Health Net 2007 #3 Winter Connections Quarterly

Quarterly Magazine for Health Net Associates • Winter 2007

Health Net Federal Services a top performer and partner

Health Net outlines multiyear plan for a prosperous future at 9th Annual Investor Conference

Associate survey results shape Health Net’s to-do list

COVER STORY:The access crisis– Insuring the uninsured

Inside:

PERFORMANCEProgress and achievements thatsupport Health Net’s business

strategy and financial goals

GROWTHEfforts to expand and increase the quality of Health Net’s

business

GREAT PLACE TO WORKExamples of a high-performance

environment that supports associates and serves

customers well

Survey results shape Health Net’s to-do listAssociate insights guide annual and long-term goalspage 14

Celebration of Children reaches 2,500 kidsSix sites sponsor festivitiespage 11

The access crisis–Insuring the uninsuredpage 4

Supporting those who support our heroesHNFS Giving Program targets families of active duty,retired and reserve military members and veteranspage 10

Published by: Health Net, Inc.,Corporate Communications

21650 Oxnard StreetMail Code CA-102-22-07

Woodland Hills, CA 91367

We welcome your ideas and feedback. Contact Betty Henry,

Linda Lalande or Margaret Longoat [email protected].

For internal distribution onlyHealth Net, Inc. is among the

nation’s largest publicly traded managed health care companies.

Its mission is to help people behealthy, secure and comfortable.

For more information, go towww.healthnet.com.

This publication contains forward-looking statementswithin the meaning of Section 21E of the Securities

Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that

involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to

be forward-looking statements. Readers are cautionednot to place undue reliance on these forward-looking

statements. The company undertakes no obligation topublicly revise these forward-looking statements toreflect events or circumstances that arise after the

date of this publication.

Did you know?MHN– More than three decades of making a differencepage 16

Images of the themes that unite us Look for these icons to identify Health Net’s three important themes. The icons are used in communications about what is going on in the company and how we are succeeding.

Issue Highlights

SurveyResults

Dear Associates,

Welcome to this year’s first issue of Connections, our quarterly associate magazine. It’s going to be an interesting year in the health

care industry–there is renewed focus and much discussion on insuring theuninsured–and Connections is just one of many ways you can keep up withthe news.

This issue’s main feature story is an overview of recent developments in the uninsured debate. I’ve been working with the Policy Committee ofAmerica’s Health Insurance Plans. We announced a multifaceted proposal to address this issue in November, and many state governments and otherorganizations are now stepping up to the plate. Only time will tell where this will lead, but Health Net is committed to being a part of the solution.

This issue also focuses on Health Net’s Federal Services business unit. Our magazine is picking up where we left off with the last issue–profilingour various businesses to help associates gain insight into the wide range of services we provide to our customers. Be sure to read the page 10 story on the HNFS Giving Program–a program that focuses on quality-of-lifeissues for military families and veterans. I am particularly proud of thisfine example of how Health Net gives back to the community.

This issue underscores our efforts to become a great place to work with a follow-up story on our 2006 Associate Survey. You will also find more on our growth and performance goals in a story about our most recent Investor Conference.

Finally, be sure to take a look at the review of this year’s Celebration of Children. We celebrated with more than 2,500 children during the holiday season. Thank you again to the many associates who gave so generously of their time and money to support these splendid events.

Sincerely,

Jay GellertPresident and CEOHealth Net, Inc.

winter 2007 connections 3

connections winter 20074

The insurance void and its critical, circular consequencesWhile Jeff didn’t know it at the time–and certainlywasn’t doing it intentionally–he was contributingto one of the most pressing problems facing ournation today.

According to the most recent U.S. Census statistics(2005), Jeff is among the more than 46 millionAmericans who lack health insurance for at leastpart of the year–a startling statistic–up from 40 million in 2000. Several factors have caused this significant slice of the American population to be uninsured:• A growing number of U.S. employers, particularly

small businesses, have stopped providing theiremployees with health coverage. While 38 percent of American workers are employed by

small businesses, less than two-thirds of suchfirms now offer health benefits, according to a January 2006 report released by the Henry J. Kaiser Family Foundation.

• Part-time employees and contract workers alsoare unlikely to receive health benefits.

• The majority of the uninsured simply can’t affordto pay for their own insurance. In fact, accordingto a recent estimate by the U.S. Senate RulesCommittee, nearly half of all personal bankruptciesnationwide are related to medical costs.

• While most uninsured individuals and familiesare struggling financially, their incomes often are too high to qualify for state or federal healthcare programs.

More than 46 million Americans don’t have healthinsurance. Obviously, the uninsured are affected,but so too are people who have insurance, thosewho provide insurance and professionals whodeliver medical care.

Jeff Marlis,* a 33-year-old married father of two, knewsomething was wrong. For more than a week, Jeff, whoworks for a small landscape design firm, had beencoughing seemingly nonstop. His chest hurt, andthroughout the day he felt short of breath. Assuminghe just had a bad case of the flu, Jeff bought an assort-ment of over-the-counter remedies and hoped for thebest. Without health insurance or enough ready cash to pay for a doctor’s visit, he really had no other choice.

Until his temperature hit 102.5 degrees. That’s whenJeff’s wife rushed him to the emergency room, wherehe was swiftly diagnosed with severe pneumonia. Fourdays–and more than $10,000 later–Jeff was released.

*Name changed to protect privacy.

The access crisis–Insuring the uninsured

5

Elements of the AHIP proposal• Expand the State Children’s Health Insurance

Program to make eligible all uninsured childrenfrom families with incomes under 200 percent of the Federal Poverty Level, for example–$20,000 for a family of four in the 48 contiguousstates and the District of Columbia

• Improve and expand Medicaid to make eligible all uninsured adults, including single adultswith incomes under 100 percent of the Federal Poverty Line

• Establish a Universal Health Account (UHA) to allow all individuals to purchase any type of health care coverage and pay for qualified medical expenses with pre-tax dollars, with federal matching grants for contributions made by working families to the UHA

• Enact a health tax credit of up to $500 for low-income families who secure health insurance for their children

• Institute a new $50 billion Federal PerformanceGrant to assist states in expanding access to coverage

“Thanks to the efforts of the senior leadership of our

industry, we have established a set of practical policy

initiatives that can, for the first

time, provide millions of

uninsured Americans with

access to affordable health

insurance coverage.” Jay Gellert, president and CEO,

Health Net, Inc.

So what happens when uninsured individuals fall ill? Jeff’s story, unfortunately, is all too typical.The uninsureds’ primary source of care becomes the emergency room, and often they don’t arrive atthe ER until their condition has reached a relativelyacute state. According to the Institute of Medicine(IOM), the uninsured are 30 percent to 50 percentmore likely to be hospitalized for an “avoidable condition,” at an average cost of $3,300. The IOMadditionally points out that, because the uninsuredgenerally can’t pay these medical bills, hospitals end up providing approximately $34 billion worth of uncompensated care annually.

These shortfalls set in motion a series of criticalcircular consequences. In an effort to fill the financialgap created by uninsured patients, hospitals ask formore from those with insurance. This practice, calledcost shifting, essentially amounts to a hidden tax on the insured, whose medical bills and premiumsincrease to cover the shortfall from the uninsured. As bills and premiums rise, the number of employersand individuals able to shoulder these higher costsdecreases, and the ranks of the uninsured consequentlyincrease.

Health Net joins thought leaders to break the cycleSeeing the urgent need to break this deterioratingcycle, Health Net–along with other members ofAmerica’s Health Insurance Plans (AHIP)– is speakingout and presenting possible solutions to what hasbecome a coast-to-coast crisis in America.

Health Net, however, is more than merely a member of AHIP, the national association that represents nearly 1,300 health insurance companies.Jay Gellert, Health Net, Inc.’s president

and CEO, is a member of AHIP’s boardand chairman of the organization’s PolicyCommittee. In this role, he was intimatelyinvolved in the development of AHIP’smultipronged health care reform proposal.First presented in November of last year(see page 7, “Jay Gellert introduces AHIPproposal”), the proposal’s intent is toexpand access to health insurance coverageto all U.S. children within three years and to 95 percent of uninsured adults within 10 years.

AHIP brochure titled “We believe every American should have access to affordable health care coverage.”

winter 2007 connections


California leads other states in tackling theuninsured issueWhile Connecticut, New York and Massachusetts allare forging solutions to their own issues with theuninsured, California Gov. Arnold Schwarzeneggerbegan 2007 by presenting a bold health care reformplan. As the most populous state with the largestnumber of uninsured–6.5 million and growing–California is garnering national attention for takingurgent and aggressive steps to address the problem.Major components of the governor’s plan includethese elements:• Provide low-income individuals with

affordable coverage• Increase Medi-Cal rates significantly• Improve insurer and hospital efficiency• Enhance tax breaks for individuals and

employers who purchase insurance• Require physicians and hospitals to contribute

to the cost of coverage

Moving forward Commenting on the California proposal, Gellertnotes, “Gov. Schwarzenegger’s plan brings to lifemany of the state-based recommendations we’veproposed through AHIP. To move it forward, thegovernor will need to make sure that we stay oncourse and openly confront both the strengths and weaknesses of his proposal in the next phase.If he succeeds,” he adds, “California can lead thenation in this most fundamental area for many,many years to come.”

* Data taken from AHIP’s November 2006 surveyof American adults regarding universal health care coverage.Responses confirm strong support for pursuing viable solutions.For details, refer to www.ahip.com.

Sample AHIP print ad

Would you prefer to improve our health care system by:building on the current system of shared responsibilitybetween the federal government and the private sector, or replacing the current system with a new system that is run entirely by the federal government?

Which of the following issues would you say should be thetop domestic priority for Congress to address next year?

Survey says*...

Providing access to affordable health care

Improving the quality of our educational system

31%

17%

Combating illegal immigration

Fighting crime & drugs

Cutting taxes

15%

10%

6%

Reducing the deficit

5%

Protecting the environment

5%

Don’t know/no opinion

Replace with government-run system

Modify current system61%

24%

13%

On Nov. 13 of last year, Health Net, Inc. Presidentand CEO Jay Gellert, who chairs America’s HealthInsurance Plans’ (AHIP) Policy Committee, helpedunveil the organization’s innovative proposal toexpand access to health coverage for America’suninsured. Following are excerpts from his presentation:

“Let me start by thanking my many colleagueswho spent considerable time creating this proposal.It presents an approach that will expand access tohealth insurance coverage to all Americans. This is the most critical health care policy issue of theday. Our goal is, quite simply, to put forward a setof concrete, comprehensive proposals that addressthe issues of coverage and access. As health plans,we believe it’s our responsibility to provide workablesuggestions so the nation can solve this problem.

“Two key components of this proposal are, one, it builds on the strength of the current health care system; two, it’s technically achievable andpolitically feasible.

“It outlines viable roles for the federal government,state governments, employers, insurers, providersand individuals. It is socially responsible in that itleads to universal coverage. At the same time, it’sincremental and begins by making a commitmentto cover all kids within three years. And finally, it includes other reforms that would allow us toaddress cost containment, quality and preventionwhile simultaneously expanding access.

“Our Policy Committee recognized from the startthat the country will need to achieve these goals instages, and so we established a Phase One goal ofcovering all kids by building on the strength ofexisting programs such as SCHIP [State Children’sHealth Insurance Program]. Beyond that, we’re proposing the passage of federal legislation thatsets out very specific federal responsibilities and

funding support. We are confident that the statesare ready to step up with innovative approachesthat will meet these goals and address state-specific challenges.

“Our plan also sets out a public/private structurethat will establish minimum eligibility standards for public programs and a means to subsidize thepurchase of coverage by working families. Mostimportantly, in addition to calling for covering allkids within three years, we propose covering 95percent of adults within 10 years.

“Looking forward, we will be actively promotingthese principles as viable approaches to providingcoverage to the uninsured and as a means of openingthe door to other fundamental system reforms. Byreaching out to policy makers, opinion leaders andthe public, we hope to play a constructive role inthis debate, helping the new Congress and thestates come together to solve this most pressingproblem. We believe it can be done.”


Jay Gellert introduces

AHIP proposal

“Our goal is, quite simply, to put forward a set ofconcrete, comprehensive proposals that address theissues of coverage and access. As health plans, webelieve it’s our responsibility to provide workablesuggestions so the nation can solve this problem.”


The quotes above are excerpts from notes sent to HNFS, and they illustrate well what is uniqueabout this Health Net division: its beneficiaries.Numbering nearly 3 million, HNFS beneficiaries are a group with distinct needs not necessarily mirrored in Health Net’s commercial membership.Although this can prove challenging for HNFS associates, they take pride–and find meaning–in serving those who serve our country.

HNFS history Through HNFS, which was founded in 1988, Health Net became the first U.S. company to develop comprehensive managed care programs for military families. The Department of Defense(DoD) currently divides its population into threeregions to administer the TRICARE program. HNFSis the TRICARE North Region contractor and alsocontracts with the U.S. Department of VeteransAffairs (VA).

Under the current TRICARE contract, which runsto March 2009, HNFS serves military families in 23states and the District of Columbia, and serves theVA nationwide with a variety of programs and

services. HNFS has 1,700 associates in 95 officesacross 32 states, with corporate headquarters in Rancho Cordova, Calif., and the North Regionoffice in Arlington, Va.

The future of HNFS HNFS enters 2007 solidly positioned for continuedgrowth. As HNFS President Steve Tough recentlypointed out at Health Net’s 2006 Investor Conference,“We are the top performer in TRICARE and in the VA. We have strong relationships with thecommanders at the DoD and the military treatmentfacilities. The business is performing very stronglyat its core.”

Although HNFS contracts with the DoD and theVA, as Tough notes, “This is really more than just a contractual relationship. We are a true partnerwith the DoD and the VA. Like commercial clients,their greatest need right now is to manage healthcare costs, so we are collaborating on disease management and other programs. The militaryviews us as a thought leader and frontrunner inthe industry.

GROWTH

HNFS provides comprehensive managed care programs to nearly 3 millioneligible beneficiaries through TRICARE, the government-sponsored healthcare program for veterans, dependents of active duty military and retired

military and their families. HNFS associates are keenly aware of the special circumstances of this population. Serving the military community makes working at HNFS especially meaningful.

“I just wanted to take a minute to let you know howmuch I appreciate your being there to take care of myfamily when I am unable to do so. Knowing that theyare being taken care of by the best makes me thatmuch prouder to serve you here in Iraq.”–Active duty serviceman from the TRICARE

North Region

“My husband is a reservist called to active duty in Iraq, and we miss him. When I needed to learn about TRICARE, I was so confused. I don’t know what I wouldhave done without Health Net. Your employees helpedme to understand my health benefits and ease mymind. Many thanks to you!”–TRICARE North beneficiary, wife of reservist

“We have a great team that’s very customer-solutions oriented. Many of our senior leadershipmembers have been with the program since itsearly days and really understand this customer and how the program works. ‘Make it your business’ is the motto that they and other HNFS associates demonstrate daily, giving the best service possible.”

HNFS leadership sees many market opportunitiesAccording to Tough, HNFS is poised to grow thegovernment business by:• Expanding several HNFS programs for the VA• Gaining greater access to National Guard

members and reservists• Helping the DoD manage the health care costs

of military retirees age 65 and older• Partnering with MHN, Health Net’s behavioral

health division, to address the growing need for mental health support as soldiers contendwith post-traumatic stress disorder and the reintegration process (see MHN article, back page)

“Endlessly and fearlessly, they support us with everythingthey have. Stateside and thousands of miles away, in thefreezing cold and in 115-degree heat, in the heat of battleand in extreme boredom, they persevere. I am very proud to work for Health Net Federal Services and support our military men and women, their families and our retireeswho’ve served so proudly.”

Marian A. Alvarez, Quality Assurance auditor

HNFS revenue

19% of total$2,376,000

Total Health Net premium revenue(fiscal year 2006, total dollars in thousands)

$12,740,754

Total Health Net membership(as of 12/31/06)

6,629,0000


Why We Are Here campaignkeeps military clients frontand centerLast year, HNFS launched a campaign called Why We Are Here to provide its associatesinsight into the lives of TRICARE beneficiaries,many with family members serving overseas inIraq or Afghanistan.

Jim Woys, president, Government and SpecialtyServices, explains: “Knowing you’re making a difference in the life of a serviceman or service-woman helps make HNFS a great place to work. A reminder about who these people really arehelps.” About every six months, the HNFSCommunications team prepares new materials–tent cards, posters and actual postcards from the servicemen and servicewomen–to spotlightmilitary beneficiaries.

“These visual aids have had an effect on callcenter and other associates, especially in the way they’re able to understand the person on the other end of the phone,” says Molly Tuttle,director of Communications, HNFS.

HNFS membership 2,930,000 44% of total

8connections winter 200710

Health Net’s TRICARE North contract is pay-for-performance, and our excellent performance hasbeen well rewarded. What happens to the awardfee bonus? Health Net Federal Services (HNFS) senior leadership agreed that a portion–more than $1 million in 2006–should be designated for an HNFS Giving Program.

Designed to “support those who support our military heroes,” the Giving Program focuses onquality-of-life issues for military families and veterans. Because Health Net’s core competency is health care, the program’s mission is to supportorganizations that promote physical and mentalhealth as well as better care for the injured or critically ill. “There are so many great opportunitiesto give–the hardest part is saying no,” says SueSchwartz, the program director. “But, we’ve chosento support the families of those who serve.”

By sponsoring fundraising events, supplying theenthusiastic support of Health Net volunteers andmaking substantial monetary contributions, theprogram aided 13 organizations in 2006. Some ofthe highlights:• A $300,000 donation helped six Armed Services

YMCAs provide educational, recreational and support services for junior enlisted military families in the TRICARE North Region.

• With a $33,000 donation to the Fisher House™

Foundation, which builds “comfort homes” for families of military patients, Health Net sponsored a golf tournament raising more than

$475,000 for a new home in Richmond, Va. Inaddition, HNFS gave $100,000 for a home at Fort Campbell, Ky.

• HNFS donated $50,000 for a hospice suite atWalter Reed Army Medical Center for terminallyill service members diagnosed with cancer. Thein-hospital suite provides patients a comfortableplace to spend their last weeks with family andfriends.

• HNFS sponsored the 20th Annual DisabledAmerican Veterans Winter Sports Clinic inSnowmass, Colo., and the 26th National Veterans Wheelchair Games in Anchorage, Ala.These events recognize the physical challengesdisabled vets face and honor their determinationand courage.HNFS also supports national organizations

and local events, such as the March of Dimes,WalkAmerica, Junior Achievement and Celebrationof Children. Subregions in TRICARE North also havea $10,000 local budget to support communityevents that match the Giving Program mission.

“This is something we owe our military and veteran beneficiaries,” says Jim Woys, president,Government and Specialty Services, “to thank them for their service and their sacrifice to ournation. It isn’t charity; it’s a privilege.”

HNFS Giving Program targets families of active duty, retired and reserve military members and veterans

Supportingthose who support our heroes


GREAT PLACE TO WORK

Celebration of Children reaches 2,500 kids

Trumbull, Conn.: Sheila Dukes, executiveassistant to Lauren Casalveri, ProcessImprovement, HNNE, paints the face of one of the children.

Tigard, Ore.: HNOR elves (left to right) CindyFineran, VP, Sales; Lynn Pettit, director, HNPS-NW; Jaddua Ross, account manager; WinWeaver, Utilization Management coordinator.

East Brunswick, N.J.: JenniferBajor, investigator, ProgramIntegrity, HNNE, braces forthe pinãta to fall.

Tempe, Ariz.: HNAZ’s Mrs.Claus, Tanjia Tucker, clericalspecialist, Sales.

Rancho Cordova, Calif.: HNFS PresidentSteve Tough waits in line for Santa withtwo of the guest children.

Tigard, Ore.: HNOR guest happilydeparts with her gifts.

Woodland Hills, Calif.: (left to right) HNI Chairman of the Board,Roger Greaves with his wife, Erika, Celebration of Children organizerand national chairperson; Stephen Lynch, president, RegionalHealth Plans, as Santa; Francine Hans-Vince, executive assistant tothe CEO; HNI President and CEO Jay Gellert.

Six sites sponsor festivitiesGingerbread houses, puppets, dancing and cupcakes. Laughter, music and plenty of hugs. Allof this and more were in store for the busloadsof children who made their merry way to the six hotels–stretching from coast to coast–thathosted Health Net’s 2006 Celebration of Children.

“We reached 2,500 children this year–a recordnumber in the 15 years we’ve been holding thisevent,” says Celebration of Children organizer andnational chairperson Erika Greaves, wife of RogerGreaves, Health Net, Inc. chairman of the board.“Thanks to the efforts of our generous associates,we had 2,000 children in attendance and wereable to donate an additional 500 gifts to theagencies that had recommended the childrenwho were invited. I also want to thank localHealth Net executives for playing the role ofSanta at each site.”

Another milestone was the number of volunteers. “One thousand Health Net associates either wrapped presents or helped at the events,” says Tom Smith, director, National Meetings and Events. “We really appreciate all that you did. It made it a great party for these kids who might not have had such a bright holiday without Celebration of Children. Thank you.”

According to Erika Greaves, plans for next year are already under way. “We’re adding a seventh location, Washington, D.C., and will include children from military families,” she says.“We’re very grateful to all the associates whokindly gave of their time, energy and money. Welook forward to being with you again next year.”


PERFORMANCE

Health Net outlines multiyear planSenior leaders address nearly 100 analysts and investors at Health

Steve Nelson Stephen Lynch Steve Tough Mark El-Tawil John Sivori Jim Woys

“We’ve gone throughthis turnaroundprocess over thecourse of the lastcouple years, and I think today’s presentation definitively says that the turnaround

is over,” said Jay Gellert, Health Net, Inc. presidentand CEO, at the 2006 Investor Conference. “We’vemade investments for the future, and there aresome very clear opportunities ahead.”

Gellert concluded the presentation by outliningfour key points for analysts to keep in mind whenlooking at Health Net performance in 2007.

First, there are multiple avenues of growth bothon the government side and on the commercialside, Gellert said.

Second, Health Net has a segmentation strategy to support qualitative growth. By focusing on areasin which we have a competitive advantage, we cancontinue to show growth but fundamentally alterthe quality of the growth.

Third, we have many opportunities for marginexpansion. As Gellert explained, “Throughout thecompany, we’re not below the median in terms ofmedical loss ratio. We can move to the median insome key places and begin to get margin expansion.”

Fourth, the debate over coverage for the nation’suninsured may be a factor. “We are positionednow so that we can talk about changing thedynamic of coverage–doing it in a way that’s good public policy and also good for our business,”Gellert said.

This year’s presentation to analysts and investorsat the Four Seasons Hotel in Westlake Village,Calif., showcased detailed presentations from six senior leaders:• Steve Nelson, president, Health Net of the

Northeast;• Stephen Lynch, president, Regional Health Plans;• Steve Tough, president, Health Net Federal

Services;• Mark El-Tawil, Chief Medicare officer;• John Sivori, president, Health Net Pharmaceutical

Services; and • Jim Woys, acting CFO, Health Net, Inc., and

president, Government and Specialty Services.

Jay Gellert


“We do things thatnobody else does.We’re not just a strongregional player, but astrong national playerin influencing publicpolicy and the debateon solving the nation’shealth care problems.”Roger Greaves, chairman of theboard, Health Net, Inc.

“Health Net is unique in the industry,” said Roger Greaves,chairman of the board, Health Net, Inc. “We do things thatnobody else does. We’re not just a strong regional player, but astrong national player in influencing public policy and the debateon solving the nation’s health care problems. The analysts aresaying that Jay and our management team have learned how tocombine what we do with an eye toward public policy. None ofour competitors are doing that.”

“The analysts were uniformly positive,” said David Olson,Investor Relations officer and senior vice president, CorporateCommunications. “They felt very good about how tight our story was, how it was consistent and how it’s improving. It was a very, very positive reaction across the board.”

Joshua Raskin of Lehman Brothers, Inc. agreed: “It’s alwaysimpressive to see the entire management team come out andpresent a coordinated message. One of the impressive parts has been the consistent story.”

Justin Lake, an analyst at UBS Securities, echoed Gellert’s earlier comments: “Clearly the company is past what we wouldcall ‘a turnaround stage’ in the investment community. I thinkthe company has done a great job of presenting the opportunitiesand what needs to be done to get there.”

“Now they [investors and analysts] want to see us execute andhit our goals for 2007,” concluded Olson. “It’s going to requireeffort on everybody’s part–focused, determined effort every day. If we do that, we’re going to be rewarded by Wall Street.”

for a prosperous future Net’s 9th Annual Investor Conference

Jay Gellert speaking with analysts and investors.

Investment analysts Greg Nersessian, CreditSuisse Securities (above, with Gregg Genova,Deutsche Bank, in the background), and ChristineArnold, Morgan Stanley (below), ask questions atHealth Net’s 9th Annual Investor Conference.

Data for decision making“What we learn from our surveyis invaluable– it turns hearsay intofacts,” says Jay Gellert, Health Net,Inc. president and CEO. “A fewobservations or a couple of examples may begin to tell a story,but they’re not enough for sound

decision making. Associate input from across thecompany verifies or disproves what we think weknow, and it uncovers what may not be obvious.”

Health Net associates understand this and havealways taken the survey process seriously. “We’ve seen remarkable participation with more than 87 percent of associates taking part in 2006 –a world-class participation rate,” Gellert asserts. “With such a large response, we get a clear pictureof what’s true for the enterprise and also what areregional or business unit issues.”

“Survey results were instrumental in helping us set priorities for Health Net of the Northeast(HNNE),” says Steve Nelson, HNNE president. “Ourperformance turnaround over the last two years isthe result of focused hard work, but our startingpoint was knowing where and how we could bestmove the meter. Our associates told us a lot throughthe survey.”

Knowledge to competeWhile the survey paints an annual portrait of Health Net, it also creates a competitivescorecard. “We need to know how we stack up,” says Gellert.“Our customers, investors andassociates have a choice–and

we want it to be Health Net. The survey is ourannual check-up to help us stay in the game.”

Data for decision-making

Knowledgeto compete

Survey results shape Health Net’s to-do listAssociate insights guide annual and long-term goals

GREAT PLACE TO WORK

Health and fitness… financial security… happiness and well-being…

We all have goals. To achievethem, we must first define them,then track our progress andadjust our actions accordingly.

Companies are no different, but they need their employees’help to succeed. That’s why smart companies seek theiremployees’ input–and that’s precisely why Health Net conducts its annual Associate Survey.

Eliminateduplication Simplify

processes


Local leadership will present detailed 2006 survey results.


Culture of performance Staying in the game is a continuousprocess. The survey enables HealthNet to set improvement targets so we progress and don’t backslide.

“We motivate improvement throughassociates’ performance goals,” saysKarin Mayhew, senior vice president,

Organization Effectiveness. “Health Net leaders and managers also have special accountability forbuilding a performance climate.”

What is climate? “Climate is the organization’s environment, and the survey helps us measure it,” continues Mayhew.“Ideally, it’s an environment in which associates can consistently perform at their best.”

“When climate is good, associateschoose to engage their hearts and minds becausethey see long-term benefit for themselves, thecompany and its customers,” says Stephen Lynch,president, Regional Health Plans. “I’ve experiencedfirsthand in Oregon and California and seen inArizona how creating a positive work environment–and the many things that means–adds tangiblebenefits to the bottom line.”

Research shows that when leaders and managerscreate a positive work climate, it affects performance–increasing profit, earnings per share and othermeasures.

That research is borne out at Health Net. Since2002, our stock price has closely tracked withachievement of our climate goals. It’s also whyHealth Net has focused on leadership developmentas a first and foundational step in building our performance culture. Health Net’s leadership development courses began in 2003 and continue to this day.

Making significant progress“When we began the survey in 1999,Health Net was concerned with survival,” says Mayhew. “We were a collection of companies that didn’t evenhave an integrated e-mail or payrollsystem. Nevertheless, we committed tobegin our journey to become Jay’s vision

of a profitable company with its own identity thatwould make a difference and aspire to greatness.”

We know Health Net leaders are succeeding inengaging associates with this vision–through TownHalls, HN Connect, Connections and in day-to-dayinteractions–because in 2006 associates over-whelming said they understand Health Net’s goalsand their roles in achieving them; believe HealthNet is doing the right thing to be successful in thefuture; and are proud to work for Health Net.

What’s next?From the survey, we know whatour current to-do list looks like.We need to focus on the followingareas in addition to sustaining pastprogress: • Simplifying processes• Eliminating duplication of effort

• Providing resources to get the job done

Our COMPASS system, introduced in 2006, willhelp us with two of these areas. It will allow us to compare our goals across the enterprise moresystematically to weed out duplication. Being moreefficient and aligned in our goal setting will free uptime and resources to address other parts of our jobs.

COMPASS’ TALEO staffing component is assistingwith career development at Health Net–another survey theme for several years. TALEO helps managersdefine jobs and administer the staffing process.Associates can use it to learn about opportunitieswithin the company. COMPASS’ Learning ManagementSystem, to be introduced later this year, will helpidentify the specific skills and competencies neededto successfully build a career at Health Net.

“It’s like building a house,” says Mayhew. “Youcan’t put the roof on until the walls are built. Some things have to happen first for others to work. We’re constantly looking at what the business is trying to accomplish–and the biggest barriers standing in ourway. Then, each year, leadershipagrees and commits to what weare ready to accomplish.

“It’s a sequenced process,”Mayhew adds, “and we depend onassociates to keep us on track. Theleadership team thanks associatesfor their candor and engagement. It will enable us to work together to make this a great place to work.”

Culture ofperformance

What is climate?

Makingsignificantprogress

What’snext?

Since 1974, Managed Health Network (MHN),Health Net’s behavioral health services subsidiary,has been making a positive difference in people’slives. • One of America’s oldest and largest providers

of managed behavioral health care, MHN’snationwide provider network includes 45,000licensed practitioners and 1,400 hospitals andcare facilities.

• MHN’s 1,100 associates serve members from morethan 850 organizations, including Fortune 500companies, government agencies, health plans,insurers and Taft-Hartley Trust Funds.

• Headquartered in Point Richmond, Calif., MHN’spresident and CEO is Steve Sell.

Integrated servicesMHN is committed to helping members andemployers identify and resolve behavioral healthissues. Its integrated online services can be foundon HN Connect > Business Units > MHN > MemberServices and include the following:• Employee Assistance Programs, including the

one offered to Health Net associates• Individual and group health coaching• Wellness training and professional development• Disease and care management• Domestic abuse victim advocacy programs• Health advocacy/care integration

Pursuing growthMHN launched MHN Government Services (MHNGS)in January 2006. Already MHN’s fastest-growingsegment, MHNGS is providing an extensive menu of

counseling and advocacy services to the U.S. Army,Navy, Air Force and Marines. For example, MHNGShelps service personnel and their families cope with issues related to deployment and reintegrationfollowing active duty. And it will soon offer a newparent-support program for military families.

MHNGS also responds to emergencies. For example, when hurricanes Rita and Katrina tore a path of destruction across our nation’s GulfStates, MHNGS quickly dispatched clinical andfinancial counselors to aid affected Navy personnel.An MHNGS contingent remains in place as part ofthe ongoing recovery efforts.

Strong revenue and membership Driven by revenue expansion and positive healthcare trends, MHN recorded robust numbers for 2006.• Overall, MHN revenue grew by 15 percent, to

$290 million. • Leading the way toward MHN’s strong financial

showing was the MHNGS division, whichincreased its revenue 126 percent, up to $53.4 million.

• MHN’s total membership stands at nearly 11 million–thanks to almost 3 million added by MHNGS, and including TRICARE members who use MHN’s behavioral health network.


MHN–More than three decadesof making a difference

Did you know

Associate resourcesEmployee Assistance Program–confidential and toll-free 24/7• California associates outside Sacramento: (800) 243-8899

• California associates in the Sacramento area and allother associates nationwide: (800) 977-7964

• TDD callers: (800) 327-0801

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MHN online member services can be reached through HN Connect > Business Units > Member Services.

Health Net 2007 #3 Winter Connections Quarterly

Business

Transcript of Health Net 2007 #3 Winter Connections Quarterly