0	0	0
Intersegment revenues	(2,700,000)	(3,000,000)	(8,300,000)	(8,900,000)
Segment pretax income (loss)	$ (7,200,000)	$ (4,600,000)	$ (21,600,000)	$ (196,100,000)

XML

Significant Accounting Policies (Health Plan Services Health Care Cost) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Health Care Organization Revenue and Expense [Line Items]
Health plan services	$ 2,281,388	$ 2,149,310	$ 6,983,502	$ 6,389,881
Incurred claims related to 2011 and prior [Member]
Health Care Organization Revenue and Expense [Line Items]
Health plan services	0	0	33,000	(97,000)
Change to provision for adverse deviation [Member]
Health Care Organization Revenue and Expense [Line Items]
Health plan services	$ 0	$ 0	$ 0	$ 0

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Financing Arrangements (Senior Notes) (Details) (USD $)	9 Months Ended		9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 6.375% Senior Notes [Member]	Dec. 31, 2007 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				Dec. 31, 2017
Contingent payment of principal (as a percentage)			101.00%
Default on senior notes			0
Call feature (as a percentage)			100.00%
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	$ 399,044,000	$ 398,890,000

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Investments (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Investments [Abstract]
Losses from other-than-temporary impairments	$ 0	$ 0	$ 0	$ 0
Proceeds from sales of investments available-for-sale	117,600,000	434,200,000	1,132,836,000	1,632,037,000
Gross realized gains	4,300,000	7,900,000	30,100,000	37,200,000
Gross realized losses	$ 36,000	$ 2,500,000	$ 400,000	$ 4,900,000

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended	3 Months Ended		9 Months Ended
	Apr. 02, 2012	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Taxes [Abstract]
Effective income tax rate (as a percentage)		30.30%	37.80%	24.60%	81.70%
Tax expense, net against gain on sale of discontinued operations		$ 2.5		$ 15.8
Gain (loss) on sale of discontinued operation, before tax	132.8	0
Tax effect of discontinued operation		0	2.2	(10.3)	(3.4)
Income (loss) from discontinued operation, before income tax		0
Income Tax Contingency [Line Items]
Federal statutory income tax rate				35.00%
AmCareco Litigation [Member]
Income Tax Contingency [Line Items]
Deferred tax assets			$ 51.1		$ 51.1

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

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 checks outstanding, net of deposits, of $34,000 as of September 30, 2012 and $0 as of December 31, 2011. 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 ended September 30, 2012 and 2011, 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 $417.8 million and $423.1 million as of September 30, 2012 and December 31, 2011, respectively. For the periods ending September 30, 2012 and December 31, 2011, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $112.5 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 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 can also 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 such as our Seniors and Persons with Disabilities population in California, 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. In each of the reporting periods for the three months ended September 30, 2012 and 2011, there were no material reserve developments related to prior years. For the nine months ended September 30, 2012, health care cost was impacted by approximately $33 million attributable to the revision of the previous estimate of incurred claims for prior years as a result of adverse prior year development. We believe this unfavorable reserve development for the nine months ended September 30, 2012 was primarily due to significant delays in claims submissions for the fourth quarter of 2011 arising from issues related to a new billing format required by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) coupled with an unanticipated flattening of commercial trends and higher commercial large group claims trend. For the nine months ended September 30, 2011, health care cost was impacted by approximately $97 million of favorable reserve development related to prior years. This favorable development was primarily due to adjustments to our reserves that related to variables and uncertainties associated with our assumptions. As our reserve balance for older months of service decreased, and estimates of our incurred costs for older dates of service became more certain and predictable, our estimates of incurred claims related to prior periods were adjusted accordingly.

There were nomaterial changes to the provision for adverse deviation for the three and nine months ended September 30, 2012 and 2011.

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.

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 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 Centers for Medicare & Medicaid Services (CMS) for coverage of Medicare-eligible individuals. Furthermore, all of our Medicaid/Medi-Cal revenue is derived in California through our relationship with the State of California Department of Health Care Services (DHCS). As a result, 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, 2012 and 2011 is 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, 2011	$	6.0	$	(4.6	)	$	1.4
Other comprehensive income for the three months ended September 30, 2011	6.6		0.1			6.7
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of July 1, 2012	$	19.6	$	(11.9	)	$	7.7
Other comprehensive income for the three months ended September 30, 2012	19.6		0.6			20.2
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9
Nine Months Ended September 30:
Balance as of January 1, 2011	$	5.3	$	(4.8	)	$	0.5
Other comprehensive income for the nine months ended September 30, 2011	7.3		0.3			7.6
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of January 1, 2012	$	29.8	$	(13.2	)	$	16.6
Other comprehensive income for the nine months ended September 30, 2012	9.4		1.9			11.3
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9

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 and nine months ended September 30, 2012, respectively, 432,000 and 996,000 shares of dilutive common stock equivalents were outstanding. For the three and nine months ended September 30, 2011, respectively, 1,199,000 and 1,420,000 shares of dilutive common stock equivalents were outstanding.

For the three and nine months ended September 30, 2012, respectively, an aggregate of 4,342,000 and 1,819,000 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, 2011, respectively, 2,853,000 and 2,165,000 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 April 2019.

In March 2010, our Board of Directors authorized a $300 million stock repurchase program (2010 stock repurchase program). We completed our 2010 stock repurchase program in April 2011. In May 2011, our Board of Directors authorized a new stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (2011 stock repurchase program). As of December 31, 2011, the remaining authorization under our 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. The remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 million. See Note 6 for more information regarding our 2010 and 2011 stock repurchase programs

Goodwill and Other Intangible Assets

We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2012 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, 2011	$605.9	$605.9
Goodwill allocated to Medicare PDP business sold	(40.0)	(40.0)
Balance as of September 30, 2012	$565.9	$565.9

On April 1, 2012, we completed the sale of our Medicare PDP business. See Note 3 for additional information regarding the sale of our Medicare PDP business. Our Medicare PDP business was previously reported as part of our Western Region Operations reporting unit. As of March 31, 2012, we re-allocated a portion of the Western Region Operations reporting unit goodwill to the Medicare PDP business based on relative fair values of the reporting unit with and without the Medicare PDP business. Our measurement of fair value is based on a combination of the income approach based on a discounted cash flow methodology and the discounted total consideration received in connection with the sale of our Medicare PDP business. 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 value to the related carrying value and concluded that no impairment to either the carrying value of our Medicare PDP business or our Western Region Operations reporting unit had occurred. Based on the result of the first step test, we did not need to complete the second step test. 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, the Company’s ability to adequately incorporate into its premium rates the future costs of premium-based assessments imposed by the Patient Protection and Affordable Care Act and the Health Care and Reconciliation Act of 2010, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of the dual eligibles pilot program. 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 June 30, 2011 and June 30, 2012, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 180% and 115%, 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, 2012:
Provider networks	$40.5	$(34.4)	$6.1	19.4
Customer relationships and other	29.5	(17.5)	12.0	11.1
	$70.0	$(51.9)	$18.1
As of December 31, 2011:
Provider networks	$40.5	$(33.6)	$6.9	19.4
Customer relationships and other	29.5	(15.7)	13.8	11.1
	$70.0	$(49.3)	$20.7

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
2012	$	3.4
2013	3.4
2014	2.8
2015	2.6
2016	2.0

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, 2012 and December 31, 2011, the restricted cash and cash equivalents balances totaled $0.9 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $26.2 million and $20.7 million as of September 30, 2012 and December 31, 2011, respectively, and are included in investments available-for-sale.

Divested Operations and Services

Divested operations and services revenues and expenses include items related to the run-out of our Northeast business that was sold on December 11, 2009. Prior to the first quarter of 2012, these line items had been called Northeast administrative services fees and other revenues and expenses. Due to the sale of our Medicare PDP business on April 1, 2012, starting with the first quarter of 2012, Divested operations and services revenues and expenses also include transition-related revenues and expenses related to the sale of our Medicare PDP business. We provide Medicare PDP transition-related services to CVS Caremark in connection with the transaction. We expect to continue to provide the majority of these services through December 31, 2012, although certain transition-related services may continue through December 31, 2013. See Note 3 for additional information regarding the sale of our Medicare PDP business and the sale of our Northeast business, and see Note 4 for information regarding the change to our reportable segments as a result of the sale of our Medicare PDP business.

Government Contracts

On April 1, 2011, we began delivering administrative services under a new Managed Care Support Contract (T-3) with the United States Department of Defense (DoD) for the TRICARE North Region. The T-3 contract was awarded to us on May 13, 2010. We were the managed care contractor for the DoD's previous TRICARE contract in the North Region, which ended on March 31, 2011.

The T-3 contract has five one-year option periods. On March 15, 2011, the DoD exercised option period 2 (without exercising option period 1), due to a delay of approximately one year in the government's initial award of the T-3 contract. Accordingly, option period 2 commenced on April 1, 2011. On March 22, 2012, the DoD exercised option period 3, which commenced on April 1, 2012. If all remaining option periods are exercised, the T-3 contract would conclude on March 31, 2015.

We provide various types of administrative services under the contract, including: provider network management, referral management, medical management, disease management, enrollment, customer service, clinical support service, and claims processing. We also provided assistance in the transition into the T-3 contract, and will provide assistance in any transition out of the T-3 contract. 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.

In accordance with GAAP, we evaluate, at the inception of the contract and as services are delivered, all deliverables in the service arrangement to determine whether they represent separate units of accounting. The delivered items are considered separate units of accounting if the delivered items have value to the customer on a standalone basis (i.e., they are sold separately by any vendor) and no general right of return exists relative to the delivered item. While we identified two separate units of accounting within the T-3 contract, no determination of estimated selling price was performed because both units of accounting are performed ratably over the option periods and, accordingly, the same methodology of revenue recognition applies to both units of accounting.

Therefore, we recognize revenue related to administrative services on a straight-line basis over the option period, when the fees become fixed and determinable.

The T-3 contract 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.

The transition-in process for the T-3 contract began in the second quarter of 2010. We had deferred transition-in costs of $43.8 million, which we began amortizing on April 1, 2011 on a straight-line basis, and we had related deferred revenues of $52.5 million, which are being amortized over the customer relationship period. Fulfillment costs associated with the T-3 contract are expensed as incurred.

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

The TRICARE 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. Health care costs for the T-3 contract that are paid and reimbursable amounted to $638.8 million and $1,957.2 million for the three and nine months ended September 30, 2012, respectively, and amounted to $569.4 million and $991.0 million for the three and nine months ended September 30, 2011, respectively.

In addition to the beneficiaries that we service under the T-3 contract, we provide behavioral health services to military families under the DoD Military and Family Life Counseling, formerly Military and Family Life Consultant (MFLC) program. On August 15, 2012, we entered into a new MFLC contract awarded by the DoD. The new contract has a five-year term that includes a 12-month base period and four 12-month option periods. As a result of the revised terms and structure of the new MFLC contract and the government's decision to award the new MFLC contract to multiple contractors, we anticipate that the revenues we receive from the new contract will be substantially reduced in comparison to our original MFLC contract.

CMS Risk Adjustment Data Validation Audit Methodology

On February 24, 2012, CMS published its final payment error calculation methodology for Medicare Advantage risk adjustment data validation contract-level audits (RADV audits). CMS will begin applying the final methodology for RADV audits of the 2011 payment year. The final methodology provides for payment recovery based on extrapolated estimates of payment error rates. However, the final methodology also includes, among other things, a fee-for-service adjuster, which would limit our payment liability to an error rate in excess of CMS' own fee-for-service error rate. CMS' final methodology is complex and we continue to evaluate its potential impact on us, but potential payment adjustments could have a material adverse effect on our results of operations and financial condition.

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Fair Value Measurements (Assets and Liabilities Measured at Fair Value) (Details) (USD $)	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Sep. 30, 2012 Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Dec. 31, 2011 Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 1 [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Current [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 2 [Member] Noncurrent [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Residential Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Commercial Mortgage-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Other Asset-Backed Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] U.S. Treasury Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] U.S. Agency Securities [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Obligations of States and Other Political Subdivisions [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Dec. 31, 2011 Fair Value, Inputs, Level 3 [Member] Fair Value, Measurements, Recurring [Member] Corporate Debt Securities [Member]	Sep. 30, 2012 Divested Operations and Services [Member]	Jun. 30, 2012 Divested Operations and Services [Member]	Apr. 02, 2012 Divested Operations and Services [Member]	Dec. 31, 2011 Divested Operations and Services [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents					$ 312,600,000	$ 230,300,000																$ 312,600,000	$ 230,300,000																$ 0	$ 0															$ 0	$ 0																$ 0	$ 0
Investments at fair value					1,671,700,000	1,560,100,000	372,000,000	495,300,000	201,700,000	94,400,000	24,200,000	32,600,000	26,000,000	25,500,000	0	7,000,000	633,500,000	518,100,000	414,300,000	387,200,000		26,000,000	25,500,000	0	0	0	0	0	0	26,000,000	25,500,000	0	0	0	0	0	0		1,645,500,000	1,532,300,000	372,000,000	495,300,000	201,700,000	94,400,000	24,200,000	32,600,000	0	0	0	7,000,000	633,300,000	517,900,000	414,300,000	385,100,000	0	2,100,000	0	0	0	0	0	0	0	0	0	0	0	0	0	2,100,000		200,000	200,000	0	0	0	0	0	0	0	0	0	0	200,000	200,000	0	0
Embedded Derivative, Fair Value of Embedded Derivative Asset					7,200,000	5,300,000																0	0																0	0															0	0																7,200,000	5,300,000
Total assets at fair value					1,991,500,000	1,795,700,000																338,600,000	255,800,000																1,645,500,000	1,532,300,000															0	2,100,000																7,400,000	5,500,000
Goodwill allocated to Medicare PDP business sold	0	0	40,000,000																		0																	0																																	0
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale																					0																	0																																	4,000,000																	4,000,000	8,000,000	12,000,000	0
Transfers of Liabilities, Levels 1 to Level 2	0			0
Transfers of Assets, Levels 1 to Level 2	0			0
Transfers of Liabilities, Levels 2 to Level 1	0			0
Transfers of Assets, Levels 2 to Level 1	$ 0			$ 0

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Significant Accounting Policies (Goodwill and Other Intangible Assets) (Details) (USD $)	3 Months Ended	9 Months Ended		9 Months Ended			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Western Region Operations [Member]	Jun. 30, 2012 Western Region Operations [Member]	Jun. 30, 2011 Western Region Operations [Member]	Sep. 30, 2012 Provider Networks [Member]	Dec. 31, 2011 Provider Networks [Member]	Sep. 30, 2012 Customer Relationships and Other [Member]	Dec. 31, 2011 Customer Relationships and Other [Member]
Goodwill [Line Items]
Ratio of fair value to carrying value					115.00%	180.00%
Goodwill, beginning of the period		$ 605,886,000		$ 605,900,000
Goodwill allocated to Medicare PDP business sold	0	(40,000,000)		(40,000,000)
Goodwill, end of the period	565,886,000	565,886,000		565,900,000
Finite-Lived Intangible Assets
Gross Carrying Amount	70,000,000	70,000,000	70,000,000				40,500,000	40,500,000	29,500,000	29,500,000
Accumulated Amortization	(51,900,000)	(51,900,000)	(49,300,000)				(34,400,000)	(33,600,000)	(17,500,000)	(15,700,000)
Net Balance	18,100,000	18,100,000	20,700,000				6,100,000	6,900,000	12,000,000	13,800,000
Weighted Average Life (in years)							19 years 4 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
2012	3,400,000	3,400,000
2013	3,400,000	3,400,000
2014	2,800,000	2,800,000
2015	2,600,000	2,600,000
2016	$ 2,000,000	$ 2,000,000

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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		0 Months Ended			9 Months Ended	12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Mar. 18, 2010 2010 Stock Repurchase Program [Member]	Mar. 08, 2012 2011 Stock Repurchase Program [Member]	May 02, 2011 2011 Stock Repurchase Program [Member]	Sep. 30, 2012 2011 Stock Repurchase Program [Member]	Dec. 31, 2011 2011 Stock Repurchase Program [Member]
Significant Accounting Policies [Line Items]
Common stock equivalents (in shares)	432,000	1,199,000	996,000	1,420,000
Anti-dilutive securities excluded from computation of diluted earnings per share (in shares)	4,342,000	2,853,000	1,819,000	2,165,000
Stock repurchase program authorized amount					$ 300.0	$ 323.7	$ 300.0
Stock repurchase program remaining authorized repurchase amount								$ 350.0	$ 76.3

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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		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Available-For-Sale Investments [Member]	Sep. 30, 2011 Available-For-Sale Investments [Member]	Sep. 30, 2012 Available-For-Sale Investments [Member]	Sep. 30, 2011 Available-For-Sale Investments [Member]	Sep. 30, 2012 Embedded Contractual Derivative [Member]	Sep. 30, 2011 Embedded Contractual Derivative [Member]	Sep. 30, 2012 Embedded Contractual Derivative [Member]	Sep. 30, 2011 Embedded Contractual Derivative [Member]	Sep. 30, 2012 Divested Operations and Services [Member]	Sep. 30, 2012 Divested Operations and Services [Member]	Apr. 02, 2012 Divested Operations and Services [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Opening balance	$ 15.2	$ 10.7	$ 5.5	$ 9.9	$ 0.2	$ 9.9	$ 0.2	$ 9.9	$ 15.0	$ 0.8	$ 5.3	$ 0
Transfers into Level 3	0	0	0	0	0	0	0	0	0	0	0	0
Transfers out of Level 3	0	0	0	0	0	0	0	0	0	0	0	0
Total gains or losses for the period
Realized in net income	(7.8)	(1.7)	1.9	(0.9)	0	(2.4)	0	(2.4)	(7.8)	0.7	1.9	1.5
Unrealized in accumulated other comprehensive income	0	0	0	0	0	0	0	0	0	0	0	0
Purchases, issues, sales and settlements
Purchases/additions	0	0	0	0	0	0	0	0	0	0	0	0
Issues	0	0	0	0	0	0	0	0	0	0	0	0
Sales	0	(7.3)	0	(7.3)	0	(7.3)	0	(7.3)	0	0	0	0
Settlements	0	0	0	0	0	0	0	0	0	0	0	0
Closing balance	7.4	1.7	7.4	1.7	0.2	0.2	0.2	0.2	7.2	1.5	7.2	1.5
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	0	0	0	0	0	0	0	0	0	0	0	0
Changes in Level 3 Financial Assets and Liabilities, Non-Recurring Basis
Beginning balance: goodwill of discontinued operation	0		40.0
Goodwill allocated to Medicare PDP business sold	0		(40.0)
Ending balance: goodwill of discontinued operation	0		0
Beginning balance, Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale													8.0	0	12.0
Deferred revenue, realized in net income													(4.0)	(8.0)
Deferred revenue, Additions													0	12.0
Ending balance, Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale													$ 4.0	$ 4.0	$ 12.0

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Significant Accounting Policies (Restricted Assets) (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Summary of Significant Accounting Policies [Abstract]
Restricted cash and cash equivalents	$ 0.9	$ 5.3
Investment securities held by trustees or agencies	$ 26.2	$ 20.7

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Significant Accounting Policies (Govenment Contracts) (Details) (Government Contracts [Member], USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Apr. 02, 2011	Mar. 31, 2011 options
T-3 Contract [Member]
Significant Accounting Policies [Line Items]
Number of administrative services, option periods						5
Deferred transition-in costs					$ 43.8
Effective date of contract				April 1, 2011
Deferred revenue					52.5
Costs paid and reimbursable	$ 638.8	$ 569.4	$ 1,957.2	$ 991.0
MFLC Contract [Member]
Significant Accounting Policies [Line Items]
Number of administrative services, option periods	5		5
Effective date of contract			August 15, 2012

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Basis of Presentation

9 Months Ended

Sep. 30, 2012

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 consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011 (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 April 1, 2012, we completed the sale of the business operations of our Medicare stand-alone Prescription Drug Plan (Medicare PDP) business to Pennsylvania Life Insurance Company, a subsidiary of CVS Caremark Corporation (CVS Caremark). As a result of the sale, the operating results of our Medicare PDP business, previously reported within our Western Region Operations reportable segment, have been reclassified as discontinued operations in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011. See Note 3 for more information on the sale of our Medicare PDP business.

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Sale of Medicare PDP Business and Northeast Business (Details) (USD $)	0 Months Ended	3 Months Ended		9 Months Ended		0 Months Ended	3 Months Ended	0 Months Ended
	Apr. 02, 2012 Customers	Sep. 30, 2012 Customers	Sep. 30, 2011 Customers	Sep. 30, 2012 Customers	Sep. 30, 2011 Customers	Apr. 02, 2012 PDP Sale Proceeds [Member]	Jun. 30, 2012 Additional PDP Sale Proceeds [Member]	Apr. 02, 2012 Divested Operations and Services [Member]	Sep. 30, 2012 Divested Operations and Services [Member]	Jun. 30, 2012 Divested Operations and Services [Member]	Dec. 31, 2011 Divested Operations and Services [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Disposal date	Apr. 01, 2012
Proceeds from divestiture of business				$ 0	$ 82,101,000	$ 169,900,000	$ 78,300,000
Sales price component	400
Number of customers	424,820	0	381,000	0	381,000
Gain (loss) on sale of discontinued operation, before tax	132,800,000	0
Gain on sale of discontinued operation, net of tax	117,000,000	(2,450,000)	0	116,990,000	0
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale								12,000,000	4,000,000	8,000,000	0
Deferred revenue, recognition period								9 months
Discount rate								1.20%
Discontinued operations revenues		0	94,600,000	191,800,000	381,500,000
Income (loss) from operations before income taxes		0	6,200,000	(28,800,000)	(9,500,000)
Adjustment to loss on sale of Northeast health plan subsidiaries		$ 0	$ 315,000	$ 0	$ (40,822,000)

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Stock Repurchase Program (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	9 Months Ended			12 Months Ended	13 Months Ended	0 Months Ended		3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2011 2010 Stock Repurchase Program [Member]	Dec. 31, 2011 2010 Stock Repurchase Program [Member]	Apr. 30, 2011 2010 Stock Repurchase Program [Member]	Mar. 08, 2012 2011 Stock Repurchase Program [Member]	May 02, 2011 2011 Stock Repurchase Program [Member]	Sep. 30, 2012 2011 Stock Repurchase Program [Member]	Sep. 30, 2012 2011 Stock Repurchase Program [Member]	Dec. 31, 2011 2011 Stock Repurchase Program [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program authorized amount				$ 300,000,000		$ 323,700,000	$ 300,000,000
Treasury stock shares acquired			4,900		10,800			1,500	2,100
Treasury stock value acquired cost method	69,330,000	325,212,000	149,800,000		300,000,000			36,100,000	50,000,000
Average price of repurchased stock per share					$ 27.80
Stock repurchase program remaining authorized repurchase amount									$ 350,000,000	$ 76,300,000

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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, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues
Health plan services premiums	$ 2,578,689	$ 2,487,767	$ 7,818,565	$ 7,379,951
Government contracts	169,811	175,845	527,421	1,221,987
Net investment income	16,355	15,188	63,356	64,114
Administrative service fees and other income	1,854	2,174	16,300	6,974
Divested operations and services revenue	12,863	10,976	25,668	34,446
Total revenues	2,779,572	2,691,950	8,451,310	8,707,472
Expenses
Health plan services (excluding depreciation and amortization)	2,281,388	2,149,310	6,983,502	6,389,881
Government contracts	151,815	127,884	467,531	1,080,864
General and administrative	222,425	215,952	688,457	822,083
Selling	61,053	57,965	181,004	175,947
Depreciation and amortization	7,907	6,937	22,722	24,066
Interest	8,021	7,774	24,895	23,632
Divested operations and services expenses	17,587	32,873	59,973	133,558
Adjustment to loss on sale of Northeast health plan subsidiaries	0	315	0	(40,822)
Total expenses	2,750,196	2,599,010	8,428,084	8,609,209
Income (loss) from continuing operations before income taxes	29,376	92,940	23,226	98,263
Income tax provision (benefit)	8,898	35,131	5,712	80,268
Income (loss) from continuing operations	20,478	57,809	17,514	17,995
Discontinued operations:
Income (loss) from discontinued operation, net of tax	0	4,003	(18,452)	(6,078)
Gain on sale of discontinued operation, net of tax	(2,450)	0	116,990	0
Income (loss) from discontinued operation, net of tax	(2,450)	4,003	98,538	(6,078)
Net income (loss)	$ 18,028	$ 61,812	$ 116,052	$ 11,917
Net income (loss) per share - basic:
Income (loss) from continuing operations	$ 0.25	$ 0.66	$ 0.21	$ 0.20
Income (loss) from discontinued operation, net of tax	$ (0.03)	$ 0.05	$ 1.20	$ (0.07)
Net income (loss) per share - basic	$ 0.22	$ 0.71	$ 1.41	$ 0.13
Net income (loss) per share - diluted:
Income (loss) from continuing operations	$ 0.25	$ 0.65	$ 0.21	$ 0.20
Income (loss) from discontinued operation, net of tax	$ (0.03)	$ 0.05	$ 1.18	$ (0.07)
Net income (loss) per share - diluted	$ 0.22	$ 0.70	$ 1.39	$ 0.13
Weighted average shares outstanding:
Basic	81,607	87,675	82,451	90,479
Diluted	82,039	88,874	83,447	91,899

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Fair Value Measurements (Quantitative Information About Level 3 Fair Value Measurements) (Details) (USD $)					9 Months Ended							9 Months Ended						9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member] Health Net Health Care Expenditures [Member] Minimum [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member] Health Net Health Care Expenditures [Member] Maximum [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member] Health Net Health Care Expenditures [Member] Weighted Average [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member] National Health Care Expenditures [Member] Minimum [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member] National Health Care Expenditures [Member] Maximum [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Monte Carlo Simulation Approach [Member] National Health Care Expenditures [Member] Weighted Average [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Income Approach [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Income Approach [Member] Minimum [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Income Approach [Member] Maximum [Member]	Sep. 30, 2012 Fair Value, Inputs, Level 3 [Member] Income Approach [Member] Weighted Average [Member]	Sep. 30, 2012 Western Region Operations [Member]	Dec. 31, 2011 Western Region Operations [Member]	Sep. 30, 2012 Western Region Operations [Member] Fair Value, Inputs, Level 3 [Member] Income Approach [Member]	Sep. 30, 2012 Western Region Operations [Member] Fair Value, Inputs, Level 3 [Member] Income Approach [Member] Minimum [Member]	Sep. 30, 2012 Western Region Operations [Member] Fair Value, Inputs, Level 3 [Member] Income Approach [Member] Maximum [Member]	Sep. 30, 2012 Western Region Operations [Member] Fair Value, Inputs, Level 3 [Member] Income Approach [Member] Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Embedded contractual derivative				$ 7,200,000
Goodwill	565,886,000	605,886,000													565,900,000	605,900,000	565,900,000
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale			4,000,000								4,000,000
Health Care Expenditures, range (as a percentage)					(2.20%)	13.00%	2.20%	(1.60%)	7.90%	3.10%
Discount Rate, range (as a percentage)												1.20%	1.20%	1.20%				9.00%	9.00%	9.00%
Costs estimated in connection with providing transition related services												$ 4,900,000	$ 4,900,000	$ 4,900,000

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Consolidated Statements Of Stockholders' Equity (USD $) In Thousands, 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, 2010	$ 1,694,416	$ 145	$ 1,221,301	$ (1,626,856)	$ 2,099,339	$ 487
Balance, shares at Dec. 31, 2010		145,121		(50,474)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	11,917				11,917
Other comprehensive income (loss)	7,614					7,614
Exercise of stock options and vesting of restricted stock units	27,211	2	27,209
Exercise of stock options and vesting of restricted stock units, shares		1,604
Share-based compensation expense	21,345		21,345
Tax benefit related to equity compensation plans	1,113		1,113
Repurchases of common stock	(325,212)			(325,212)
Repurchases of common stock, shares				(11,706)
Balance at Sep. 30, 2011	1,438,404	147	1,270,968	(1,952,068)	2,111,256	8,101
Balance, shares at Sep. 30, 2011		146,725		(62,180)
Balance at Dec. 31, 2011	1,443,146	147	1,278,037	(2,023,129)	2,171,459	16,632
Balance, shares at Dec. 31, 2011		146,804		(64,847)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	116,052				116,052
Other comprehensive income (loss)	11,299					11,299
Exercise of stock options and vesting of restricted stock units	16,589	2	16,587
Exercise of stock options and vesting of restricted stock units, shares		1,885
Share-based compensation expense	23,413		23,413
Tax benefit related to equity compensation plans	5,113		5,113
Repurchases of common stock	(69,330)			(69,330)
Repurchases of common stock, shares				(2,572)
Balance at Sep. 30, 2012	$ 1,546,282	$ 149	$ 1,323,150	$ (2,092,459)	$ 2,287,511	$ 27,931
Balance, shares at Sep. 30, 2012		148,689		(67,419)

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Investments (Fair Value of Investments Available-for-Sale) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Carrying Value, Current	$ 1,671,678,000	$ 1,557,997,000
Carrying Value, Noncurrent	0	2,147,000
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,607,413,000	1,528,091,000
Gross Unrealized Holding Gains	64,400,000	34,400,000
Gross Unrealized Holding Losses	(100,000)	(4,500,000)
Carrying Value, Current	1,671,700,000	1,558,000,000
Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	0	2,450,000
Asset-Backed Securities [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	575,000,000	611,900,000
Gross Unrealized Holding Gains	22,900,000	10,600,000
Gross Unrealized Holding Losses	0	(200,000)
Carrying Value, Current	597,900,000	622,300,000
U.S. Government and Agencies [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	26,000,000	32,500,000
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	0	0
Carrying Value, Current	26,000,000	32,500,000
Obligations of States and Other Political Subdivisions [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	609,900,000	498,700,000
Gross Unrealized Holding Gains	23,600,000	19,500,000
Gross Unrealized Holding Losses	0	(100,000)
Carrying Value, Current	633,500,000	518,100,000
Corporate Debt Securities [Member] | Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	396,500,000	385,000,000
Gross Unrealized Holding Gains	17,900,000	4,300,000
Gross Unrealized Holding Losses	(100,000)	(4,200,000)
Carrying Value, Current	414,300,000	385,100,000
Corporate Debt Securities [Member] | Noncurrent [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		2,400,000
Gross Unrealized Holding Gains		0
Gross Unrealized Holding Losses		(300,000)
Carrying Value, Noncurrent		$ 2,100,000

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Investments (Tables)

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

Fair Value of Investments Available-for-Sale

As of September 30, 2012 and December 31, 2011, 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, 2012
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	575.0	$	22.9	$	—		$	597.9
U.S. government and agencies	26.0		—		—			26.0
Obligations of states and other political subdivisions	609.9		23.6		—			633.5
Corporate debt securities	396.5		17.9		(0.1		)	414.3
	$	1,607.4	$	64.4	$	(0.1	)	$	1,671.7

	December 31, 2011
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	611.9	$	10.6	$	(0.2	)	$	622.3
U.S. government and agencies	32.5		—		—			32.5
Obligations of states and other political subdivisions	498.7		19.5		(0.1		)	518.1
Corporate debt securities	385.0		4.3		(4.2		)	385.1
	$	1,528.1	$	34.4	$	(4.5	)	$	1,558.0
Noncurrent:
Corporate debt securities	$	2.4	$	—	$	(0.3	)	$	2.1

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

As of September 30, 2012, the contractual maturities of our current investments available-for-sale were as follows:

	Amortized Cost		Estimated Fair Value
Current:	(Dollars in millions)
Due in one year or less	$	33.0	$	33.1
Due after one year through five years	190.4		197.2
Due after five years through ten years	406.4		427.2
Due after ten years	402.6		416.3
Asset-backed securities	575.0		597.9
Total current investments available-for-sale	$	1,607.4	$	1,671.7

Schedule of Unrealized Loss on Investments

The following table shows our current investments' fair values and gross unrealized losses for individual securities in a continuous loss position as of September 30, 2012:

	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	$	6.0	$	—		$	—	$	—	$	6.0	$	—
U.S. government and agencies	10.3		—			—		—		10.3		—
Obligations of states and other political subdivisions	9.8		—			0.3		—		10.1		—
Corporate debt securities	8.5		(0.1		)	—		—		8.5		(0.1		)
	$	34.6	$	(0.1	)	$	0.3	$	—	$	34.9	$	(0.1	)

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 December 31, 2011:

	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	$	30.5	$	(0.2	)	$	1.1	$	—		$	31.6	$	(0.2	)
U.S. government and agencies	—		—			—		—			—		—
Obligations of states and other political subdivisions	7.5		—			3.0		(0.1		)	10.5		(0.1		)
Corporate debt securities	149.3		(4.1		)	1.4		(0.1		)	150.7		(4.2		)
	$	187.3	$	(4.3	)	$	5.5	$	(0.2	)	$	192.8	$	(4.5	)

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 December 31, 2011:

	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in millions)
Corporate debt securities	$	2.1	$	(0.3	)	$	—	$	—	$	2.1	$	(0.3	)

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 at September 30, 2012:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	9	1	10
U.S. government and agencies	2	—	2
Obligations of states and other political subdivisions	5	1	6
Corporate debt securities	8	—	8
	24	2	26

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Investments (Available-for-Sale Current Investments Classified by Contractual Maturity Date) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Available for sale securities, Estimated Fair Value	$ 1,671,678,000	$ 1,557,997,000
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, Amortized Cost	33,000,000
Due after one year through five years, Amortized Cost	190,400,000
Due after five years through ten years, Amortized Cost	406,400,000
Due after ten years, Amortized Cost	402,600,000
Available for sale securities, Amortized Cost	1,607,413,000	1,528,091,000
Due in one year or less, Estimated Fair Value	33,100,000
Due after one year through five years, Estimated Fair Value	197,200,000
Due after five years through ten years, Estimated Fair Value	427,200,000
Due after ten years, Estimated Fair Value	416,300,000
Available for sale securities, Estimated Fair Value	1,671,700,000	1,558,000,000
Current [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available for sale securities, Amortized Cost	575,000,000	611,900,000
Available for sale securities, Estimated Fair Value	$ 597,900,000	$ 622,300,000

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Significant Accounting Policies (Cash and Cash Equivalents, Investments and Fair Value of Financial Instruments) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Accounting Policies [Abstract]
Checks outstanding	$ 34,000		$ 34,000		$ 0
Losses recognized from other-than-temporary impairments	0	0	0	0
Fair value of fixed rate borrowings	417,800,000		417,800,000		423,100,000
Fair value of variable rate borrowings	$ 100,000,000		$ 100,000,000		$ 112,500,000

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 116,052	$ 11,917
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization and depreciation	22,722	24,066
Adjustment to loss on sale of business	0	(40,822)
Gain on sale of discontinued operation	(116,990)	0
Share-based compensation expense	23,413	21,345
Deferred income taxes	24,883	(14,400)
Excess tax benefit on share-based compensation	(6,059)	(1,279)
Net realized (gain) loss on investments	(29,661)	(32,320)
Other changes	6,832	11,679
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Premiums receivable and unearned premiums	(173,387)	305,568
Other current assets, receivables and noncurrent assets	(78,203)	(70,468)
Amounts receivable/payable under government contracts	3,218	26,453
Reserves for claims and other settlements	158,581	(68,987)
Accounts payable and other liabilities	47,765	50,445
Net cash provided by (used in) operating activities	(834)	223,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments	1,132,836	1,632,037
Maturities of investments	97,815	148,196
Purchases of investments	(1,283,227)	(1,742,649)
Purchases of property and equipment	(55,030)	(32,136)
Net cash received from sale of business	248,238	0
Purchase price adjustment on sale of Northeast Health Plans	0	82,101
Sales (purchases) of restricted investments and other	6,024	(9,647)
Net cash provided by investing activities	146,656	77,902
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock purchases	16,589	12,309
Excess tax benefit on share-based compensation	6,059	1,279
Repurchases of common stock	(69,330)	(313,440)
Borrowings under financing arrangements	110,000	697,500
Repayment of borrowings under financing arrangements	(122,500)	(552,500)
Net increase in checks outstanding, net of deposits	34	(40,817)
Customer funds administered	(4,348)	(79,232)
Net cash (used in) provided by financing activities	(63,496)	(274,901)
Net increase (decrease) in cash and cash equivalents	82,326	26,198
Cash and cash equivalents, beginning of period	230,253	350,138
Cash and cash equivalents, end of period	312,579	376,336
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid	16,990	16,783
Income taxes paid	$ 5,058	$ 28,209

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss)	$ 18,028	$ 61,812	$ 116,052	$ 11,917
Unrealized gains (losses) on investments available-for-sale:
Unrealized holding gains arising during the period	36,554	16,219	64,126	44,604
Less: Reclassification adjustments for gains included in earnings	(4,272)	(5,369)	(29,661)	(32,320)
Unrealized gains on investments available-for-sale, net	32,282	10,850	34,465	12,284
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 inluded in net periodic pension cost	1,038	157	3,114	471
Defined benefit pension plans, net	1,038	157	3,114	471
Other comprehensive income, before tax	33,320	11,007	37,579	12,755
Income tax expense (benefit) related to components of other comprehensive income	13,065	4,286	26,280	5,141
Other comprehensive (loss) income, net of tax	20,255	6,721	11,299	7,614
Comprehensive income (loss)	$ 38,283	$ 68,533	$ 127,351	$ 19,531

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

INCOME TAXES

Continuing Operations

The effective income tax rate from continuing operations was 30.3% and 37.8% for the three months ended September 30, 2012 and 2011, respectively, and 24.6% and 81.7% for the nine months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2011, a judgment was rendered in the AmCareco litigation (see Note 9) that resulted in deferred tax assets of $51.1 million. Realization of these deferred tax assets was uncertain and therefore, a valuation allowance for the full amount was established. The most significant change in the effective income tax rate from 2011 to 2012 is a result of the absence of such litigation effects in 2012. Additionally, our tax rates for the three and nine months ended September 30, 2012 are lower than the statutory federal rate of 35% primarily due to reductions of valuation allowances against deferred assets as a result of the gain on sale of the Medicare PDP business.

Discontinued Operation

On April 1, 2012, we completed the sale of our Medicare PDP business to CVS Caremark. For the nine months ended September 30, 2012, we recorded tax expense of $15.8 million net against the gain on sale of discontinued operation. For the three months ended September 30, 2012, $2.5 million of tax expense was recorded for the effects of a valuation allowance adjustment. No gain or loss on sale of discontinued operation was recorded in the period. See Note 3 for additional information regarding the sale of our Medicare PDP business.

Also in connection with the sale, we classified the operating results of the Medicare PDP business as discontinued operation, and accordingly, reclassified our results of operations for the three and nine months ended September 30, 2011. We recorded tax expense of $2.2 million net against the income from discontinued operation for the three months ended September 30, 2011. No income or loss from discontinued operation and no tax expense or benefit were recorded for the three months ended September 30, 2012. We recorded tax benefits of $10.3 million and $3.4 million against losses from discontinued operation for the nine months ended September 30, 2012 and 2011, respectively.

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Document and Entity Information Document	9 Months Ended
	Sep. 30, 2012	Nov. 02, 2012	Dec. 31, 2011
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, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		81,273,053
Treasury Stock, Shares	67,419,000	67,420,878	64,847,000

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Subsequent Event

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

SUBSEQUENT EVENT

On November 2, 2012, our wholly owned subsidiaries, Health Net of California, Inc. and Health Net Community Solutions, Inc., entered into a settlement agreement (Agreement) with the DHCS to settle historical rate disputes with respect to our participation in the state Medicaid program in California (Medi-Cal), for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS has agreed, among other things, to (1) an extension of all of our existing Medi-Cal managed care contracts for an additional five years from their current expiration dates; (2) a settlement account applicable to all of our state-sponsored health care programs, including Medi-Cal, Healthy Families, Seniors and Persons with Disabilities, the dual eligibles pilot programs that are expected to begin in 2013 and any potential future Medicaid expansion under federal health care reform (our “state-sponsored health care programs”), as discussed in more detail below; (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early; and (4) cooperate in good faith to develop an alternative rate dispute resolution process.

Effective January 1, 2013, the settlement account (Account) will be established with an initial balance of zero. The balance in the Account will be adjusted annually to reflect a calendar year deficit or surplus. A deficit or surplus will result to the extent our actual pre-tax margin (as defined in the Agreement) on our state-sponsored healthcare programs is below or above a pre-determined pre-tax margin target. 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 healthcare 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).

The Agreement will not have any impact on our consolidated financial statements for the year ending December 31, 2012.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 312,579	$ 230,253
Investments-available-for-sale (amortized cost: 2012-$XX, 2011-$1,528,091)	1,671,678	1,557,997
Premiums receivable, net of allowance for doubtful accounts (2012-$XX, 2011-$3,318)	310,804	251,911
Amounts receivable under government contracts	206,560	234,740
Other receivables	244,924	225,004
Deferred taxes	40,647	46,659
Other assets	151,042	117,876
Total current assets	2,938,234	2,664,440
Property and equipment, net	174,932	145,302
Goodwill	565,886	605,886
Other intangible assets, net	18,128	20,699
Deferred taxes	5,737	49,685
Investments-available-for-sale-noncurrent (amortized cost: 2012-$0, 2011-$2,450)	0	2,147
Other noncurrent assets	107,386	119,510
Total Assets	3,810,303	3,607,669
LIABILITIES AND STOCKHOLDERS' EQUITY
Reserves for claims and other settlements	1,032,248	912,126
Health care and other costs payable under government contracts	58,410	88,440
Unearned premiums	128,194	176,733
Accounts payable and other liabilities	325,636	240,281
Total current liabilities	1,544,488	1,417,580
Senior notes payable	399,044	398,890
Borrowings under revolving credit facility	100,000	112,500
Other noncurrent liabilities	220,489	235,553
Total Liabilities	2,264,021	2,164,523
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 2012-XX shares; 2011-146,804 shares)	149	147
Additional paid-in capital	1,323,150	1,278,037
Treasury common stock, at cost (2012-XX shares of common stock; 2011-64,847 shares of common stock)	(2,092,459)	(2,023,129)
Retained earnings	2,287,511	2,171,459
Accumulated other comprehensive income	27,931	16,632
Total Stockholders' Equity	1,546,282	1,443,146
Total Liabilities and Stockholders' Equity	$ 3,810,303	$ 3,607,669

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Investments

9 Months Ended

Sep. 30, 2012

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 available-for-sale investments 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, 2012 and 2011, we recognized no losses from other-than-temporary impairments of our cash equivalents and available-for-sale investments.

We had no noncurrent available-for-sale investments as of September 30, 2012. As of December 31, 2011, we classified $2.1 million as investments available-for-sale-noncurrent because we did not intend to sell and we believed it may take longer than a 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 value as of December 31, 2011.

As of September 30, 2012 and December 31, 2011, 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, 2012
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	575.0	$	22.9	$	—		$	597.9
U.S. government and agencies	26.0		—		—			26.0
Obligations of states and other political subdivisions	609.9		23.6		—			633.5
Corporate debt securities	396.5		17.9		(0.1		)	414.3
	$	1,607.4	$	64.4	$	(0.1	)	$	1,671.7

	December 31, 2011
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Carrying Value
	(Dollars in millions)
Current:
Asset-backed securities	$	611.9	$	10.6	$	(0.2	)	$	622.3
U.S. government and agencies	32.5		—		—			32.5
Obligations of states and other political subdivisions	498.7		19.5		(0.1		)	518.1
Corporate debt securities	385.0		4.3		(4.2		)	385.1
	$	1,528.1	$	34.4	$	(4.5	)	$	1,558.0
Noncurrent:
Corporate debt securities	$	2.4	$	—	$	(0.3	)	$	2.1

As of September 30, 2012, the contractual maturities of our current investments available-for-sale were as follows:

	Amortized Cost		Estimated Fair Value
Current:	(Dollars in millions)
Due in one year or less	$	33.0	$	33.1
Due after one year through five years	190.4		197.2
Due after five years through ten years	406.4		427.2
Due after ten years	402.6		416.3
Asset-backed securities	575.0		597.9
Total current investments available-for-sale	$	1,607.4	$	1,671.7

Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2012 were $117.6 million and $1,132.8 million, respectively. Gross realized gains and losses totaled $4.3 million and $36,000, respectively, for the three months ended September 30, 2012, and $30.1 million and $0.4 million, respectively, for the nine months ended September 30, 2012. Proceeds from sales of investments available-for-sale during the three and nine months ended September 30, 2011 were $434.2 million and $1,632.0 million, respectively. Gross realized gains and losses totaled $7.9 million and $2.5 million, respectively, for the three months ended September 30, 2011, and $37.2 million and $4.9 million, respectively, for the nine months ended September 30, 2011.

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, 2012 and December 31, 2011. 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 may also be negatively impacted by illiquidity in the market.

The following table shows our current investments' fair values and gross unrealized losses for individual securities in a continuous loss position as of September 30, 2012:

	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	$	6.0	$	—		$	—	$	—	$	6.0	$	—
U.S. government and agencies	10.3		—			—		—		10.3		—
Obligations of states and other political subdivisions	9.8		—			0.3		—		10.1		—
Corporate debt securities	8.5		(0.1		)	—		—		8.5		(0.1		)
	$	34.6	$	(0.1	)	$	0.3	$	—	$	34.9	$	(0.1	)

The following table shows the number of our individual securities-current that have been in a continuous loss position at September 30, 2012:

	Less than 12 Months	12 Months or More	Total
Asset-backed securities	9	1	10
U.S. government and agencies	2	—	2
Obligations of states and other political subdivisions	5	1	6
Corporate debt securities	8	—	8
	24	2	26

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, 2011:

	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	$	30.5	$	(0.2	)	$	1.1	$	—		$	31.6	$	(0.2	)
U.S. government and agencies	—		—			—		—			—		—
Obligations of states and other political subdivisions	7.5		—			3.0		(0.1		)	10.5		(0.1		)
Corporate debt securities	149.3		(4.1		)	1.4		(0.1		)	150.7		(4.2		)
	$	187.3	$	(4.3	)	$	5.5	$	(0.2	)	$	192.8	$	(4.5	)

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 December 31, 2011:

	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in millions)
Corporate debt securities	$	2.1	$	(0.3	)	$	—	$	—	$	2.1	$	(0.3	)

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Segment Information

9 Months Ended

Sep. 30, 2012

Segment Reporting Information, Additional Information [Abstract]

Segment Information

SEGMENT INFORMATION

Following the execution of the Asset Purchase Agreement to sell our Medicare PDP business in the first quarter of 2012, we reviewed our reportable segments. As a result of this review, beginning in the first quarter of 2012, our Divested Operations and Services reportable segment, formerly called the "Northeast Operations" reportable segment, also includes the transition-related expenses of our Medicare PDP business that was sold on April 1, 2012. Accordingly, all services provided in connection with divested businesses are now reported as part of our Divested Operations and Services reportable segment.

We operate within three reportable segments, Western Region Operations, Government Contracts and Divested Operations and Services. Our Western Region Operations reportable segment includes the operations of our commercial, Medicare and Medicaid health plans, our health and life insurance companies, and our behavioral health and pharmaceutical services subsidiaries. These operations are conducted primarily in California, Arizona, Oregon and Washington. As a result of the classification of our Medicare PDP business as discontinued operations, our Western Region Operations reportable segment excludes the operating results of our Medicare PDP business for the three and nine months ended September 30, 2012 and 2011. Our Government Contracts reportable segment includes government-sponsored managed care and administrative services contracts through the TRICARE program, the Department of Defense MFLC program and other health care-related government contracts. For the three and nine months ended September 30, 2011, our Divested Operations and Services reportable segment included the operations of our businesses that provided administrative services to United in connection with the Northeast Sale. Beginning in the first quarter of 2012, our Divested Operations and Services reportable segment also includes the transition-related revenues and expenses of our Medicare PDP business that was sold on April 1, 2012. Prior period segment information has been conformed to this current presentation in this Quarterly Report on Form 10-Q. See Note 3 for more information regarding the sale of our Medicare PDP business and the Northeast Sale.

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 that 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 our reportable segments are the same as those described in Note 2 to the consolidated financial statements included in our Form 10-K, 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 operations strategy and corporate overhead cost reduction efforts, as well as asset impairments, are reported as part of Corporate/Other.

Our segment information for the three and nine months ended September 30, 2012 and 2011 is as follows:

	Western Region Operations		Government Contracts		Divested Operationsand Services			Corporate/Other/ Eliminations			Total
	(Dollars in millions)
Three Months Ended September 30, 2012
Revenues from external sources	$	2,596.9	$	169.8	$	12.9		$	—		$	2,779.6
Intersegment revenues	2.7		—		—			(2.7		)	—
Segment pretax income (loss)	20.2		21.1		(4.7		)	(7.2		)	29.4
Three Months Ended September 30, 2011
Revenues from external sources	$	2,505.1	$	175.9	$	11.0		$	—		$	2,692.0
Intersegment revenues	3.0		—		—			(3.0		)	—
Segment pretax income (loss)	71.8		48.1		(22.4		)	(4.6		)	92.9
Nine Months Ended September 30, 2012
Revenues from external sources	7,898.2		527.4		25.7			—			8,451.3
Intersegment revenues	8.3		—		—			(8.3		)	—
Segment pretax income (loss)	12.6		66.6		(34.4		)	(21.6		)	23.2
Nine Months Ended September 30, 2011
Revenues from external sources	7,448.6		1,222.0		36.9			—			8,707.5
Intersegment revenues	8.9		—		—			(8.9		)	—
Segment pretax income (loss)	207.1		146.2		(58.9		)	(196.1		)	98.3

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(Dollars in millions)
Commercial premium revenue	$	1,420.4	$	1,494.8	$	4,310.0	$	4,466.0
Medicare premium revenue	682.9		605.3		2,089.4		1,844.8
Medicaid premium revenue	475.4		387.7		1,419.2		1,066.9
Total Western Region Operations health plan services premiums	2,578.7		2,487.8		7,818.6		7,377.7
Total Divested Operations and Services health plan services premiums	—		—		—		2.3
Total health plan services premiums	$	2,578.7	$	2,487.8	$	7,818.6	$	7,380.0

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Assets Measured at Fair Value on Recurring Basis

The following tables present information about our assets and liabilities measured at fair value on a recurring basis at September 30, 2012 and December 31, 2011, 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- current		Level 2- noncurrent		Level 3		Total
As of September 30, 2012:
Assets:
Cash and cash equivalents	$	312.6	$	—	$	—	$	—	$	312.6
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	372.0	$	—	$	—	$	372.0
Commercial mortgage-backed securities	—		201.7		—		—		201.7
Other asset-backed securities	—		24.2		—		—		24.2
U.S. government and agencies:
U.S. Treasury securities	26.0		—		—		—		26.0
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		633.3		—		0.2		633.5
Corporate debt securities	—		414.3		—		—		414.3
Total investments at fair value	$	26.0	$	1,645.5	$	—	$	0.2	$	1,671.7
Embedded contractual derivative	—		—		—		7.2		7.2
Total assets at fair value	$	338.6	$	1,645.5	$	—	$	7.4	$	1,991.5

	Level 1		Level 2- current		Level 2- noncurrent		Level 3		Total
As of December 31, 2011:
Assets:
Cash and cash equivalents	$	230.3	$	—	$	—	$	—	$	230.3
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	495.3	$	—	$	—	$	495.3
Commercial mortgage-backed securities	—		94.4		—		—		94.4
Other asset-backed securities	—		32.6		—		—		32.6
U.S. government and agencies:
U.S. Treasury securities	25.5		—		—		—		25.5
U.S. Agency securities	—		7.0		—		—		7.0
Obligations of states and other political subdivisions	—		517.9		—		0.2		518.1
Corporate debt securities	—		385.1		2.1		—		387.2
Total investments at fair value	$	25.5	$	1,532.3	$	2.1	$	0.2	$	1,560.1
Embedded contractual derivative	—		—		—		5.3		5.3
Total assets at fair value	$	255.8	$	1,532.3	$	2.1	$	5.5	$	1,795.7

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 endedSeptember 30, 2012 and 2011 were as follows (dollars in millions):

	Three Months Ended September 30,
	2012								2011
	Available-For-Sale Investments		Embedded Contractual Derivative			Total			Available-For-Sale Investments			Embedded Contractual Derivative		Total
Opening balance	$	0.2	$	15.0		$	15.2		$	9.9		$	0.8	$	10.7
Transfers into Level 3	—		—			—			—			—		—
Transfers out of Level 3	—		—			—			—			—		—
Total gains or losses for the period
Realized in net income	—		(7.8		)	(7.8		)	(2.4		)	0.7		(1.7		)
Unrealized in accumulated other comprehensive income	—		—			—			—			—		—
Purchases, issues, sales and settlements
Purchases/additions	—		—			—			—			—		—
Issues	—		—			—			—			—		—
Sales	—		—			—			(7.3		)	—		(7.3		)
Settlements	—		—			—			—			—		—
Closing balance	$	0.2	$	7.2		$	7.4		$	0.2		$	1.5	$	1.7
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 endedSeptember 30, 2012 and 2011 were as follows (dollars in millions):

	Nine Months Ended September 30,
	2012						2011
	Available-For-Sale Investments		Embedded Contractual Derivative		Total		Available-For-Sale Investments			Embedded Contractual Derivative		Total
Opening balance	$	0.2	$	5.3	$	5.5	$	9.9		$	—	$	9.9
Transfers into Level 3	—		—		—		—			—		—
Transfers out of Level 3	—		—		—		—			—		—
Total gains or losses for the period
Realized in net income	—		1.9		1.9		(2.4		)	1.5		(0.9		)
Unrealized in accumulated other comprehensive income	—		—		—		—			—		—
Purchases, issues, sales and settlements
Purchases/additions	—		—		—		—			—		—
Issues	—		—		—		—			—		—
Sales	—		—		—		(7.3		)	—		(7.3		)
Settlements	—		—		—		—			—		—
Closing balance	$	0.2	$	7.2	$	7.4	$	0.2		$	1.5	$	1.7
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—	$	—		$	—	$	—

Financial Assets Measured at Fair Value on a Non-Recurring Basis

The following table presents information about financial assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (dollars in millions):

	Level 1		Level 2		Level 3		Total
Goodwill allocated to Medicare PDP business sold	$	—	$	—	$	—	$	—
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale	$	—	$	—	$	4.0	$	4.0

Changes in the Balances of Level 3 Financial Assets, Measured on a Non-Recurring Basis

The changes in the balances of Level 3 financial assets and liabilities that are fair valued on a non-recurring basis for the three and nine months ended September 30, 2012 were as follows (dollars in millions):

	Three Months Ended September 30, 2012					Nine Months Ended September 30, 2012
	Goodwill allocated to Medicare PDP business sold		Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale			Goodwill allocated to Medicare PDP business sold			Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale
Beginning balance: goodwill of discontinued operation held for sale and deferred revenues	$	—	$	8.0		$	40.0		$	—
Goodwill allocated to Medicare PDP business sold and deferred revenue, realized in net income	—		(4.0		)	(40.0		)	(8.0		)
Additions	—		—			—			12.0
Ending balance	$	—	$	4.0		$	—		$	4.0

The

Quantitative Information About Level 3 Fair Value Measurements

The following table presents quantitative information about Level 3 Fair Value Measurements (dollars in millions):

	Fair Value as of September 30, 2012		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative	$	7.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-2.2		%	—	13.0%	(2.2%)
				National Health Care Expenditures	-1.6		%	—	7.9%	(3.1%)
Goodwill - Western Region reporting unit	$	565.9
			Income Approach	Discount Rate	9		%	—	9%	(9%)
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale	$	4.0		Monthly costs estimated in connection with providing transition-related and other services	$	4.9		—	$4.9	($4.9)
			Income Approach	Discount rate	1.2		%	—	1.2%	(1.2%)

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Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2012

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 checks outstanding, net of deposits, of $34,000 as of September 30, 2012 and $0 as of December 31, 2011. 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 ended September 30, 2012 and 2011, 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 $417.8 million and $423.1 million as of September 30, 2012 and December 31, 2011, respectively. For the periods ending September 30, 2012 and December 31, 2011, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $112.5 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 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 can also 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 such as our Seniors and Persons with Disabilities population in California, 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. In each of the reporting periods for the three months ended September 30, 2012 and 2011, there were no material reserve developments related to prior years. For the nine months ended September 30, 2012, health care cost was impacted by approximately $33 million attributable to the revision of the previous estimate of incurred claims for prior years as a result of adverse prior year development. We believe this unfavorable reserve development for the nine months ended September 30, 2012 was primarily due to significant delays in claims submissions for the fourth quarter of 2011 arising from issues related to a new billing format required by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) coupled with an unanticipated flattening of commercial trends and higher commercial large group claims trend. For the nine months ended September 30, 2011, health care cost was impacted by approximately $97 million of favorable reserve development related to prior years. This favorable development was primarily due to adjustments to our reserves that related to variables and uncertainties associated with our assumptions. As our reserve balance for older months of service decreased, and estimates of our incurred costs for older dates of service became more certain and predictable, our estimates of incurred claims related to prior periods were adjusted accordingly.

There were nomaterial changes to the provision for adverse deviation for the three and nine months ended September 30, 2012 and 2011.

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.

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 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 Centers for Medicare & Medicaid Services (CMS) for coverage of Medicare-eligible individuals. Furthermore, all of our Medicaid/Medi-Cal revenue is derived in California through our relationship with the State of California Department of Health Care Services (DHCS). As a result, 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, 2012 and 2011 is 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, 2011	$	6.0	$	(4.6	)	$	1.4
Other comprehensive income for the three months ended September 30, 2011	6.6		0.1			6.7
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of July 1, 2012	$	19.6	$	(11.9	)	$	7.7
Other comprehensive income for the three months ended September 30, 2012	19.6		0.6			20.2
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9
Nine Months Ended September 30:
Balance as of January 1, 2011	$	5.3	$	(4.8	)	$	0.5
Other comprehensive income for the nine months ended September 30, 2011	7.3		0.3			7.6
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of January 1, 2012	$	29.8	$	(13.2	)	$	16.6
Other comprehensive income for the nine months ended September 30, 2012	9.4		1.9			11.3
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9

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 and nine months ended September 30, 2012, respectively, 432,000 and 996,000 shares of dilutive common stock equivalents were outstanding. For the three and nine months ended September 30, 2011, respectively, 1,199,000 and 1,420,000 shares of dilutive common stock equivalents were outstanding.

For the three and nine months ended September 30, 2012, respectively, an aggregate of 4,342,000 and 1,819,000 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, 2011, respectively, 2,853,000 and 2,165,000 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 April 2019.

In March 2010, our Board of Directors authorized a $300 million stock repurchase program (2010 stock repurchase program). We completed our 2010 stock repurchase program in April 2011. In May 2011, our Board of Directors authorized a new stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (2011 stock repurchase program). As of December 31, 2011, the remaining authorization under our 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. The remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 million. See Note 6 for more information regarding our 2010 and 2011 stock repurchase programs

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, 2012 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, 2011	$605.9	$605.9
Goodwill allocated to Medicare PDP business sold	(40.0)	(40.0)
Balance as of September 30, 2012	$565.9	$565.9

On April 1, 2012, we completed the sale of our Medicare PDP business. See Note 3 for additional information regarding the sale of our Medicare PDP business. Our Medicare PDP business was previously reported as part of our Western Region Operations reporting unit. As of March 31, 2012, we re-allocated a portion of the Western Region Operations reporting unit goodwill to the Medicare PDP business based on relative fair values of the reporting unit with and without the Medicare PDP business. Our measurement of fair value is based on a combination of the income approach based on a discounted cash flow methodology and the discounted total consideration received in connection with the sale of our Medicare PDP business. 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 value to the related carrying value and concluded that no impairment to either the carrying value of our Medicare PDP business or our Western Region Operations reporting unit had occurred. Based on the result of the first step test, we did not need to complete the second step test. 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, the Company’s ability to adequately incorporate into its premium rates the future costs of premium-based assessments imposed by the Patient Protection and Affordable Care Act and the Health Care and Reconciliation Act of 2010, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of the dual eligibles pilot program. 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 June 30, 2011 and June 30, 2012, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 180% and 115%, 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, 2012:
Provider networks	$40.5	$(34.4)	$6.1	19.4
Customer relationships and other	29.5	(17.5)	12.0	11.1
	$70.0	$(51.9)	$18.1
As of December 31, 2011:
Provider networks	$40.5	$(33.6)	$6.9	19.4
Customer relationships and other	29.5	(15.7)	13.8	11.1
	$70.0	$(49.3)	$20.7

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
2012	$	3.4
2013	3.4
2014	2.8
2015	2.6
2016	2.0

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, 2012 and December 31, 2011, the restricted cash and cash equivalents balances totaled $0.9 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $26.2 million and $20.7 million as of September 30, 2012 and December 31, 2011, respectively, and are included in investments available-for-sale.

Government Contracts

Government Contracts

On April 1, 2011, we began delivering administrative services under a new Managed Care Support Contract (T-3) with the United States Department of Defense (DoD) for the TRICARE North Region. The T-3 contract was awarded to us on May 13, 2010. We were the managed care contractor for the DoD's previous TRICARE contract in the North Region, which ended on March 31, 2011.

The T-3 contract has five one-year option periods. On March 15, 2011, the DoD exercised option period 2 (without exercising option period 1), due to a delay of approximately one year in the government's initial award of the T-3 contract. Accordingly, option period 2 commenced on April 1, 2011. On March 22, 2012, the DoD exercised option period 3, which commenced on April 1, 2012. If all remaining option periods are exercised, the T-3 contract would conclude on March 31, 2015.

We provide various types of administrative services under the contract, including: provider network management, referral management, medical management, disease management, enrollment, customer service, clinical support service, and claims processing. We also provided assistance in the transition into the T-3 contract, and will provide assistance in any transition out of the T-3 contract. 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.

In accordance with GAAP, we evaluate, at the inception of the contract and as services are delivered, all deliverables in the service arrangement to determine whether they represent separate units of accounting. The delivered items are considered separate units of accounting if the delivered items have value to the customer on a standalone basis (i.e., they are sold separately by any vendor) and no general right of return exists relative to the delivered item. While we identified two separate units of accounting within the T-3 contract, no determination of estimated selling price was performed because both units of accounting are performed ratably over the option periods and, accordingly, the same methodology of revenue recognition applies to both units of accounting.

Therefore, we recognize revenue related to administrative services on a straight-line basis over the option period, when the fees become fixed and determinable.

The T-3 contract 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.

The transition-in process for the T-3 contract began in the second quarter of 2010. We had deferred transition-in costs of $43.8 million, which we began amortizing on April 1, 2011 on a straight-line basis, and we had related deferred revenues of $52.5 million, which are being amortized over the customer relationship period. Fulfillment costs associated with the T-3 contract are expensed as incurred.

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

The TRICARE 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. Health care costs for the T-3 contract that are paid and reimbursable amounted to $638.8 million and $1,957.2 million for the three and nine months ended September 30, 2012, respectively, and amounted to $569.4 million and $991.0 million for the three and nine months ended September 30, 2011, respectively.

In addition to the beneficiaries that we service under the T-3 contract, we provide behavioral health services to military families under the DoD Military and Family Life Counseling, formerly Military and Family Life Consultant (MFLC) program. On August 15, 2012, we entered into a new MFLC contract awarded by the DoD. The new contract has a five-year term that includes a 12-month base period and four 12-month option periods. As a result of the revised terms and structure of the new MFLC contract and the government's decision to award the new MFLC contract to multiple contractors, we anticipate that the revenues we receive from the new contract will be substantially reduced in comparison to our original MFLC contract.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [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. The investments included in Level 3 are auction rate securities that have experienced failed auctions at one time or are experiencing failed auctions and thus have minimal liquidity. These bonds have frequent reset of coupon rates and have extended to the legal final maturity. The coupons are based on a margin plus a LIBOR rate and continue to pay above market rates. As with most variable or floating rate securities, we believe that based on a market approach, the fair values of these securities are equal to their par values due to the short time periods between coupon resets and based on each issuer’s credit worthiness. Also included in the Level 3 category is an embedded contractual derivative 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.

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, 2012 and December 31, 2011, 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- current		Level 2- noncurrent		Level 3		Total
As of September 30, 2012:
Assets:
Cash and cash equivalents	$	312.6	$	—	$	—	$	—	$	312.6
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	372.0	$	—	$	—	$	372.0
Commercial mortgage-backed securities	—		201.7		—		—		201.7
Other asset-backed securities	—		24.2		—		—		24.2
U.S. government and agencies:
U.S. Treasury securities	26.0		—		—		—		26.0
U.S. Agency securities	—		—		—		—		—
Obligations of states and other political subdivisions	—		633.3		—		0.2		633.5
Corporate debt securities	—		414.3		—		—		414.3
Total investments at fair value	$	26.0	$	1,645.5	$	—	$	0.2	$	1,671.7
Embedded contractual derivative	—		—		—		7.2		7.2
Total assets at fair value	$	338.6	$	1,645.5	$	—	$	7.4	$	1,991.5

	Level 1		Level 2- current		Level 2- noncurrent		Level 3		Total
As of December 31, 2011:
Assets:
Cash and cash equivalents	$	230.3	$	—	$	—	$	—	$	230.3
Investments—available-for-sale
Asset-backed debt securities:
Residential mortgage-backed securities	$	—	$	495.3	$	—	$	—	$	495.3
Commercial mortgage-backed securities	—		94.4		—		—		94.4
Other asset-backed securities	—		32.6		—		—		32.6
U.S. government and agencies:
U.S. Treasury securities	25.5		—		—		—		25.5
U.S. Agency securities	—		7.0		—		—		7.0
Obligations of states and other political subdivisions	—		517.9		—		0.2		518.1
Corporate debt securities	—		385.1		2.1		—		387.2
Total investments at fair value	$	25.5	$	1,532.3	$	2.1	$	0.2	$	1,560.1
Embedded contractual derivative	—		—		—		5.3		5.3
Total assets at fair value	$	255.8	$	1,532.3	$	2.1	$	5.5	$	1,795.7

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, 2012 and 2011. 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 endedSeptember 30, 2012 and 2011 were as follows (dollars in millions):

	Three Months Ended September 30,
	2012								2011
	Available-For-Sale Investments		Embedded Contractual Derivative			Total			Available-For-Sale Investments			Embedded Contractual Derivative		Total
Opening balance	$	0.2	$	15.0		$	15.2		$	9.9		$	0.8	$	10.7
Transfers into Level 3	—		—			—			—			—		—
Transfers out of Level 3	—		—			—			—			—		—
Total gains or losses for the period
Realized in net income	—		(7.8		)	(7.8		)	(2.4		)	0.7		(1.7		)
Unrealized in accumulated other comprehensive income	—		—			—			—			—		—
Purchases, issues, sales and settlements
Purchases/additions	—		—			—			—			—		—
Issues	—		—			—			—			—		—
Sales	—		—			—			(7.3		)	—		(7.3		)
Settlements	—		—			—			—			—		—
Closing balance	$	0.2	$	7.2		$	7.4		$	0.2		$	1.5	$	1.7
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 endedSeptember 30, 2012 and 2011 were as follows (dollars in millions):

	Nine Months Ended September 30,
	2012						2011
	Available-For-Sale Investments		Embedded Contractual Derivative		Total		Available-For-Sale Investments			Embedded Contractual Derivative		Total
Opening balance	$	0.2	$	5.3	$	5.5	$	9.9		$	—	$	9.9
Transfers into Level 3	—		—		—		—			—		—
Transfers out of Level 3	—		—		—		—			—		—
Total gains or losses for the period
Realized in net income	—		1.9		1.9		(2.4		)	1.5		(0.9		)
Unrealized in accumulated other comprehensive income	—		—		—		—			—		—
Purchases, issues, sales and settlements
Purchases/additions	—		—		—		—			—		—
Issues	—		—		—		—			—		—
Sales	—		—		—		(7.3		)	—		(7.3		)
Settlements	—		—		—		—			—		—
Closing balance	$	0.2	$	7.2	$	7.4	$	0.2		$	1.5	$	1.7
Change in unrealized gains (losses) included in net income for assets held at the end of the reporting period	$	—	$	—	$	—	$	—		$	—	$	—

The following table presents information about financial assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (dollars in millions):

	Level 1		Level 2		Level 3		Total
Goodwill allocated to Medicare PDP business sold	$	—	$	—	$	—	$	—
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale	$	—	$	—	$	4.0	$	4.0

The changes in the balances of Level 3 financial assets and liabilities that are fair valued on a non-recurring basis for the three and nine months ended September 30, 2012 were as follows (dollars in millions):

	Three Months Ended September 30, 2012					Nine Months Ended September 30, 2012
	Goodwill allocated to Medicare PDP business sold		Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale			Goodwill allocated to Medicare PDP business sold			Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale
Beginning balance: goodwill of discontinued operation held for sale and deferred revenues	$	—	$	8.0		$	40.0		$	—
Goodwill allocated to Medicare PDP business sold and deferred revenue, realized in net income	—		(4.0		)	(40.0		)	(8.0		)
Additions	—		—			—			12.0
Ending balance	$	—	$	4.0		$	—		$	4.0

The following table presents quantitative information about Level 3 Fair Value Measurements (dollars in millions):

	Fair Value as of September 30, 2012		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Embedded contractual derivative	$	7.2	Monte Carlo Simulation Approach	Health Net Health Care Expenditures	-2.2		%	—	13.0%	(2.2%)
				National Health Care Expenditures	-1.6		%	—	7.9%	(3.1%)
Goodwill - Western Region reporting unit	$	565.9
			Income Approach	Discount Rate	9		%	—	9%	(9%)
Deferred revenue related to transition-related services provided in connection with Medicare PDP business sale	$	4.0		Monthly costs estimated in connection with providing transition-related and other services	$	4.9		—	$4.9	($4.9)
			Income Approach	Discount rate	1.2		%	—	1.2%	(1.2%)

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 advisors 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, 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 estimated our non-recurring Level 3 assets of discontinued operation held for sale, goodwill allocated to our Medicare PDP business, which was sold on April 1, 2012, goodwill for our Western Region Operations reporting unit and the deferred revenues related to transition-related services provided in connection with the sale of our Medicare PDP business using the income approach based on discounted cash flows. See Note 3 for additional information regarding the sale of our Medicare PDP business and the deferred revenues related to the transition-related services provided in connection with such sale.

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.

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Stock Repurchase Program

9 Months Ended

Sep. 30, 2012

Stock Repurchase Program [Abstract]

Stock Repurchase Program

STOCK REPURCHASE PROGRAM

On March 18, 2010, our Board of Directors authorized our 2010 stock repurchase program pursuant to which a total of $300 million of our common stock could be repurchased. We completed our 2010 stock repurchase program in April 2011. During the nine months ended September 30, 2011, we repurchased 4.9 million shares of our common stock for aggregate consideration of approximately $149.8 million under our 2010 stock repurchase program. As of December 31, 2011, we had repurchased an aggregate of 10.8 million shares of our common stock under our 2010 stock repurchase program at an average price of $27.80 per share for aggregate consideration of $300.0 million.

On May 2, 2011, our Board of Directors authorized our 2011 stock repurchase program pursuant to which a total of $300.0 million of our outstanding common stock could be repurchased. As of December 31, 2011, the remaining authorization under our 2011 stock repurchase program was $76.3 million. On March 8, 2012, our Board of Directors approved a $323.7 million increase to our 2011 stock repurchase program. Subject to the approval of our Board of Directors, we may repurchase our common stock under our 2011 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 2011 stock repurchase program may be suspended or discontinued at any time.

During the three and nine months ended September 30, 2012, we repurchased 1.5 million shares and 2.1 million shares, respectively, of our common stock for aggregate consideration of $36.1 million and $50.0 million, respectively, under our 2011 stock repurchase program. The remaining authorization under our 2011 stock repurchase program as of September 30, 2012 was $350.0 million.

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Financing Arrangements

9 Months Ended

Sep. 30, 2012

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, 2012, $100.0 million was outstanding under our revolving credit facility and the maximum amount available for borrowing under the revolving credit facility was $440.6 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.

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, 2012 and December 31, 2011, we had outstanding letters of credit of $59.4 million and $59.4 million, respectively, resulting in a maximum amount available for borrowing of $440.6 million and $428.1 million, respectively. As of September 30, 2012 and December 31, 2011, 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, 2012, 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 $399.0 million as of September 30, 2012 and $398.9 million as of December 31, 2011.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

LEGAL PROCEEDINGS

Litigation and Investigations Related to Unaccounted-for Server Drives

We are a defendant in three related litigation matters pending in California state and federal courts relating to information security issues. On January 21, 2011, International Business Machines Corp. (IBM), which handles our data center operations, notified us that it could not locate several hard disk drives that had been used in our data center located in Rancho Cordova, California. We have since determined that personal information of approximately two million former and current Health Net members, employees and health care providers is on the drives. Commencing on March 14, 2011, we provided written notification to the individuals whose information is on the drives. To help protect the personal information of affected individuals, we offered them two years of free credit monitoring services, in addition to identity theft insurance and fraud resolution and restoration of credit files services, if needed.

On March 18, 2011, a putative class action relating to this incident was filed against us in the U.S. District Court for the Central District of California (the Central District of California), and similar actions were later filed against us in other federal and state courts in California. A number of those actions were transferred to and consolidated in the U.S. District Court for the Eastern District of California (the Eastern District of California), and the two remaining actions are currently pending in the Superior Court of California, County of San Francisco (San Francisco County Superior Court) and the Superior Court of California, County of Sacramento (Sacramento County Superior Court). The consolidated amended complaint in the federal action pending in the Eastern District of California was filed on behalf of a putative class of over 800,000 of our current or former members who received the written notification, and also named IBM as a defendant. It sought to state claims for violation of the California Confidentiality of Medical Information Act and the California Customer Records Act, and sought statutory damages of up to $1,000 for each class member, as well as injunctive and declaratory relief, attorneys’ fees and other relief. On August 29, 2011, we filed a motion to dismiss the consolidated complaint. On January 20, 2012, the district court issued an order dismissing the consolidated complaint on the grounds that the plaintiffs lacked standing to bring their action in federal court. On April 20, 2012, an amended complaint with a new plaintiff was filed against us, but no longer asserted claims against IBM. The amended complaint asserted the same causes of action and sought the same relief as the earlier complaint. On June 18, 2012, we filed a motion to dismiss the amended complaint, which is currently pending.

An additional lawsuit was instituted on July 7, 2011 in the Superior Court of California, County of Riverside and was brought on behalf of a putative nationwide class of all former and current members affected by this incident, and sought to state similar claims against us, as well as a claim for invasion of privacy. We removed this case to the Central District of California on August 1, 2011. On August 26, 2011, the plaintiff filed a motion to remand the case to state court. That motion was granted on September 30, 2011. On October 10, 2011, we filed an application for leave to appeal the remand order to the United States Court of Appeals for the Ninth Circuit. On January 30, 2012, the Court of Appeals granted the motion for leave to appeal and ordered the parties to submit briefs. On March 20, 2012, the Court of Appeals issued an opinion reversing the district court's ruling and instructing the district court to review the motion to remand in accordance with the Court of Appeals' opinion. Following the issuance of that opinion, we filed a request with the district court seeking to have the case transferred to the Eastern District of California to be assigned to the same judge handling the other lawsuit in that court. That request was granted and the matter was ordered to be transferred on May 1, 2012. On June 8, 2012, the judge handling the lawsuit in the Eastern District of California ordered that this case be consolidated with the lawsuit currently pending in that court.

The San Francisco County Superior Court proceeding was instituted on March 28, 2011 and is brought on behalf of a putative class of California residents who received the written notification, and seeks to state similar claims against us, as well as claims for violation of California's Unfair Competition Law, and seeks similar relief. We moved to compel arbitration of the two named plaintiffs’ claims. The court granted our motion as to one of the named plaintiffs and denied it as to the other. We are appealing the latter ruling. Thereafter, the plaintiff as to whom our motion to compel arbitration was granted filed an application for a writ of mandate with the California Court of Appeal seeking review of that ruling, which writ was ultimately granted. We filed a petition for review by the California Supreme Court, which was denied, and on July 9, 2012, the Court of Appeal issued a peremptory writ of mandate directing the Superior Court to vacate its order granting the motion to compel arbitration and to enter an order denying the motion to compel.

The Sacramento County Superior Court proceeding was instituted on April 3, 2012 and is brought on behalf of a putative class of California members whose information was contained on the unaccounted for drives. The action was filed by many of the same plaintiffs' lawyers, contains the same claims, and seeks the same relief as the case pending in the Eastern District of California. On June 18, 2012, we filed a demurrer seeking dismissal of this complaint, which is currently pending.

We have also been informed that a number of regulatory agencies are investigating the incident, including the California Department of Managed Health Care (DMHC), the California Department of Insurance, the California Attorney General, the Massachusetts Office of Consumer Affairs and Business Regulation and the Office of Civil Rights of the U.S. Department of Health and Human Services.

We intend to vigorously defend ourselves against these claims; however, these proceedings are subject to many uncertainties. At this time we cannot reasonably estimate the range of loss that may result from these legal and regulatory proceedings in light of the facts that (i) legal and regulatory proceedings are inherently unpredictable, (ii) there are multiple parties in each of the disputes (and uncertainty as to how liability, if any, may be shared among the defendants), (iii) the proceedings are in their early stages and discovery is not complete, (iv) there are significant facts in dispute, (v) the matters present legal uncertainties, (vi) there is a wide range of potential outcomes in each dispute and (vii) there are various levels of judicial review available to us in each matter in the event damages are awarded or fines or penalties are assessed. Nevertheless, an adverse resolution of or development in the proceedings could have a material adverse effect on our financial condition, results of operations, cash flow and liquidity and could affect our reputation.

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 the U.S. Department of Health and Human Services 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, HIPAA, 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, 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 are also 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. 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.

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, 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, or could 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. 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 above in this Note 9 under the heading “Litigation and Investigations Related to Unaccounted-for Server Drives,” 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 “Litigation and Investigations Related to Unaccounted-for Server Drives,” 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.

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 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.

AmCareco Judgment

We were previously a defendant in two related litigation matters (the AmCareco litigation) related to claims asserted by three separate state receivers overseeing the liquidation of three health plans previously owned by one of our former subsidiaries that merged into Health Net, Inc. in January 2001. As a result of a judgment in April 2011 by the Louisiana Supreme Court, we recorded a pretax charge of $181 million in general and administrative expense in the nine months ended September 30, 2011.

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Segment Information (Premium Revenue By Line Of Business) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Health plans services premiums	$ 2,578,689	$ 2,487,767	$ 7,818,565	$ 7,379,951
Western Region Operations [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	2,578,700	2,487,800	7,818,600	7,377,700
Commercial Premium Revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	1,420,400	1,494,800	4,310,000	4,466,000
Medicare Premium Revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	682,900	605,300	2,089,400	1,844,800
Medicaid Premium Revenue [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	475,400	387,700	1,419,200	1,066,900
Divested Operations and Services [Member]
Segment Reporting Information [Line Items]
Health plans services premiums	$ 0	$ 0	$ 0	$ 2,300

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting Information, Additional Information [Abstract]

Segment Information

Our segment information for the three and nine months ended September 30, 2012 and 2011 is as follows:

	Western Region Operations		Government Contracts		Divested Operationsand Services			Corporate/Other/ Eliminations			Total
	(Dollars in millions)
Three Months Ended September 30, 2012
Revenues from external sources	$	2,596.9	$	169.8	$	12.9		$	—		$	2,779.6
Intersegment revenues	2.7		—		—			(2.7		)	—
Segment pretax income (loss)	20.2		21.1		(4.7		)	(7.2		)	29.4
Three Months Ended September 30, 2011
Revenues from external sources	$	2,505.1	$	175.9	$	11.0		$	—		$	2,692.0
Intersegment revenues	3.0		—		—			(3.0		)	—
Segment pretax income (loss)	71.8		48.1		(22.4		)	(4.6		)	92.9
Nine Months Ended September 30, 2012
Revenues from external sources	7,898.2		527.4		25.7			—			8,451.3
Intersegment revenues	8.3		—		—			(8.3		)	—
Segment pretax income (loss)	12.6		66.6		(34.4		)	(21.6		)	23.2
Nine Months Ended September 30, 2011
Revenues from external sources	7,448.6		1,222.0		36.9			—			8,707.5
Intersegment revenues	8.9		—		—			(8.9		)	—
Segment pretax income (loss)	207.1		146.2		(58.9		)	(196.1		)	98.3

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,
	2012		2011		2012		2011
	(Dollars in millions)
Commercial premium revenue	$	1,420.4	$	1,494.8	$	4,310.0	$	4,466.0
Medicare premium revenue	682.9		605.3		2,089.4		1,844.8
Medicaid premium revenue	475.4		387.7		1,419.2		1,066.9
Total Western Region Operations health plan services premiums	2,578.7		2,487.8		7,818.6		7,377.7
Total Divested Operations and Services health plan services premiums	—		—		—		2.3
Total health plan services premiums	$	2,578.7	$	2,487.8	$	7,818.6	$	7,380.0

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Significant Accounting Policies (Concentration of Credit Risk) (Details) (Government Contracts Concentration Risk [Member])	9 Months Ended
	Sep. 30, 2012
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, 2012	Dec. 31, 2011	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. 31, 2016
Additional borrowing capacity			200,000,000
Revolving credit facility outstanding balance	100,000,000
Revolving credit facility, remaining capacity	440,600,000	428,100,000
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
Outstanding letters of credit	59,400,000	59,400,000
Amounts drawn on letters of credit	0	0
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
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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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Premiums receivable, allowance for doubtful accounts	$ 2,854	$ 3,318
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	148,689,000	146,804,000
Treasury stock, shares	67,419,000	64,847,000
Current [Member]
Investments available for sale, amortized cost	1,607,413	1,528,091
Noncurrent [Member]
Investments available for sale, amortized cost	$ 0	$ 2,450

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Sale of Medicare PDP Business and Northeast Business

9 Months Ended

Sep. 30, 2012

Sale of Businesses [Abstract]

Sale of Medicare PDP Business and Northeast Business

SALE OF MEDICARE PDP BUSINESS AND NORTHEAST BUSINESS

Sale of Medicare PDP Business

On April 1, 2012, our subsidiary Health Net Life Insurance Company (HNL) sold substantially all of the assets, properties and rights of HNL used primarily or exclusively in our Medicare PDP business to CVS Caremark and CVS Caremark assumed certain related liabilities and obligations of HNL as set forth in the related Asset Purchase Agreement. At the closing of the sale, CVS Caremark paid to us $169.9 million (PDP Purchase Price) in cash, representing $400 multiplied by 424,820, the number of individuals enrolled as members of a PDP plan of HNL as of the closing date. The PDP Purchase Price was subject to adjustment based on pretax cash flow, net asset valuation and prepaid expenses (the financial adjustment) and enrollee numbers related to our Medicare PDP business, each as set forth in the Asset Purchase Agreement. In June 2012, we received $78.3 million in cash from CVS Caremark, which represented the net financial adjustment to the PDP Purchase Price. We recognized a $132.8 million pretax gain on the sale of our Medicare PDP business, or $117.0 million net of tax, and this after tax gain was reported as Gain on sale of discontinued operation, net of tax.

In connection with the transaction, we are not permitted to offer Medicare PDP plans for one year following the closing, subject to certain exceptions. We continue to provide prescription drug benefits as part of our Medicare Advantage plan offerings.

In addition, we provide Medicare PDP transition-related services to CVS Caremark in connection with the transaction. We expect to continue to provide the majority of these services through December 31, 2012, although certain transition-related services may continue through December 31, 2013. We recognized the value of future transition-related services to be provided under the Asset Purchase Agreement of $12.0 million as deferred revenue at fair value as of April 1, 2012. This deferred revenue is amortized on a straight-line basis over a nine-month period. The fair value of such deferred revenue was estimated using the income approach based on discounted cash flows. This fair value measurement is based on significant unobservable Level 3 inputs, which include costs associated with providing the transition-related and other services and a discount rate of 1.2 percent. See Note 8 for additional information regarding the fair value measurement of this deferred revenue. Revenues and expenses from these transition-related services are reported as part of Divested operations and services revenue and expenses (see Notes 2 and 4).

As a result of the sale, the operating results of our Medicare PDP business, previously reported within the Western Region Operations reportable segment, have been reclassified as discontinued operations in our consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011. Our revenues related to our Medicare PDP business were $0 and $191.8 million for the three and nine months ended September 30, 2012, respectively, and $94.6 million and $381.5 million for the three and nine months ended September 30, 2011, respectively. These revenues were excluded from our continuing operating results and included in income (loss) from discontinued operation. Our Medicare PDP business had a pretax income (loss) of $0 and $(28.8) million for the three and nine months ended September 30, 2012, respectively, and $6.2 million and $(9.5) million for the three and nine months ended September 30, 2011, respectively. As of September 30, 2011, we had approximately 381,000 Medicare stand-alone Prescription Drug Plan members. As of September 30, 2012, we had no Medicare stand-alone Prescription Drug Plan members.

Northeast Sale

On December 11, 2009, we completed the sale (the Northeast Sale) of all of the outstanding shares of capital stock of our health plan subsidiaries that were domiciled and had conducted businesses in Connecticut, New Jersey, New York and Bermuda (Acquired Companies) to an affiliate of UnitedHealth Group Incorporated (United). As part of the Northeast Sale, we were required to continue to serve the members of the Acquired Companies and provide certain administrative services to United until July 1, 2011 under administrative services agreements, and we are required to provide run-out support services under claims servicing agreements with United, which will be in effect until the last run out claim under the applicable claims servicing agreement has been adjudicated. All revenues and expenses related to the Northeast Sale, including those relating to the administrative services and/or claims servicing agreements and any revenues and expenses related to the run-out, are reported as part of Divested operations and services revenue and expenses. During the three and nine months ended September 30, 2012, we recorded no adjustment to the loss on sale of Northeast health plan subsidiaries, and during the three and nine months ended September 30, 2011, we recorded a $0.3 million addition and $40.8 million reduction to the loss on sale of Northeast health plan subsidiaries, respectively.

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Significant Accounting Policies (Comprehensive Income) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Accounting Policies [Abstract]
Beginning, Unrealized Gains (Losses) on investments available-for-sale	$ 19,600,000	$ 6,000,000	$ 29,800,000	$ 5,300,000
Other comprehensive (loss) income, Unrealized Gains (Losses) on investments available-for-sale	19,600,000	6,600,000	9,400,000	7,300,000
Ending, Unrealized Gains (Losses) on investments available-for-sale	39,200,000	12,600,000	39,200,000	12,600,000
Beginning, Defined Benefit Pension Plans	(11,900,000)	(4,600,000)	(13,200,000)	(4,800,000)
Other comprehensive (loss) income, Defined Benefit Pension Plans	600,000	100,000	1,900,000	300,000
Ending, Defined Benefit Pension Plans	(11,300,000)	(4,500,000)	(11,300,000)	(4,500,000)
Beginning, Accumulated Other Comprehensive Income (Loss)	7,700,000	1,400,000	16,632,000	500,000
Other comprehensive (loss) income, Accumulated Other Comprehensive Income (Loss)	20,255,000	6,721,000	11,299,000	7,614,000
Ending, Accumulated Other Comprehensive Income (Loss)	$ 27,931,000	$ 8,100,000	$ 27,931,000	$ 8,100,000

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Investments (Unrealized Loss Position for Current & Noncurrent Investments) (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	$ 34.6	$ 187.3
Less than 12 Months, Unrealized Losses	(0.1)	(4.3)
12 Months or More, Fair Value	0.3	5.5
12 Months or More, Unrealized Losses	0	(0.2)
Total, Fair Value	34.9	192.8
Total, Unrealized Losses	(0.1)	(4.5)
Current [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	6.0	30.5
Less than 12 Months, Unrealized Losses	0	(0.2)
12 Months or More, Fair Value	0	1.1
12 Months or More, Unrealized Losses	0	0
Total, Fair Value	6.0	31.6
Total, Unrealized Losses	0	(0.2)
Current [Member] | U.S. Government and Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	10.3	0
Less than 12 Months, Unrealized Losses	0	0
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Losses	0	0
Total, Fair Value	10.3	0
Total, Unrealized Losses	0	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	9.8	7.5
Less than 12 Months, Unrealized Losses	0	0
12 Months or More, Fair Value	0.3	3.0
12 Months or More, Unrealized Losses	0	(0.1)
Total, Fair Value	10.1	10.5
Total, Unrealized Losses	0	(0.1)
Current [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	8.5	149.3
Less than 12 Months, Unrealized Losses	(0.1)	(4.1)
12 Months or More, Fair Value	0	1.4
12 Months or More, Unrealized Losses	0	(0.1)
Total, Fair Value	8.5	150.7
Total, Unrealized Losses	(0.1)	(4.2)
Noncurrent [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		2.1
Less than 12 Months, Unrealized Losses		(0.3)
12 Months or More, Fair Value		0
12 Months or More, Unrealized Losses		0
Total, Fair Value		2.1
Total, Unrealized Losses		$ (0.3)

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Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2012

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, 2012 and 2011 is 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, 2011	$	6.0	$	(4.6	)	$	1.4
Other comprehensive income for the three months ended September 30, 2011	6.6		0.1			6.7
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of July 1, 2012	$	19.6	$	(11.9	)	$	7.7
Other comprehensive income for the three months ended September 30, 2012	19.6		0.6			20.2
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9
Nine Months Ended September 30:
Balance as of January 1, 2011	$	5.3	$	(4.8	)	$	0.5
Other comprehensive income for the nine months ended September 30, 2011	7.3		0.3			7.6
Balance as of September 30, 2011	$	12.6	$	(4.5	)	$	8.1
Balance as of January 1, 2012	$	29.8	$	(13.2	)	$	16.6
Other comprehensive income for the nine months ended September 30, 2012	9.4		1.9			11.3
Balance as of September 30, 2012	$	39.2	$	(11.3	)	$	27.9

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, 2011	$605.9	$605.9
Goodwill allocated to Medicare PDP business sold	(40.0)	(40.0)
Balance as of September 30, 2012	$565.9	$565.9

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, 2012:
Provider networks	$40.5	$(34.4)	$6.1	19.4
Customer relationships and other	29.5	(17.5)	12.0	11.1
	$70.0	$(51.9)	$18.1
As of December 31, 2011:
Provider networks	$40.5	$(33.6)	$6.9	19.4
Customer relationships and other	29.5	(15.7)	13.8	11.1
	$70.0	$(49.3)	$20.7

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
2012	$	3.4
2013	3.4
2014	2.8
2015	2.6
2016	2.0