UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant    x

Filed by a Party other than the Registrant ¨

Check the appropriate box:

HEALTH NET, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Health Net, Inc. will hold its 20142015 Annual Meeting of Stockholders on Friday, June 20, 2014,Thursday, May 7, 2015, at 10:00 a.m. (Pacific Time) at 21281 Burbank Boulevard in Woodland Hills, California 91367, for the following purposes:

The Board of Directors has fixed Tuesday, April 22, 2014,Wednesday, March 11, 2015, as the record date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting or any continuation, adjournments or postponements of the Annual Meeting.

At the Annual Meeting, each share of Common Stock, $.001 par value per share, of Health Net represented at the Annual Meeting will be entitled to one vote on each matter properly brought before the Annual Meeting. Jay M. Gellert and Angelee F. BouchardJames E. Woys have been appointed as proxy holders, with full rights of substitution, for the holders of Common Stock.

By Order of the Board of Directors,

Angelee F. BouchardJames E. Woys

SeniorExecutive Vice President, General CounselChief Financial and

SecretaryOperating Officer and Interim Treasurer

April 30, 2014March 26, 2015

YOUR VOTE IS IMPORTANT

All stockholders are cordially invited to attend the 20142015 Annual Meeting of Stockholders of Health Net, Inc. in person. Whether or not you expect to attend the Annual Meeting, please submit a proxy to vote as soon as possible to ensure your shares will be represented at the Annual Meeting. As provided herein, you may vote in person or by proxy at the Annual Meeting or you may submit a proxy to vote by mail, by telephone or via the Internet. If you wish to submit your proxy by telephone or via the Internet, please follow the instructions on the Notice of Internet Availability of Proxy Materials or on the proxy card or voting instruction form. If you received a paper copy of the proxy materials and wish to submit your proxy by mail, please follow the instructions in this proxy statement under “Voting by Proxy—Voting by Mail”, or on the proxy card. If you only received the Notice of Internet Availability of Proxy Materials, you may request a paper proxy card by following the instructions in such notice and may submit your proxy by mail as indicated above. If you attend the Annual Meeting in person, you may, in certain circumstances, vote at the meeting even if you have previously returned a proxy. Please see “Meeting and Voting Information” for additional instructions and requirements relating to attendance at our Annual Meeting and voting your shares.

Table of Contents

PROXY STATEMENT

FOR THE 20142015 ANNUAL MEETING

OF STOCKHOLDERS

TO BE HELD

JUNE 20, 2014MAY 7, 2015

MEETING AND VOTING INFORMATION

General

The accompanying proxy is solicited by the Board of Directors of Health Net, Inc. for use at our 20142015 Annual Meeting of Stockholders (the “Annual Meeting” or “2014“2015 Annual Meeting”) to be held on Friday, June 20, 2014,Thursday, May 7, 2015, at 10:00 a.m. (Pacific Time) at 21281 Burbank Boulevard, Woodland Hills, California 91367, and at any continuation, adjournments or postponements thereof. Directions to attend the meeting can be found on our website,www.healthnet.com. Beginning on or about May 5, 2014,March 26, 2015, we expect to deliver the Notice of Internet Availability of Proxy Materials (“Notice”) to most of our stockholders entitled to vote at the Annual Meeting and a paper copy of our proxy materials and accompanying proxy card to the remaining stockholders entitled to vote at the Annual Meeting. In this proxy statement, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on June 20, 2014May 7, 2015

This proxy statement, including a proxy card sample, the notice of the Annual Meeting and our 20132014 Annual Report on Form 10-K are available on our website address athttp://www.healthnet.com/InvestorRelations/2014Proxy2015Proxy. You are encouraged to access and review all of the important information contained in the proxy materials before voting.

We are offering a live webcast of the Annual Meeting on our Internet website,www.healthnet.com. The webcast of the Annual Meeting will consist of live sound, real-time access to printed material and the ability of stockholders to submit questions during the question and answer period. To participate in the webcast of the Annual Meeting, a stockholder should log on towww.healthnet.com on Friday, June 20, 2014,Thursday, May 7, 2015, shortly before 10:00 a.m. (Pacific Time) and follow the instructions provided under the “Investor Relations” section of the website. Stockholders will not be permitted to vote via the Internet during the Annual Meeting.

Who Can Vote; Outstanding Shares

Only holders of record of our Common Stock, $.001 par value per share (“Common Stock”), at the close of business on April 22, 2014March 11, 2015 (the “Record Date”) are entitled to vote at the Annual Meeting. Each share of Common Stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the Annual Meeting. As of the Record Date, we had 80,200,46376,927,005 outstanding shares of Common Stock.

In accordance with Delaware law, a list of stockholders entitled to vote at the Annual Meeting will be available at the Annual Meeting, and for 10 days prior to the Annual Meeting in the Investor Relations department at our corporate office at 21650 Oxnard Street, Woodland Hills, California 91367, between the hours of 9:00 a.m. and 4:00 p.m. (Pacific Time).

Quorum and Votes Required

Our bylaws require that the holders of a majority of the total number of shares entitled to vote be present in person or by proxy in order for the business of the Annual Meeting to be transacted. Abstentions and “broker non-votes” will be counted as present for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. “Broker non-votes” occur when a bank, broker or other nominee holding shares for a beneficial owner does not vote those shares on a particular proposal because it does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. Participation by a stockholder in the live webcast of the Annual Meeting will not be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting.

Stockholder approval of each proposal requires the following votes:

Voting by Proxy

How to Vote by Proxy If You Are the Record Holder of Your Shares

If you are the record holder of your shares, you may submit your proxy to vote by mail, by telephone or via the Internet. Note that if you hold your shares through the Health Net, Inc. 401(k) Savings Plan (the “401(k) Plan”), additional restrictions apply as described below under “How to Vote Your 401(k) Plan Shares by Proxy”.

Voting via the Internet or by Telephone.

Voting by Mail. As an alternative to submitting your proxy via the Internet or by telephone, you may submit your proxy by mail.

How to Vote Your Shares If You Are a “Street Name” Holder

If you hold your shares through a bank, broker or other nominee, also referred to as a “street name” holder, check the instructions provided by that entity to determine which options are available to you with respect to voting your shares.

How to Vote Your 401(k) Plan Shares by Proxy

If you hold shares of Common Stock through the 401(k) Plan, you may vote your shares by telephone, mail or via the Internet as described above. If you vote your shares by telephone or via the Internet, your voting instructions must be receivedbefore 11:59 p.m. (Eastern(Eastern Time) on Tuesday, June 17, 2014Monday, May 4, 2015in order for the 401(k) Plan trustee to vote your shares. If you vote your shares by mail, your voting instructions must be receivedbefore 6:00 p.m. (Eastern Time) on Tuesday, June 17, 2014Monday, May 4, 2015in order for the 401(k) Plan trustee to vote your shares. If you hold shares through the 401(k) Plan and do not timely submit your voting instructions by this deadline, your applicable shares will be voted in the same proportion to the shares held in the 401(k) Plan for which votes were cast.

If you hold shares of Common Stock through the 401(k) Plan, you may attend the Annual Meeting. However, shares held through the 401(k) Plan can only be voted as described above, and cannot be voted at the Annual Meeting.

General

Please be aware that any costs related to voting via the Internet, such as Internet access charges, will be your responsibility.

All properly signed proxies that are timely received and that are not revoked will be voted at the Annual Meeting according to the instructions indicated on the proxies or, if no direction is indicated, they will be voted:

In their discretion, the proxy holders named in the proxy are authorized to vote on any other matters that may properly come before the Annual Meeting and any continuation, adjournments or postponements thereof.

Attendance at the Annual Meeting and Voting in Person

Stockholders who wish to attend the Annual Meeting will be required to present verification of ownership of our Common Stock, such as a bank or brokerage firm account statement, and will be required to present a valid government-issued picture identification, such as a driver’s license or passport, to gain admittance to the Annual Meeting.

If you are a stockholder of record and plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee, and you wish to vote in person at the Annual Meeting, you must bring to the Annual Meeting a legal proxy from the record holder of the shares (your broker or other nominee) authorizing you to vote at the Annual Meeting. In addition, as noted above, if you hold shares through the 401(k) Plan, you may attend the Annual Meeting, but those shares can only be voted as described above, and cannot be voted at the Annual Meeting.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

Revocability of Proxies

Any stockholder giving a proxy has the power to revoke it at any time before the proxy is voted at the Annual Meeting. If you are a stockholder of record, you may revoke your proxy in any of the following ways:

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If you hold shares of Common Stock through the 401(k) Plan, you may revoke your proxy using any of the above methods (other than (4) above), but must do sobefore 11:59 p.m. (Eastern Time) on Tuesday, June 17, 2014Monday, May 4, 2015 if you vote by telephone or via the Internet and your revocation must be receivedbeforebefore 6:00 p.m. (Eastern Time) on Tuesday, June 17, 2014Monday, May 4, 2015 if you vote by mail.

If your shares are held by a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so.

Solicitation

The Board of Directors is soliciting proxies for the Annual Meeting from our stockholders. We will bear the entire cost of the solicitation of proxies, including preparation, assembly and delivery, as applicable, of this proxy statement, the proxy card and any additional materials furnished to stockholders. Proxies may be solicited by directors, officers and a small number of our regular employees personally or by mail, telephone or facsimile, but such persons will not be specially compensated for such service. We have retained MacKenzie Partners, Inc. to

assist in the solicitation of proxies for a fee of approximately $12,000 plus reasonable out-of-pocket costs and expenses. As appropriate, copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians that hold shares of our Common Stock of record for beneficial owners for forwarding to such beneficial owners. We may also reimburse persons representing beneficial owners for their costs of forwarding the solicitation material to such owners.

Assistance

If you need assistance with voting via the Internet in accordance with the instructions on the Notice of Internet Availability of Proxy Materials, voting by telephone or completing your proxy card, or have questions regarding the Annual Meeting, please contact our Investor Relations department at 1-800-291-6911.

Your vote is important. Please vote your shares via the Internet in accordance with the instructions in the Notice of Internet Availability of Proxy Materials, vote by telephone or sign, date and return a proxy card promptly so your shares can be represented, even if you plan to attend the Annual Meeting in person. The voting results will be included in a Current Report on Form 8-K filed within the time required by the SEC.

INTRODUCTION

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. In this proxy statement, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries. We provide and administer health benefits to approximately 5.36.0 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, dual eligible, U.S. Department of Defense (“Department of Defense” or “DoD”), including TRICARE, and U.S. Department of Veterans Affairs programs. We also offer behavioral health, substance abuse and employee assistance programs, managed health care products related to prescription drugs, managed health care product coordination for multi-region employers, and administrative services for medical groups and self-funded benefits programs.

We were incorporated in 1990. Our current operations are the result of the April 1, 1997 merger transaction (the “FHS Combination”) involving Health Systems International, Inc. (“HSI”) and Foundation Health Corporation. We changed our name to Health Net, Inc. in November 2000. Prior to the FHS Combination, we were the successor to the business conducted by Health Net of California, Inc., now our health maintenance organization (“HMO”) subsidiary in California, and HMO and preferred provider organization (“PPO”) networks operated by QualMed, Inc., which combined with us in 1994 to create HSI.

Our executive offices are located at 21650 Oxnard Street, Woodland Hills, California 91367, and our website address iswww.healthnet.com.

ITEM1—ELECTION OF DIRECTORS

Board Structure

Our certificate of incorporation provides for directors to be elected on an annual basis. Under our certificate of incorporation and bylaws, the Board of Directors will consist of between three and twenty members, with the exact number to be fixed from time to time by the Board of Directors. The number of members constitutingIn connection with Mr. Miller’s appointment to the Board of Directors has beenin March 2015, the Board of Directors fixed bythe size of the Board of Directors at ten andeleven. Patrick Foley, an existing member of our Board of Directors, currently consistshas indicated he will retire from the Board of ten members.Directors effective immediately prior to the Annual Meeting and at such time will cease serving as a member of the Governance Committee and Compensation Committee. Assuming the election of each of the director nominees at the Annual Meeting, the Board of Directors will continue to consist of ten members.members with one vacancy. The Governance Committee and the Board of Directors have commenced an active search for additional new director candidates, and, at their request, the Company has engaged a third party search firm to assist in the search.

Our Corporate Governance Guidelines generallycurrently provide that a director shall serve for a maximumterm limit of twelvefifteen consecutive years; provided that the Boardyears of Directors may makeservice, with any exceptions to this term limitationbe made on a case-by-case basis by an affirmative vote of two-thirds of the directors after considering all of the applicable facts and circumstances (the “Term Limit Policy”).circumstances. The commencement date for the Term Limit Policy isterm limit began on October 15, 2003 for any non-employee directors who were members of the Board of Directors on such date. TheDuring the fourth quarter of 2014, our Governance Committee and the Board of Directors carefully considered the impact of the then existing term limits of twelve consecutive years on the composition of our Board of Directors and determined to extend the then existing term limits in our Corporate Governance Guidelines from twelve to fifteen consecutive years, with no other changes made to the term limit provision has not impacted anypolicy. As part of its decision, our Governance Committee and Board of Directors took into account the impact that the twelve year term limit would have had on the composition of our Board of Directors in the upcoming years, the depth of experience and knowledge of our business possessed by our longest serving directors and the ongoing changes in our business resulting from, among other things, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (“ACA”), as well as the implementation of the director nominees.master services agreement with a subsidiary of Cognizant Technology Solutions Corporation following regulatory approval of that transaction (see below—“P5 Oversight Committee”).

Director Nominees

At the Annual Meeting, stockholders will vote for ten directors. Each director nominee will be re-electedelected to hold office for a term of one year or until the 20152016 Annual Meeting of Stockholders. Each elected director will continue in officeStockholders and until such director’s successor is duly elected and has been qualified, or until such director’s earlier death, resignation or removal.

Pursuant to our bylaws, based on the recommendation of the Governance Committee, our Board of Directors has designated the following ten nominees for election. Each of the nominees has consented to serve as a director if elected. There are no family relationships among any of the nominees or executive officers. TheSet forth below is the following table sets forth certain information, as of the date of this proxy statement: the nominees’ names and ages; the year each nominee first became a member of our Board of Directors; the principal occupation of each nominee and the role each serves with respect to our Company; each nominee’s biography, and the nominees, asspecific experience, qualifications, attributes and skills that each nominee possesses that are applicable to the nominee’s service on our Board of April 22, 2014:Directors. The Governance Committee and Board of Directors, after considering the factors outlined in “Governance Committee—Consideration of Director Nominees”and“Governance Committee—Identifying and Evaluating Director Nominees” below, believes that the nominees’ combination of various experiences, skills and qualifications contributes to an effective and well-functioning Board of Directors, that can effectively oversee our affairs and business.

DIRECTOR NOMINEES

As set forth under “Meeting and Voting Information—Quorum and Votes Required,” our bylaws include a majority voting standard for the election of directors in uncontested elections, such as this one. Accordingly, the persons receiving a majority of the votes cast by the shares present in person or represented by proxy at the Annual Meeting and entitled to vote shall be elected. Abstentions and broker non-votes will not be counted, and stockholders eligible to vote at the Annual Meeting do not have cumulative voting rights with respect to the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” the election of each of the ten nominees named above. Because only ten nominees have been named, proxies cannot be voted for a number of persons greater than ten or for individuals other than those named as nominees in this proxy statement.

It is expected that the nominees named above will stand for election at the 2014 Annual Meeting of Stockholders, but if any of the nominees declines or is unable to do so, the proxies will be voted for another person or persons designated by the Governance

(5)	Current member of the P5 Oversight Committee of our Board of Directors. The Board of Directors recommends a vote “FOR” each named nominee.

Information Concerning Current Members of the Board of Directors andDirector Nominees

Ms. Citrino has served as our director since December 2009. As of January 1, 2015, Ms. Citrino has beenis a Senior Advisor to The Blackstone Group, a global investment and advisory firm. Prior thereto, Ms. Citrino served as a Senior Managing Director in the Corporate Advisory Services group at The Blackstone Group, a global investment and advisory firm, since 2004.from 2004 through 2014. Ms. Citrino has served as a director of Dollar Tree, Inc., a NASDAQ Stock Market (NASDAQ)-listed company, since 2005, and is a member of each of its Audit Committee and Nomination Committee. Previously, Ms. Citrino was employed at Morgan Stanley for over 20 years. While at Morgan Stanley, she served as the Global Head of

Consumer Products Investment Banking, Co-Head of Health Care Services Investment Banking, and as a Mergers and Acquisitions Analyst.

Our Board of Directors has concluded that, in light of her distinguished career as an investment banker, Ms. Citrino should serve as one of our directors because she provides our Board of Directors with a wealth of knowledge regarding business operations and business strategy and the health care industry, as well as valuable financial and investment expertise. Her extensive experience valuing businesses provides our Board of Directors with key insights and knowledge of what makes our company work efficiently and effectively.

Mr. Craver has served as our director since March 2004. Mr. Craver has served as Chairman, President and Chief Executive Officer of Edison International, an electric power provider, since August 2008, and held several other positions at the company since 1996. Mr. Craver also is a director of the Institute of Nuclear Power Operations, a not-for-profit nuclear power industry self-regulatory organization. In addition, Mr. Craver is Chairman and a director and vice-chairman of the Edison Electric Institute and a director of the Electric Power Research Institute, both industry trade organizations,organizations. He is also Vice Chairman and a trustee of the Autry National Center and a member of the NativeAdvisory Board of the Smithsonian National Museum of American History and the California Chapter of the Nature Conservancy, botheach non-profit organizations.

Some of the previous positions held by Mr. Craver at Edison International were: Chief Executive Officer of Edison Mission Group, one of its principal subsidiaries that owns and operates competitive power generation facilities, and Edison Capital, a provider of capital and financial services, from January 2005 to April 2008; Chief Financial Officer from January 2000 to December 2004; and other financial and executive management positions beginning in 1996. From 1984 to 1996, Mr. Craver held various financial management positions at First Interstate Bancorp, including Executive Vice President and Corporate Treasurer of the holding company and Executive Vice President and Chief Financial Officer of a banking subsidiary. Mr. Craver served in various capital markets trading and marketing positions at Bankers Trust Company of New York from 1980 to 1984 and at Security Pacific National Bank from 1973 to 1980.

Mr. Craver brings to our Board of Directors extensive senior executive management and financial experience at public companies. Mr. Craver gained his finance and accounting expertise as Chief Financial Officer of Edison International and during his banking career. Because of his broad financial experience, Mr. Craver serves as one of our SEC “audit committee financial experts” and provides our Board of Directors with valuable insight into finance and accounting related matters, as well as general management experience in large, complex and highly-regulated public companies. For these reasons, our Board of Directors has concluded that Mr. Craver should serve as one of our directors.

Ms. Escarra has served as our director since July 2006. Since September 2012, Ms. Escarra has served as Chief Executive Officer of Opportunity International, a non-profit organization owning and operating fifteen banks/financial institutions in the microfinance sector,developing world with the goal of improving millions of lives in the developing world.creating twenty million jobs by 2020. Prior thereto, from March 2006 through August 2012, Ms. Escarra served as President and Chief Executive Officer of Feeding America, athe third largest non-profit organization focused on hunger relief.in the United States with close to two billion dollars in contributions in 2014.

Ms. Escarra’s distinguished professional experience includes a 30-year career at Delta Air Lines, Inc., most recently having served as Delta Air Line’s Executive Vice President and Chief Marketing Officer from May 2001 until October 2004. Ms. Escarra was a director of A.G. Edwards, Inc. from 2002 to 2007 and the former Chair of the Board of the Atlanta Convention and Visitors Bureau.

With over thirty years of business and consumer marketing experience, including at a large public company, Ms. Escarra provides our Board of Directors with valuable business expertise, especially on matters relating to marketing and business strategy. With her extensive business experience, Ms. Escarra understands the challenges of operating a public company in a dynamic and ever-changing business environment. Her service leading large non-profit organizations lends a unique social awareness perspective to our Board of Directors. For these reasons, our Board of Directors has concluded that Ms. Escarra should serve as one of our directors.

Ms. Fitzgerald has served as our director since March 2001. Ms. Fitzgerald is a director of Diebold, Inc., a New York Stock Exchange (“NYSE”)-listed company specializing in providing integrated self-service delivery systems andsolutions, security systems and services, and is Chair of Diebold’s governance committee and a member of its

compensation committee. Ms. Fitzgerald also is a director and a member of the audit committee and is Chair of the governance committee of Cross Country Healthcare, Inc., a NASDAQ-listed healthcare staffing company.

From March 2003 to December 2008, Ms. Fitzgerald served as President and Director of TranSpend, Inc., a privately held company focusing on total spend optimization. From July 2002 through October 2002, Ms. Fitzgerald served as President and Chief Executive Officer of QP Group, a procurement solutions company. From October 1994 to June 2000, Ms. Fitzgerald served as Chair and Chief Executive Officer of Computer Task Group, Inc., an international information technology services firm. Prior to this, Ms. Fitzgerald worked at International Business Machines Corporation, a world leader in information technology, where she held a variety of positions over the course of an eighteen year career, most recently as Vice President of Professional Services. Ms. Fitzgerald also served on the Board of Directors of Kaleida Health System in Buffalo, New York from 1995 to 2002, and was Vice Chair from 2000 to 2002, and served on the Advisory Board of the University of Buffalo’s School of Management from 1993 to 2001. Ms. Fitzgerald served on the Boards of Directors of the Information Technology Services (“ITS”) Division of Information Technology Association of America (“ITAA”) and of ITAA from 1992 to 2002, and was Chair of the ITS Board from 1998 to 2002.

With her distinguished career as a senior executive in the information technology industry, Ms. Fitzgerald provides our Board of Directors with expertise in information technology, supply chain management, procurement solutions, human resources, strategic planning, operations management, marketing and healthcare. In addition, serving on the boards of Diebold and Cross Country Healthcare, Ms. Fitzgerald draws from extensive directorial and governance experience, which enables her to contribute valuable insight and guidance on important issues facing Health Net. For these reasons, our Board of Directors has determined that Ms. Fitzgerald should serve as one of our directors.

Mr. Foley has served as our director since April 1997.Mr. Foley served as a director of FHC from 1996 until the FHS Combination in April 1997. Mr. Foley served as Chairman, President and Chief Executive Officer of DHL Airways, Inc., an air express parcel delivery company, from September 1988 through July 1999. Prior to this, Mr. Foley worked at Hyatt Hotels Corporation for 26 years, where he held senior management positions, including Chairman and President from 1977 to 1988 and Chief Operating Officer from 1972 to 1977. From 1984 until 1988, Mr. Foley also served as Chief Executive Officer of Braniff Airlines.

With a distinguished career including more than 30 years of experience in the hotel and airline industries as well as service on the boards of several other public companies, including Continental Airlines, Del Monte Foods Company, Flextronics International Ltd., Greyhound Lines, Inc., Copart, Inc. and Glenborough Realty Trust, Inc., Mr. Foley provides our Board of Directors with demonstrated leadership skills, expertise in business and management and extensive directorial experience. As one of our longest standing directors, Mr. Foley also provides continuity to the board, institutional knowledge and a deep understanding of the strategic and operational issues we face. For these reasons, our Board of Directors has concluded that Mr. Foley should serve as one of our directors.

Mr. Gellert has served as our director since February 1999 and has served as our President and Chief Executive Officer since August 1998. Mr. Gellert has been a director of Ventas, Inc., a NYSE-listed company, since August 2001. Mr. Gellert also is currently a member of the Board of Directors of America’s Health Insurance Plans, a national association representing over one thousand health insurance companies.

Previously, Mr. Gellert served as our President and Chief Operating Officer from May 1997 until August 1998. From April 1997 to May 1997, Mr. Gellert served as our Executive Vice President and Chief Operating Officer. Mr. Gellert served as President and Chief Operating Officer of HSI from June 1996 until March 1997. He served on the Board of Directors of HSI from June 1996 to April 1997. Prior to joining HSI, Mr. Gellert directed Shattuck Hammond Partners Inc.’s strategic advisory engagements in the area of integrated delivery systems development, managed care network formation and physician group practice integration. Prior to joining Shattuck Hammond Partners Inc., Mr. Gellert was an independent consultant, and from 1988 to 1991, he served as President and Chief Executive Officer of Bay Pacific Health Corporation. From 1985 to 1988, he was Senior Vice President and Chief Operating Officer for California Healthcare System.

Our Board of Directors has determined that Mr. Gellert should serve as one of our directors due to his distinguished career in the managed care industry and as a senior executive, which provides our Board of Directors with demonstrated leadership capabilities and expertise in business, management and the health care industry. As a senior executive of our Company since 1997 and our predecessor during 1996, Mr. Gellert brings in-depth operational knowledge and understanding of all facets of our business. In addition, as our President and Chief Executive Officer, he serves as a valuable bridge between management and the board, ensuring that both groups act with a common purpose. Mr. Gellert’s extensive knowledge of our operations and the markets in which we compete, combined with his experience on the board of another NYSE-listed company, enablesenable him to identify important matters for board review and deliberation.

Mr. Greaveshas served as our director since April 1997 and was elected Chairman of the Board of Directors in January 2004. Mr. Greaves serves as an Honorary Member of the Board of Trustees of California State University at Long Beach. Mr. Greaves served as a director of HSI from January 1994 until the FHS Combination in April 1997. Mr. Greaves served as our Co-Chairman of the Board of Directors, Co-President and Co-Chief Executive Officer from January 1994 (upon consummation of the HSI Combination) until March 1995. Prior to January 1994, Mr. Greaves served as Chairman of the Board of Directors, President and Chief Executive Officer of H.N. Management Holdings, Inc., a predecessor to Health Net (“HN Management Holdings”), since its incorporation in June 1990. Prior to this, Mr. Greaves served as the President and Chief Executive Officer, from February 1982 until the incorporation of HN Management Holdings in June 1990, and additionally as Chairman,

from September 1989 until the incorporation of HN Management Holdings in June 1990, of Health Maintenance Network of Southern California (the predecessor to H.N. Management Holdings). Mr. Greaves currently serves as Chairman of the Board of Directors of Health Net of California, Inc. (“HN California”), our subsidiary. Mr. Greaves also served a prior term as Chairman of the Board of Directors of HN California, and concurrently served as President and Chief Executive Officer of HN California. Prior to joining Health Maintenance Network of Southern California, Mr. Greaves held various management roles at Blue Cross of Southern California, including Vice President of Human Resources and Assistant to the President, and held various management positions at Allstate Insurance Company from 1962 until 1968.

With a distinguished career of over forty years of management experience in key leadership roles, including as former Chief Executive Officer of our Company and its predecessors in interest, our Board of Directors has concluded that Mr. Greaves possesses demonstrated leadership capabilities and in-depth knowledge of our history and all aspects of our business and, therefore, he should serve as one of our directors. His extensive management experience and knowledge and understanding of our business and operations combine to provide our Board of Directors with valuable guidance and input on the many strategic and operational issues we face. In addition, having served on several boards of directors, Mr. Greaves has considerable governance experience that he contributes to board discussions and deliberations.

Mr. Mancino has served as our director since November 2012. Mr. Mancino has been a partner in the Los Angeles officeCorporate Department of Seyfarth Shaw LLP since October 2014, where he is national head of the firm’s health care practice. Prior thereto, Mr. Mancino was a partner at Hunton & Williams LLP sincefrom June 2011 until joining Seyfarth Shaw and prior thereto, had beenpreviously was a partner at McDermott Will & Emery LLP since 1987.from 1987 to 2011. For more than 3540 years, Mr. Mancino has represented numerous types of health care and non-profit organizations on tax, business, and financial matters. Mr. Mancino has extensive experience in audit, appeals and tax controversy issues. Mr. Mancino has also served as a director of HSI from January 1994 until HSI’s April 1997 merger transaction with Foundation Health Corporation. From April 1997 to November 2012, Mr. Mancino served as a director of HN California.

Mr. Mancino has been the Chairman of the Board of Trustees of the Children’s Burn Foundation since 1995. Mr. Mancino has also been a member of the Boards of Directors of the John Wayne Cancer Institute since January 2013, Irvine Health Foundation since 2010, the Media & Policy Center since 2008,and the Center on Philanthropy & Public Policy since 2007, and the John Wayne Cancer Institute since January 2013.2007. In addition, Mr. Mancino served as president of the American Health Lawyers Association from 1993 to 1994, and was vice chair-publications of the ABA’s Tax Section from June 2009 through June 2012.

Our Board of Directors has concluded that Mr. Mancino should serve as one of our directors due to his distinguished career and broad experience with advising healthcare organizations on a variety of tax, business

and financial matters. Mr. Mancino’s prior service on the board of directors of one of our subsidiaries also provides him with unique insight into our operations and industry.

Mr. Millerhas served as our director since March 2015. From 1975 to January 2015, Mr. Miller served northern California in the U.S. House of Representatives (“House”). Throughout his service as a Congressman, Mr. Miller was an active and distinguished leader. He served as the Chairperson of the House Committee on Education and the Work Force from 1975 to 2011, which was one of the three committees responsible for passage of the ACA in the House. In addition, Mr. Miller also served as the Chairperson of the House Committee on Natural Resources from 1991 to 1995, served on the House Select Committee on Children, Youth and Families from 1982 to 1984, and served as the Vice-Chair of the Democratic Committee on Steering and Policy for eight years and as a member of the House Committee on the Budget.

Our Board of Directors has concluded that Mr. Miller should serve as one of our directors due to his distinguished career and extensive involvement with healthcare legislation and governmental affairs during his forty years of service as a Congressman. Mr. Miller brings considerable expertise relevant to our business and operations, which are increasingly focused on government programs,that will contribute greatly to driving our Board of Director’s involvement in strategic oversight.

Mr. Willison has served as our director since December 2000. Mr. Willison also is a director of Move, Inc., a NASDAQ-listed company, Grandpoint Bank, a community bank in Los Angeles, and a trustee of SunAmerica’s Seasons and Series Trusts. From 2002 to 2014 Mr. Willison served as a director of Move, Inc., a NASDAQ listed company, and was a member of its audit committee and management development and compensation committee.

Mr. Willison served as Dean, UCLA Anderson School of Management (the “UCLA Anderson School”) from July 1999 to January 2006, and is currently Dean Emeritus of the UCLA Anderson School. From January 2009 until July 2010, Mr. Willison served as Chief Executive Officer of Grandpoint Capital Advisors, a middle market investment bank. Mr. Willison served as a director of IndyMac Bancorp, Inc. from July 2005 to July 2008. From April 1996 to October 1998, Mr. Willison served as President and Chief Operating Officer of H.F. Ahmanson, Inc. (Home Savings of America). Mr. Willison also served as Chairman, President and Chief Executive Officer of First Interstate Bank of California from February 1991 to April 1996.

Mr. Willison’s distinguished career in key leadership roles in the financial industries and as a professor and former Dean of the UCLA Anderson School provides our Board of Directors with demonstrated leadership skills and expertise in business and finance. Mr. Willison’s governance experience on the boards of several publicly traded companies as well as his current membership in the National Association of Corporate Directors enables him to play a vital role in board discussions and deliberations regarding our business strategy and operations. In addition, as a director since 2000, Mr. Willison understands our history, business and the complex industry in which we compete. For these reasons, our Board of Directors has determined that Mr. Willison should serve as one of our directors.

Mr. Yeager has served as our director since March 2004. Mr. Yeager served in numerous senior positions at Time Warner, Inc., a NYSE-listed media and entertainment company from 1995 to 2011. Mr. Yeager served as a senior vice president and advisor to Time Warner’s senior management from January 20092008 to August 2011. From December 2000 to January 2009,2008, Mr. Yeager served as Senior Vice President, Finance for Time Warner, and led teams responsible for global strategic sourcing, supplier diversity, and investment of employee benefits assets, and served as the chair of the Time Warner Investment Committee. From May 1995 to December 2000, Mr. Yeager was Vice President, Finance and Development for Time Warner and led teams responsible for financial and business planning, mergers and acquisitions, treasury, capital structure planning and capital markets transactions, and for managing Time Warner’s relationships with commercial and investment banks and debt-rating agencies. Prior thereto, Mr. Yeager had a 27-year career with Ford Motor Company where he held executive and management positions in the Finance Staff, the Treasurer’s Office, the Product Development Group, the Financial Services Group, Ford of Europe, and Ford Motor Credit Company. Mr. Yeager began his career at Ford in 1968 as an Operations Research Analyst.

Mr. Yeager’s distinguished career working in finance, planning, treasury, and capital markets and experience as a senior executive and advisor for large corporations provides our Board of Directors with extensive knowledge of complex financial and operational issues facing large organizations. Mr. Yeager’s expertise in dealing with accounting principles and financial reporting rules and regulations provides him with the financial acumen requisite to serve as one of our SEC “audit committee financial experts” and makes him well suited to serve on our Audit Committee. His years of business experience combined with his financial and business planning expertise play a vital role, especially in light of current market conditions, in board discussions and deliberations regarding our financial and business strategies. For these reasons, our Board of Directors has determined that Mr. Yeager should serve as one of our directors.

As set forth under “Meeting and Voting Information—Quorum and Votes Required,” our bylaws include a majority voting standard for the election of directors in uncontested elections, such as this one. Accordingly, the persons receiving a majority of the votes cast by the shares present in person or represented by proxy at the Annual Meeting and entitled to vote shall be elected. Abstentions and broker non-votes will not be counted, and stockholders eligible to vote at the Annual Meeting do not have cumulative voting rights with respect to the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” the election of each of the ten nominees named above. Because only ten nominees have been named, proxies cannot be voted for a number of persons greater than ten or for individuals other than those named as nominees in this proxy statement.

It is expected that the nominees named above will stand for election at the 2015 Annual Meeting of Stockholders, but if any of the nominees declines or is unable to do so, the proxies will be voted for another person or persons designated by the Governance Committee of our Board of Directors.

The Board of Directors recommends a vote

“FOR” each named nominee.

EXECUTIVE OFFICERS

The following sets forth certain biographical information with respect to our executive officers, as of the date of this proxy statement.statement:

Mr. Gellert. See “Item 1—Election of Directors—Information Concerning Current Members of the Board of Directors and Nominees” above.

Mr. Woys has served as our Executive Vice President, Chief Financial and Chief Operating Officer since September 2014. Prior thereto, Mr. Woys served as our Executive Vice President, Chief Operating Officer from November 2007.2007 until September 2014. Previously, Mr. Woys served as our Interim Chief Financial Officer from November 2006 until November 2007, and served as President, Government and Specialty Services from October 2005 until November 2007. Prior thereto, he served as President of Health Net Federal Services from February 2001 to October 2005. Mr. Woys served as Chief Operating Officer and President of Health Net Federal Services from November 1999 to February 2001. Mr. Woys served as Chief Operating Officer and Senior Vice President for Foundation Health Federal Services from February 1998 to November 1999. Mr. Woys served as Senior Vice President of Foundation Health Federal Services from January 1995 to February 1998. From January 1990 to January 1995, Mr. Woys served as Vice President and Chief Financial Officer of the Government Division of FHC. Mr. Woys served as Director of Corporate Finance/Tax for FHC from October 1986 to January 1990. Prior to Mr. Woys’ employment with FHC, he was employed by Price Waterhouse from 1982 to 1986 and by Arthur Andersen & Co. from 1980 to 1982. Mr. Woys also is a director and a member on the strategic planning committee of the Council for Affordable Quality Healthcare, a nonprofit alliance of health plans and trade associations with the mission of simplifying healthcare administration for health plans and providers, resulting in a better care experience for patients and caregivers.

Mr. Capezza has served as our Executive Vice President, Chief Financial Officer since November 2007, and also as Treasurer since April 2012. Prior to joining Health Net, Mr. Capezza served as Chief Financial Officer at Harvard Pilgrim Health Care from January 2002 to October 2007. From June 2000 to December 2001, Mr. Capezza served as Senior Vice President and Chief Financial Officer at Group Health Incorporated. Prior thereto, Mr. Capezza had a long career with Reliance Insurance Group, where he served as Senior Vice President and Chief Financial Officer at Reliance Reinsurance Corp. from February 1990 to May 2000. From 1985 to 1990, Mr. Capezza served as Vice President and Chief Financial Officer at Willcox Incorporated Reinsurance Intermediaries, and from 1983 to 1985, Mr. Capezza served as Vice President and Controller at Skandia America Reinsurance Company. From 1976 to 1983, Mr. Capezza served as General Practice Manager—Insurance Industry Specialist at Coopers & Lybrand, LLP.

Ms. Bouchardhas served as our Senior Vice President, General Counsel and Secretary since December 2009, having joined Health Net as Vice President, Assistant General Counsel and Assistant Secretary in 2003. Prior to joining Health Net, Ms. Bouchard was an associate at the law firm of Latham & Watkins LLP from 1996 until 2003, during which time she specialized in capital markets transactions, mergers and acquisitions and public company representation. In October 2014, Ms. Bouchard announced her intent to retire from Health Net effective May, 2015 and entered into a Transition Services, Separation Agreement and Release of All Claims governing the terms of her transition from her role as General Counsel. Ms. Bouchard will remain in the role of General Counsel until March 31, 2015. Effective April 1, 2015, Ms. Bouchard will assume the role of Special Counsel until May 26, 2015, the effective date of her retirement from the Company.

Ms. Hefnerhas served as our Chief Administration Officer since November 2014. Prior thereto, Ms. Hefner served as our Chief Compliance and Administration Officer sincefrom February 2014 to November 2014. Prior thereto, Ms. Hefner served as our Senior Vice President, Customer and Technology Services from January 2012 to February 2014 and Chief Customer Services Officer from September 2010 to January 2012. In addition, since

2008, Ms. Hefner has also served as President and Chief Executive Officer of Managed Health Network, Inc. (“MHN”), our subsidiary that offers behavioral health, substance abuse and employee assistance programs. Prior to assuming the role of President and Chief Executive Officer of MHN, Ms. Hefner was Chief Operating Officer for MHN from 2007. From August 1999 to 2007, Ms. Hefner held several vice president positions within Health Net.

Mr. Law has served as our Health Care Services Officer since March 2013. Previously, Mr. Law served as our Chief Medicare Officer from November 2011 until March 2013. From 2009 to November 2011, Mr. Law served as Senior Vice President of Healthcare Delivery for WellCare Health Plans, Inc. Prior thereto, Mr. Law held various management positions with Health Net from 2005 to 2009.

Ms. Mayhewhas served as our Senior Vice President, Organization Effectiveness since April 1999. Prior to joining us, Ms. Mayhew served as Senior Vice President, Organization Development of Southern New England Telecommunications Company (“SNET”), a northeast regional information, entertainment and telecommunications company based in Connecticut. Prior thereto, Ms. Mayhew served in various capacities at SNET, including Vice President, Human Resources, since 1972.

Mr. Sell has served as our President, Western Region Health Plan since December 2009 and as President of Health Net of California since November 2008. Prior to assuming the role of President of Health Net of California, Mr. Sell was President and Chief Executive Officer of MHN from December 2006 to November 2008, our Chief Sales Officer from March 2006 to December 2006, and our Vice President, Employer Services Group from January 2004 to March 2006. Mr. Sell served as a consultant with Booz Allen Hamilton prior to joining Health Net.

Mr. Toughhas served as our President, Government Programs since January 16, 2010 ourand President, Health Net Federal Services since January 2006. Prior thereto, Mr. Tough served as President of Health Plan and Government Programs since Novemberfrom December 2008 the President of Health Net Federal Services sinceto January 2006,2010, and our President, of our Government and Specialty Services division sincefrom February 2008 through December 2008. From 1978 to 1998, Mr. Tough spent 20 years at FHC, nine of which he served as President and Chief Operating Officer of our Government and Specialty Services groups. Upon leaving FHC in 1998, and prior to joining us in 2006, Mr. Tough started his own firm providing health care consulting services to a variety of companies, and served as President and Chief Executive Officer of the California Association of Health Plans and President, Western Region, MAXIMUS Health Care Services Group, a health care services organization.

Certain Relationships and Related Party Transactions

We have adopted a written Related Party Transactions Policy (the “Policy”), which has been approved by the Audit Committee of the Board of Directors (“Audit Committee”) in accordance with its charter. The Policy outlines our policies and procedures for the review, approval or ratification of certain transactions in which any of our related parties had or will have a direct or indirect material interest. For purposes of the Policy, a “related party” means any of our directors or director nominees, our executive officers, holders of more than five percent (5%) of any class of our voting securities, any “immediate family member” (as such term is defined in the Policy) of any of the foregoing persons, any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position, or in which any number of the foregoing persons hold in the aggregate a 10% or greater beneficial ownership interest, or any charitable, tax exempt or non-profit organization in which any of the foregoing persons is actively involved in fundraising or otherwise serves as a director, officer, trustee, or any similar capacity. The Policy provides, among other things, for any proposed related party transaction to be submitted to the Audit Committee, or under delegated authority to the Chair of the Audit Committee (the “Chair”), for approval. The factors to be considered by the Audit Committee, or Chair, as applicable, when reviewing such related party transaction shall include, but are not limited to, the following: (i) the benefits to Health Net of the transaction; (ii) the impact on a director’s independence in the event the related party is a member of the Board of Directors, an immediate family member of a member of the Board of Directors or an entity in which a member of the Board of Directors is a partner, shareholder, trustee, director, executive officer or similar position; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally.

The Policy also provides that if we find that a related party transaction is ongoing that did not receive prior approval by the Audit Committee, or Chair, as applicable, then such transaction will be promptly submitted to the Audit Committee or Chair for consideration of all of the relevant facts and circumstances available, and taking

into account the same factors as described above, to determine whether the transaction should be ratified, amended or terminated. If a related party transaction is completed and did not receive prior approval, the Audit Committee or Chair, as applicable, shall evaluate the transaction, taking into account the same factors as described above, to determine whether the transaction should be ratified or if rescission of the transaction is appropriate. The Chair shall report to the Audit Committee at the next Audit Committee meeting any approval, ratification, amendment or rescission of a related party transaction made by such Chair under his or her delegated authority pursuant to the Policy.

The Audit Committee, We are not aware of any related party transactions requiring disclosure in accordance with the Policy, has reviewed, approved and/or ratified the following transactions:this proxy statement.

CORPORATE GOVERNANCE

Corporate Governance Guidelines and Code of Conduct

Members of our Board of Directors are elected by the holders of our Common Stock and represent the interests of all stockholders. Our Board of Directors meets periodically to review significant developments affecting us and to act on matters requiring its approval. Although the Board of Directors delegates selected matters to others, subject to its ultimate oversight, it reserves certain powers and functions to itself.

Our Board of Directors has established Corporate Governance Guidelines that it follows in matters of corporate governance. In addition, the Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, directors and officers, including our principal executive officer, principal financial officer and principal accounting officer. In addition, our Code of Business Conduct and Ethics provides that our “First Tier and Downstream Related Entities,” as defined by Medicare regulations, must abide by the Code of Business Conduct and Ethics if they do not have their own Code of Conduct and policies that comply with applicable laws and regulations. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics are published on our website atwww.healthnet.com. We intend to disclose any future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of provisions required to be disclosed under the rules of the SEC or listing standards of the NYSE, on our website.

Board Meetings and Committees; Annual Meeting Attendance

Our Board of Directors met a total of eighteentwenty one times in 2013.2014. Each member of our Board of Directors, excluding Mr. Miller, who was not a director during 2014, was present for 75% or more of the combined total of (i) all meetings of the Board of Directors held in 20132014 and (ii) all meetings of all committees of the Board of Directors held in 20132014 on which he/she served. Our non-management directors meet in executive session without management on a regularly scheduled basis, but not less frequently than quarterly. The non-executive Chairman presides at such executive sessions, or in his absence, a non-management director designated by our non-executive Chairman. In addition, it is our policy that each of our directors attends the Annual Meeting. All of our then current directors, except Mr. Foley, were in attendance at the 20132014 Annual Meeting of Stockholders.

Director Independence

On an annual basis, with the assistance of the Governance Committee, our Board of Directors reviews the independence of all directors and affirmatively makes a determination as to the independence of each director. To assist in making this determination, the Board of Directors has adopted independence guidelines (the “Director Independence Standards”), which are designed to conform to, or be more exacting than, the independence requirements set forth in the listing standards of the NYSE. The Director Independence Standards are published on our website atwww.healthnet.com. In addition to applying these guidelines, the Board of Directors considers any and all additional relevant facts and circumstances in making an independence determination.

Under the NYSE listing standards, no director qualifies as independent unless the Board of Directors affirmatively determines that the director has no material relationship with the Company, either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company, which would impair such director’s independence. The Board of Directors has affirmatively determined that each of Mary Anne Citrino, Theodore F. Craver, Jr., Vicki B. Escarra, Gale S. Fitzgerald, Patrick Foley, Roger F. Greaves, Douglas M. Mancino, George Miller, Bruce G. Willison and Frederick C. Yeager is an independent member of the Board of Directors under the listing standards of the NYSE and the Director Independence Standards and has no material relationship with the Company that would impair such director’s independence. In making such determination the Board of Directors considered current and past relationships, if any, between the Company and members of the Board of Directors or their immediate family members, including the following:

their provision of certain health care services. In addition, in 2013, Health Net made certain payments in the ordinary course of business and at arm’s length to an entity that employed an immediate family member of Ms. Citrino. Our Board of Directors determined that Ms. Citrino is independent based on (i) the amounts involved in the transactions with, and the nature of the relationships with, the three portfolio companies of The Blackstone Group, and (ii) the fact that Ms. Citrino’s immediate family member is not an executive officer of the entity that made payments to and received payments from Health Net (including the absence of any material direct or indirect relationship between Ms. Citrino and Health Net outside of her service as a member of our Board of Directors).

In determining that Mr. Greaves is independent, the Board of Directors considered the following additional factors:

In light of the significant time period since Mr. Greaves’ resignation and the fact that his receipt of health benefits is in no way contingent upon continued service to the Company, the business purpose of the expense reimbursements to Mr. Greaves, the fact that Mrs. Greaves receives no salary compensation (only reimbursement of documented expenses) for her service to Celebration of Children and Heart & Soul, and the nature and amount of the reimbursements to Mr. Greaves for expenses incurred by his wife while, and in conjunction with, traveling with him to business related meetings and events, the Board of Directors determined that these were not material relationships under NYSE listing standards and therefore determined Mr. Greaves to be independent under such standards.

In addition to the foregoing, the Board of Directors also considered relationships between the Company and organizations on which our non-employee directors or their immediate family members serve only as directors and determined that such relationships did not impair the directors’ exercise of independent judgment.

Committees of the Board of Directors

Our bylaws establish the following standing committees of the Board of Directors: the Audit Committee, the Governance Committee, the Compensation Committee and the Finance Committee. Our bylaws further provide that additional committees may be established by resolution adopted by a majority of the Board of Directors. From time to time, the Board of Directors establishes various ad hoc committees by resolution. In December 2014, the Board of Directors established the P5 Oversight Committee, as further described below. A majority of the Board of Directors selects the directors to serve on the committees of the Board of Directors upon recommendation of the Governance Committee. The Governance Committee will consider Mr. Miller’s committee service as part of the annual committee service review and appointment process in May.

Audit Committee.

The Audit Committee of our Board of Directors currently consists of Messrs. Yeager (Chairperson)(Chair), Craver and Mancino and Ms. Fitzgerald. Each current member of the Audit Committee served on the Audit Committee throughout 2013.2014. Our Board of Directors has determined that all current Audit Committee members are financially literate under the NYSE listing standards and that all current members of the Audit Committee are independent under NYSE listing standards and under the requirements of SEC Rule 10A-3. Messrs. Craver and Yeager have each been determined by the Board of Directors to be an “audit committee financial expert,” as defined by SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002. OurIn 2014, our Audit Committee held twelve meetings in 2013.nine meetings.

Audit Committee Responsibilities.    The Audit Committee is governed by a charter, a current copy of which is available on our website atwww.healthnet.com. Pursuant to the Audit Committee charter, the Audit Committee is responsible for, among other things:

Governance Committee.

The Governance Committee of our Board of Directors is currently comprised of Messrs. Craver (Chairperson)(Chair), Foley and Mancino and Ms. Escarra. Mr. Foley, upon his retirement from the Board of Directors effective immediately prior to the Annual Meeting, will cease serving as a member of the Governance Committee. Each current member of the Governance Committee served on the Governance Committee throughout 2013.2014. Each of the current members of the Governance Committee is independent under NYSE listing standards. TheIn 2014, our Governance Committee held five meetings in 2013.meetings.

Governance Committee Responsibilities.    The Governance Committee is governed by a charter, a current copy of which is available on our website atwww.healthnet.com. Pursuant to the Governance Committee charter, the Governance Committee is responsible for, among other things:

As described above, the Governance Committee is responsible for reviewing director compensation and making recommendations to the Board of Directors with respect to director compensation. The Governance Committee has from time to time directed Semler Brossy Consulting Group, LLC (“Semler”), the Governance and Compensation Committees’ compensation consultant, to provide certain services with respect to director compensation. Periodically, the Governance Committee reviews compensation survey data for compensation of peer boards of directors provided by Semler and determines whether any adjustments to the Board of Directors’

compensation are appropriate. If adjustments are appropriate, the Governance Committee recommends such

adjustments to the Board of Directors. Historically, adjustments to the Board of Directors’ compensation generally have occurred less frequently than annually.

Consideration of Director Nominees.    The Governance Committee selects director nominees, including those nominated to fill vacancies on the Board of Directors, on the basis of the nominee’s possession of such knowledge, experience, skills, expertise and diversity so as to enhance the Board of Directors’ ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of the committees of the Board of Directors to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation, NYSE listing standards and our bylaws and other corporate governance documents. In particular, the Governance Committee considers whether a director nominee exhibits the following attributes, among other things, when reviewing and evaluating candidates:

The Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all candidates.

Identifying and Evaluating Director Nominees.    The Governance Committee identifies potential director nominees from many sources. In the event that a vacancy on the Board of Directors occurs between annual meetings of stockholders, the Governance Committee is responsible for identifying, screening and recommending candidates to the Board of Directors for Board membership. The Board of Directors may maintain a vacancy or vacancies if it cannot identify suitable candidates meeting the Board’s director qualification standards. The Governance Committee asks current directors and executive officers to notify the Committee if they become aware of persons meeting the criteria described above who may be available to serve on the Board of Directors. From time to time, and as currently is the case, the Governance Committee also engages third party search firms that specialize in identifying director candidates.

The Governance Committee also considers director candidates recommended by stockholders. The Governance Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although the Governance Committee may, in addition to the criteria described above, take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held. To have a director candidate considered by the Governance Committee for inclusion on the slate of nominees, a stockholder must submit the recommendation in writing and must include the following information:

The stockholder’s recommendation and information described above must be sent to our Corporate Secretary at 21650 Oxnard Street, Woodland Hills, California 91367 and received by the Corporate Secretary not

less than 120 days prior to the anniversary date of our most recent annual meeting of stockholders, in order to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting pursuant to Rule 14a-8 under the Exchange Act.

Once a person has been identified by the Governance Committee as a potential candidate, the Governance Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Governance Committee determines that the candidate warrants further consideration, the Chairperson of the Governance Committee or another member of the Governance Committee contacts the candidate. Generally, if the person expresses a willingness to be considered and to serve on the Board of Directors, the Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Governance Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Governance Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments.

In connection with the 20142015 Annual Meeting and in accordance with the above guidelines, the Governance Committee nominated for re-electionelection each of the following ten nominees:nominees, Mses. Citrino, Escarra and Fitzgerald and Messrs. Craver, Foley, Gellert, Greaves, Mancino, Miller, Willison and Yeager.

Compensation Committee.

The Compensation Committee currently consists of Messrs. Willison (Chairperson)(Chair) and Foley and Mses. Citrino and Escarra. Mr. Foley, upon his retirement from the Board of Directors effectively immediately prior to the Annual Meeting, will cease serving as a member of the Compensation Committee. Each current member of the Compensation Committee served on the Compensation Committee throughout 2013.2014. Each of the current members of the Compensation Committee qualifies as a “non-employee director” within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an “outside director” for Section 162(m) purposes and is independent under NYSE listing standards. In 2013,2014, our Compensation Committee held sixfive meetings.

Compensation Committee Responsibilities.    The Compensation Committee is governed by a charter, a current copy of which is available on our website atwww.healthnet.com. Pursuant to the Compensation Committee charter, the Compensation Committee is responsible for, among other things:

Executive Officer, our second mostly highly compensated officer and the Senior Officers, and advising the Board of Directors of actions taken;

As provided in its charter, the Compensation Committee has the responsibility to review at least annually the performance of the Chief Executive Officer, the second-highest paid executive and the Oversight Executives. The Compensation Committee has the authority to approve the compensation for all Oversight Executives, other than the Chief Executive Officer and the second-highest paid executive. The Board of Directors has the responsibility to determine the compensation for the Chief Executive Officer and second-highest paid executive. When making such determination, the Board of Directors takes into consideration the Compensation Committee’s recommendation regarding the compensation for the Chief Executive Officer and second-highest paid executive and may choose to ratify, modify or reject such recommendation. The annual performance review of the Oversight Executives occurs in the first quarter of the calendar year following the previous 12-month performance period. Such review cannot be delegated to anyone other than the Compensation Committee, though the annual performance evaluation of the Chief Executive Officer may be done as a committee or together with other independent directors, as directed by the Board of Directors.

The Board of Directors and the Compensation Committee, as applicable, determine the compensation levels for our named executive officers on an annual basis by considering a variety of factors described in the section “—How do we determine the amount for each element of executive officer compensation?” portion of the “Compensation Discussion and Analysis” section of this proxy statement.

For all employees other than the Oversight Executives, the Chief Executive Officer and his direct reports review and approve compensation decisions on an annual basis. In conducting their annual compensation review, the Chief Executive Officer and his direct reports consider the same factors that the Compensation Committee uses for its annual review. The Compensation Committee is not responsible for considering or determining

compensation for the Board of Directors. The evaluation of the compensation of our Board of Directors is the

responsibility of the Governance Committee and Board of Directors as discussed above in the “Governance Committee” section of this proxy statement.

The Compensation Committee is committed to staying apprised of current issues and emerging trends, and ensuring that Health Net’s executive compensation program remains aligned with best practice. To this end, the Compensation Committee has directly selected and retained the services of Semler to assist it with its responsibilities, which relate primarily to executive compensation matters. Semler reports directly and exclusively to the Compensation Committee with respect to executive compensation and related matters.

The Compensation Committee has the sole discretion to retain or obtain the advice of compensation advisers, including compensation consultants, legal counsel or other advisers in order to assist the Compensation Committee in carrying out its responsibilities. The Compensation Committee is also responsible for the appointment, determination of the compensation and oversight of the work of so retained compensation advisers and the determination of the independence of each compensation adviser prior to selecting or receiving advice from any such compensation adviser and on at least an annual basis thereafter. The Company provides for appropriate funding for payment of reasonable compensation to any compensation adviser to the Compensation Committee.

Each year the Compensation Committee considers the factors set forth in applicable SEC rules and NYSE listing standards to assess the independence of its compensation consultant and whether the work of the consultant raises any conflicts of interest. After review and consultation with Semler, the Compensation Committee has determined that Semler is independent and there are no conflicts of interest raised by the work of Semler currently nor were any conflicts of interest raised by the work performed by Semler during the year ended December 31, 2013.2014.

For a full discussion of the services that Semler provides to our Compensation Committee to assist it in structuring and evaluating our executive compensation programs, plans and practices, see the “Compensation Discussion and Analysis” section of this proxy statement.

Finance Committee.

The Finance Committee of the Board of Directors currently consists of Mses. Fitzgerald (Chairperson)(Chair) and Citrino and Messrs. Willison and Yeager. Each current member of the Finance Committee served on the Finance Committee throughout 2013.2014. In 2013,2014, our Finance Committee held sixseven meetings.

Finance Committee Responsibilities.    The Finance Committee is governed by a charter, a current copy of which is available on our website atwww.healthnet.com. Pursuant to the Finance Committee charter, the Finance Committee is responsible for, among other things:

and to coordinate such review with the Compensation Committee, and/or any committee(s) established by the Board of Directors, or Compensation Committee, from time to time that is involved in the oversight or administration of the Company’s retirement plans;

P5 Oversight Committee.

The P5 Oversight Committee of the Board of Directors was formed by the Board of Directors in December 2014, and currently consists of Messrs. Willison (Chair), Greaves and Mancino and Ms. Fitzgerald. Each current member of the P5 Oversight Committee has served since the Committee’s inception. The P5 Oversight Committee did not hold any meetings in 2014.

On November 2, 2014, we entered into a definitive master services agreement with a subsidiary of Cognizant Technology Solutions Corporation (“Cognizant”) to provide certain consulting, technology and administrative services to us, subject to the receipt of required regulatory approvals. In connection with this agreement, we have also entered into an asset purchase agreement pursuant to which we have agreed to sell certain software assets and related intellectual property we own to Cognizant. The transaction, including the related asset sale, is referred to herein as the “Cognizant Transaction”.

The purpose of the P5 Oversight Committee is to provide oversight and advice to management through both the process of seeking required regulatory approvals of the Cognizant Transaction, as applicable, and the initial contract implementation period to help ensure a successful transition of services to Cognizant. The P5 Oversight Committee is in place until December 31, 2015, unless extended by the determination of the Board of Directors.

Board Risk Oversight

The Board of Directors oversees an enterprise-wide approach to risk management that is designed to support the achievement of our objectives, including strategic objectives, improvement of long-term organizational performance and enhancement of stockholder value. Risk is an inherent part of Health Net’s business activities, and Health Net’s enterprise risk management framework and governance structure are intended to facilitate and enhance the process of identification and ongoing management of the key risks in its business activities. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. Discussions between senior management and Board members regarding risk management, control and mitigation are criticalimportant components of the Board of Directors’ risk oversight process.

While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board of Directors also have responsibility for overseeing specific areas of risk management, as set forth below. The committees periodically provide updates to the Board of Directors regarding significant risk management issues and management’s response.

In addition, as part of the effort to support the achievement of our objectives, the Board of Directors conducts an annual evaluation of its own performance, including the performance of each committee of the Board of Directors. The Board of Directors also conducts an annual evaluation of the President and Chief Executive Officer. As part of this formal evaluation process, the President and Chief Executive Officer prepares a self-evaluation, including his evaluation of the Company’s performance for the prior fiscal year. Each member of the Board of Directors then individually assesses his and the Company’s performance for the prior fiscal year, providing another forum for dialogue between senior management and Board members regarding the effectiveness of risk management and mitigation efforts.

Board Leadership Structure

Health Net has separated the roles of the Chairman of the Board and Chief Executive Officer since 1999.

After carefully considering the benefits and risks of separating the roles of the Chairman of the Board and Chief Executive Officer, the Board of Directors has determined that having an independent director serve as the Chairman of the Board is the most appropriate leadership structure for Health Net and is in the best interest of its stockholders at this time. With the exception of Mr. Gellert, our President and Chief Executive Officer, the Board of Directors is comprised entirely of independent directors. Separating the roles of the Chairman of the Board and Chief Executive Officer enables the independent directors to participate meaningfully in the leadership of the Board of Directors. The Board of Directors believes this structure provides an appropriate degree of oversight

over our Chief Executive Officer and senior management. At the same time, the current Chairman of the Board is a director who has experience with our predecessor companies and therefore has deep institutional knowledge about our organization’s history and operations. For this reason, our Chairman of the Board is able to understand the unique challenges faced by management and serve as a liaison between the Board of Directors and management.

Our Corporate Governance Guidelines give the Board of Directors the flexibility to change its leadership over time, as needed, by permitting the roles of the Chairman of the Board and Chief Executive Officer to be held by the same person. The Board of Directors will continue to evaluate whether its leadership structure is appropriate as Health Net’s business evolves.

DIRECTORS’ COMPENSATION

Directors’ Compensation Table for 20132014

For Mr. Mancino, represents the aggregate grant date fair value of 2,321 RSUs granted on May 24, 2013, as calculated in accordance with FASB ASC Topic 718. The grant date fair value shown is based on a per share value of $31.00. This is calculated in accordance with FASB ASC Topic 718 by multiplying the closing price of our Common Stock on the date of grant ($31.00 per share) by the number of RSUs granted, and then subtracting the par value of $0.001 per share of Common Stock underlying the award. Mr. Mancino joined our Board of Directors on November 2, 2012. Because he received an initial equity grant upon his appointment to the Board of Directors, Mr. Mancino received a pro-rated RSU grant on May 24, 2013.

The RSUs granted to each of our non-employee directors in 20132014 vest and become non-forfeitable as to 33 ¹/₃% of the RSUs on each of the first, second and third anniversaries of the date of grant. No options to purchase shares of our Common Stock were granted to our non-employee directors in 2013.2014. The table below shows the aggregate numbers of stock awards and option awards outstanding for each non-employee director as of December 31, 2013.2014. Stock awards consisted of unvested RSUs and vested deferred RSUs. Upon vesting and the passage of any applicable deferral period, the RSUs are paid in shares of our Common Stock on a one-for-one basis. Directors may elect to defer payment until a later date, which would result in a deferral of taxable income to the director. Option awards consist of exercisable and unexercisable options.

(3)	The aggregate value of perquisites provided to Mr. Greaves was less than $10,000 during 2013.2014.

Cash Retainers and Meeting Fees.    TheFrom January 1, 2014 through September 30, 2014, the annual retainer payable to our non-employee directors during 2013 was $45,000. During 2013,2014, the Governance Committee and the Board of Directors reviewed the meeting fees and annual retainers payable to non-employee directors with Semler, the

Governance Committee’s independent compensation consultant (the “Board Compensation Review”), and the non-employee director annual retainer was increased to $65,000 per year, effective October 1, 2014. During 2014, each non-employee director who chaired the Compensation Committee, Governance Committee or the Finance Committee received an additional annual retainer of $10,000. The non-employee director who chaired the Audit Committee received an additional annual retainer of $15,000. Each non-employee director was also is entitled to a $2,000 fee for each meeting of the Board of Directors attended, and a $1,000 fee for each committee meeting attended, other than the Audit Committee. Non-employee directors received a $2,000 fee for each Audit Committee meeting attended. In lieu of these retainer and meeting fees, from January 1, 2014 through July 17, 2014, Mr. Greaves received $18,333 per month for his services during 2013 as Chairman of the Board of Directors.Directors, and effective July 18, 2014, following the Board Compensation Review, this payment was increased to $20,000 per month. No fees are paid to Health Net employees for service as a director. In December 2013, the Governance Committee and the Board of Directors reviewed the meeting fees and annual retainers payable to non-employee directors and determined that no changes were necessary at that time.

Equity Grants.    Until December 2010, our non-employee director equity compensation program provided for non-employee directors to receive initial grants of nonqualified stock options when they join our Board of Directors and automatic annual grants of nonqualified stock options upon their re-election to our Board of Directors. In December 2010, the Board of Directors approved a modification to our non-employee director equity compensation program. Beginning in 2011, the initial equity grants and the automatic annual equity grants to non-employee directors are made in the form of RSUs, rather than nonqualified stock options. These grants are made under the Company’s 2006 Long-Term Incentive Plan, as amended (the “2006 Plan”). The target value of each of the initial and annual non-employee director grants is $130,000 and is calculated based on the fair market value of the shares underlying the RSUs on the date of grant. A non-employee director’s annual equity grant will be pro-rated if the non-employee director received an initial equity grant during the preceding twelve month period. Each grant vests as to 33 1/3% of the RSUs each year on the anniversary of the date of grant, provided that the RSUs will become immediately vested in the event of a “change in control” of Health Net, as defined in the 2006 Plan. If the stockholders approve the Company’s Amended and Restated 2006 Long-Term Incentive Plan, all non-employee director awards granted on or after the date of such stockholder approval shall be subject to “double-trigger” acceleration with respect to the vesting of the awards in connection with a change in control. Upon vesting, the non-employee director will be entitled to receive the number of shares of Common Stock underlying the vested portion of the RSU grant. Each non-employee director may elect to defer the distribution of shares underlying the vested RSUs in accordance with deferral procedures established by the Company.

Certain of our directors have outstanding non-qualified stock option grants that were made pursuant to our Third Amended and Restated Non-Employee Director Stock Option Plan (the “NED Plan”). We no longer utilize this plan for grants to non-employee directors. The terms and conditions of the grants that were made to non-employee directors under the NED Plan are substantially the same as grants made under the 2006 Plan, except that the definition of “change in control” is different in the NED Plan.

Expenses.    We generally provide for, or reimburse the reasonable expenses of (including costs of travel and lodging), our directors incurred in connection with attending Board of Directors, committee and stockholder meetings. We also reimburse directors for their reasonable expenses associated with attendance at other Heath Net-related business meetings and events, including the annual Health Net Board retreat.events. Health Net does not own its own aircraft and, as such, our directors generally use commercial air, rail or automobile transportation when traveling to Health Net-related business meetings. In addition, we also provide for, or reimburse the expenses of, the Chairman of the Board’s spouse, Erika Greaves,wife that are related to her attendance (including the costs of travel and lodging) at Celebration of Children and Heart & Soul meetings and events. Mrs. GreavesMr. Greaves’ wife serves as a volunteer for Celebration of Children, which is a Health Net-sponsored charity program and for Heart & Soul, which is Health Net’s awards program for employees. We also reimburse the expenses of Mrs. GreavesMr. Greaves’ wife when she accompanies Mr. Greaves to Health Net-related business meetings and events that are unrelated to Celebration of Children or Heart & Soul.

Deferred Compensation Plan and Restricted Stock Unit Deferral Program for Directors.    Each non-employee director is eligible to participate in the Health Net, Inc. Deferred Compensation Plan for Directors (the

“Director “Director DC Plan”). Participants may elect to defer all or a portion of their cash retainers, meeting fees and certain other cash remuneration earned for services performed during the year. All amounts deferred under the Director DC Plan are vested amounts. The Director DC Plan has been designed so that federal and state income tax on the monies deferred is not due until such time as the account balance is paid to a participant. Participants can elect distribution of their account balances from a given year while they are still serving on our Board or they can elect to have payments made to them in the event of their separation from service with us. Payments under the Director DC Plan can be made in a lump sum payment or as annual installments over a period of greater than two years and less than ten years. Deferred amounts are treated as having been invested in certain investment

funds as elected by the participant and become the basis for determining the earnings on the participant’s deferral account. In addition, each non-employee director is eligible, under certain terms and conditions, to defer his or her restricted stock unit awards which are subject to service based vesting, under the Health Net, Inc. Non-Employee Director Restricted Stock Unit Deferral Program (the “Director RSU Deferral Program”). During 2014, Ms. Fitzgerald and Messrs. Foley, Mancino and Willison havemaintained account balances under the Director DC Plan, and Mr. Mancino iswas the only non-employee director who elected to defer compensation includingearned during 2014 under the Director DC Plan. In addition, each of Mses. Citrino, Escarra and Fitzgerald and Mr. Mancino, elected to defer his or her restricted stock unit awards, under the Director DC Plan and the Director RSU Deferral Program during 2013.2014.

Stock Ownership Requirements.    Our Board of Directors has adopted stock ownership guidelines for non-employee directors that require non-employee directors to make good faith progress towards holding qualifying shareholdings with a value equal to or in excess of $300,000 (the “Director Ownership Threshold”). As of April 22, 2014,March 11, 2015, each of our non-employee directors held qualifying share holdingsshareholdings with a value equal to or in excess of the Director Ownership Threshold, except for Mr. Mancino,Miller, who is the newest member of our Board of Directors and is making good faith progress toward the Director Ownership Threshold in compliance with our stock ownership guidelines.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Health Net, Inc. is a publicly traded managed care organization that delivers managed health care services through health plans and government-sponsored managed care plans. Our business requires a talented, motivated and capable leadership team.team, particularly given the amount and rate of change in the Company and the industry. To that end, executive compensation plays a vital role in our ability to attract, retain and motivate top talent for continued business success.

This Compensation Discussion and Analysis (“CD&A” or “Compensation Discussion and Analysis”) discusses the compensation programs and policies in place for our named executive officers, as well as our Board of Directors’ and Compensation Committee’s roles in the design and administration of these programs and policies and in making specific compensation decisions for our named executive officers. Our named executive officers for 20132014 are as follows:

Effective September 2, 2014, Mr. LawCapezza stepped down from his role as Executive Vice President, Chief Financial Officer and Treasurer of the Company. Also effective September 2, 2014, Mr. Woys was promotedappointed to Health Careserve in a newly created position of Executive Vice President, Chief Financial and Operating Officer and Interim Treasurer. Mr. Woys’ compensation did not change as a result of his appointment to this new role.

Effective February 21, 2014, Ms. Hefner transitioned from Senior Vice President, Customer and Technology Services Officer effectiveto Chief Compliance and Administration Officer; and, on March 7, 2013. Unless otherwise indicated, information regarding Mr. Law’sNovember 15, 2014, Ms. Hefner became our Chief Administration Officer. Ms. Hefner’s compensation in this Compensation Discussion and Analysis reflects Mr. Law’s compensation following his promotion.was not altered as a result of these changes.

Executive Summary

2013 Performance Highlights

TheWhile the managed care industry iscontinues to be highly complex, currently experiencingexperience unprecedented change and is facingface a number of significant regulatory and marketplace challenges. Manychallenges, the actions of our executives to position the Company to benefit from these changes and challenges aresupported the resultCompany’s strong financial and operational performance in 2014. Our guiding principle for our executive compensation program continues to be aligning executive compensation with the interests of federal health care reform legislation, as well as other federal and state legislation and regulation. Federal health care reform has had and will continue to haveour stockholders by tying a significant impact onportion to our business. In light of the uncertainty in our environment, we continue to be challenged in developing our incentive compensation programs and policies.performance.

2014 Performance Highlights

Certain of our key financial performance metrics for 20122013 and 20132014 are shown in the following table. We use these key metrics as financial performance measures in structuring our compensation program and believe these measures help to align the interests of our executives with those of our stockholders. For more information on the pre-tax income for each of our Western Region Operations and Government Contracts reportable segments, seeNotes to Consolidated Financial Statements, Note 14—Segment Information of our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”).

In 2013,2014, the Company achieved GAAP earnings per diluted share of $2.12, an increase of 44.2 percent compared with 2012. For the combined Western Region Operations and Government Contracts reportable segments earnings per diluted share were $2.21, more than doubleEPS of $2.32, an increase of 5.0 percent compared with 2013. In 2014, the comparable amount in 2012.Company achieved combined Western Region Operations and Government Contracts segments PTI of $385 million, an increase of 36.6 percent compared with 2013.

This performance was primarily driven by:

Other operating highlights of 20132014 include:

KeyLinking 2014 Named Executive Officer Compensation Decisions that Tie to Our Performance

Performance Stock Units

Key Practices and Governance Standards

Highlights of our Compensation ProgramWhat We Do

What We Don’t Do

Impact of 20132014 Advisory Vote on the Compensation of Named Executive Officers

In May 2013,June 2014, we provided stockholders an advisory vote to approve the compensation of our named executive officers (the “say-on-pay proposal”). At our 20132014 Annual Meeting of Stockholders, our stockholders approved the compensation of our named executive officers, with over 98%97% of the votes cast in favor of the say-on-pay proposal. In evaluating our executive compensation program, the Compensation Committee considered

the results of the say-on-pay proposal and numerous other factors, as discussed in this CD&A. The Compensation Committee believes the support of our stockholders for the 20132014 say-on-pay proposal indicates our stockholders are generally supportive of our approach to executive compensation. As a result of the foregoing, the Compensation Committee concluded that it would retain our compensation program’s emphasis on at-risk, performance-based incentive compensation. The Compensation Committee will continue to monitor and assess our executive compensation program and consider the outcome of our say-on-pay votes when making future compensation decisions for our named executive officers.

Recent Compensation Committee Actions to Further Align With Stockholder Interests

Although theOn February 20, 2015, our Compensation Committee decided to retainadopted the core designframework of our executive compensation2015 annual equity award program, in fiscal 2013, the Compensation Committee, with the inputwhich, similar to our 2014 annual equity award program, includes a mix of 75% of the Compensation Committee’s

independent compensation consultant, reviewed our executive compensation programsaward value in PSUs and established25% of the award value in service-based RSUs. However, the PSUs granted in the 2015 program include multiple performance measures, including new strategic operating performance measures in addition to a performance measure based on an EPS metric as the performance measure for our 2013 PSU awards, thus moving away from using a PTI metric, which is the performance measure used in our annual cash incentive plan.

Further, in early 2014, the Compensation Committee, with the inputmetric. Seventy percent of the Compensation Committee’s independent compensation consultant, determined to eliminate single-trigger accelerated payments of PSUs upon a change in controlawarded as part of the Company commencing with our 2014 PSU grants in favor2015 annual award grant must be earned through the Company’s achievement of a double-trigger acceleration provision, duepre-established EPS target and thirty percent of the PSUs must be earned through the Company’s achievement in 2015 of pre-established strategic operating performance measures. The changes made to the framework of our 2015 annual equity award program, as compared to our commitmentprior equity award programs, were adopted to, strong governance standardsamong other things, provide for multiple performance measures consistent with market best practices and current best practices. Underrequire the prior single-trigger provision, unvested PSUs would accelerateachievement of both financial and automatically vest upon a changestrategic operational goals in controlorder to achieve the full target value of the Company. UnderPSUs granted in the double-trigger acceleration provision, unvested PSUs would accelerate and automatically vest only if the PSU recipient experiences a termination by the Company without cause or by such recipient for good reason on or after a change in control of the Company. Our other equity vehicles (i.e., stock options and RSUs) continue to have double-trigger acceleration provisions.program.

What is the role of the Compensation Committee?

The Compensation Committee has the primary authority to structure our compensation programs and establish compensation levels for our executives, including our named executive officers; however, our Board approves final compensation decisions (including any grant of equity awards) with regard to our Chief Executive Officer and our second-highest paid executive. A detailed discussion of the Compensation Committee’s role and responsibilities can be found under the “Corporate Governance” section of this proxy statement.Governance.”

What are the objectives of our executive officer compensation programs?

Managed care is a complex industry that faces regulatory and marketplace challenges, especially in light of the sweeping changes enacted and proposed under the federal health care reform legislation and other state and federal legislation and regulation. In light of the continuing uncertainty throughout our industry, we continue to face challenges in developing our incentive compensation programs and policies. We have found that the pool of executives with the relevant industry experience and skills to provide effective leadership in this complex and uncertain health care environment is limited. Therefore, our compensation program for executive officers and other key employees must remain competitive in the industry to support our goal of attracting and retaining executive talent with the knowledge and leadership capability needed for us to operate successfully and to meet upcoming challenges and opportunities. Of equal importance, our compensation program must (i) motivate our executive officers to meet or exceed our short-term performance objectives and (ii) align the interests of our executives with those of our stockholders by rewarding our executives for results that create long-term stockholder value. As a prime example of the delicate balance required between short- and long-term goals for 2013, our preparations for the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) and its associated new programs have required the investment of significant resources of time and expense in the short term that are intended to generate long term value to our stockholders.

The objectives of our compensation program include:

While these objectives remain consistent over time, the Compensation Committee continuously surveys the industry and environment with the assistance of its independent compensation consultant before making specific decisions on meeting these objectives through our compensation program for a particular year.

What are the elements of named executive officer compensation and why do we provide each element?

Summary of Elements of 20132014 Executive Compensation

Element		Form		Objectives and Basis
Retirement Plans		401(k) Plan, Nonqualified Deferred Compensation Plan, Nonqualified Defined Benefit Pension Plan		•       Provide tax-deferred methods for general savings, including for retirement •       Provide supplemental retirement income and measure of financial stability and security while building participant’s long-term commitment to us
Severance and Change in Control Benefits		Employment Agreements, Equity Award Agreements		•       Preserve productivity and retention in potentially disruptive restructure and/or change in control situations involving executive’s termination of employment
Limited Perquisites and Other Benefits		Financial Counseling Allowance, Relocation Benefits, Limited Housing Benefits, Group Life Insurance, Limited Car Allowances		•       Help executives to manage time and minimize distractions in order to maintain focus on business results

Our use of each of these compensation elements varies among our executive officers, as described in detail in this CD&A. We use each element of compensation to satisfy one or more of our compensation objectives, and each element is an integral part of and supports our overall compensation program. Consistent with our performance-based philosophy, we reserve the largest potential compensation awards for performance-based programs. Our long-term equity compensation program rewards sustained performance and financial growth while aligning the interests of our executive officers with those of our stockholders. Our annual performance-based incentive cash award program rewards short-term financial performance. Taken together, all of the elements of our compensation program help us to attract and retain qualified and capable executive officers. The specific purposes of each element are identified in the descriptions that follow in this CD&A.

Base Salary.Salary

Base salaries provide our named executive officers with a degree of financial certainty and stability, compensating them for performing their core job duties and recognizing individual achievements and contributions. The base salary for each of our named executive officers is set forth in their respective employment agreements and is subject to adjustment by the Board or the Compensation Committee (depending on the executive’s level). Further discussion regarding 20132014 base salary is presented below under the sections, “—How do we determine the amount for each element of executive officer compensation?,” andincluding details on 2014 base salaries for our named executive officers under “—Analysis of Compensation During Fiscal 2013.2014.” For 2013, the Board and2014, the Compensation Committee determined that noand the Board, as applicable, considered market data, among other things, when they awarded 2.5% merit increases would be made to the base salaries of all of our named executive officers, withother than Mr. Capezza. To support our G&A reduction initiatives, the exceptionmerit increases were effective as of Mr. Law, who received a 23% increase in connection with his promotion to Health Care Services Officer, which became effective on March 7, 2013.July 12, 2014.

Annual Performance-Based Incentive Cash Awards.Awards

Annual performance-based incentive cash awards help to motivate our named executive officers to meet or exceed our short-term performance objectives. Historically, the Compensation Committee awarded annual cash incentive awards to our named executive officers under our Executive Officer Incentive Plan, with the intent for certain of the performance-based compensation awarded thereunder to be eligible for deduction under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Commencing in 2013, the ACA imposes a $500,000 cap for health insurance companies, including Health Net, on the deductibility of compensation under Section 162(m) of the Code and, among other things, eliminates the exception for performance-based compensation. As a result of ACA’s elimination of the availability of deductions for qualified performance-based compensation under Section 162(m), the Compensation Committee determined that 2013 annual cash incentive awards for named executive officers would be made under the MIP, a pre-existing broader-based incentive cash award plan.

Each named executive officer is eligible to participate in our annual cash incentive program, the MIP, and has a target bonus amount expressed as a percentage of base salary. Each such executive officer has a maximum bonus opportunity under our annual cash incentive program equal to 200% of his or her individual target bonus amount. In determining the target bonus amount for each named executive officer, the Compensation Committee considers multiple factors, including market data provided by its independent compensation consultant, as described in the section,under “—How do we determine the amount for each element of executive officer compensation?”

For 2013,2014, the Compensation Committee determined to use a financial funding measure for the MIP, 2014 PTI, in combination with a qualitative determination of the Company’s performance based on, among other things, the following fourfive strategic initiatives: (i) G&A management, (ii) repositioning of the Company’s commercial business and preparation for participation in individual health insurance exchanges in Arizona, California and Oregon, (iii) repositioning of the Company’s state health programs business (including as a result of Medicaid expansion) for 2014 and (iv) execution of the Duals Demonstrationinitiatives (the “Strategic Initiatives”). :

The MIP was to be funded if the Company met or exceeded a pre-established level of 2013 Combined Western Region and Government Contracts PTI.2014 PTI, which was $358 million. PTI as a financial funding measure emphasizes operational performance, which supports the Company’s long-term financial growth and development and rewards the creation of value for our stockholders. If the Compensation Committee determines that this pre-established funding threshold is met, then

the Compensation Committee considers the Company’s performance with regard to, among other things, the Strategic Initiatives andto determine the funding level of the 2014 MIP, which is also the company performance score. The Compensation Committee then considers each named executive officer’s performance with regard to a number of individual performance factors in determining actual award amounts paid to MIP participants.each named executive officer. A description of the material terms of the MIP, as well as additional information regarding the performance factors discussed above, can be found below inunder “—How do we determine the section entitled “—amount for each element of executive officer compensation?—Analysis of Compensation During Fiscal 2013—2014—Annual Performance-Based Incentive Cash Awards.” As noted above under “—2013Executive Summary—2014 Performance Highlights,” the Company’s actual 2014 PTI was $385.1 million. This exceeded the pre-established funding target of $358 million, which was in line with our internal business plan and budget at the time the funding target was established, and permitted funding the 2014 MIP at a level up to 125% of the target funding level.

During their qualitative review of the Company’s 2014 performance, the Compensation Committee determined that the Company was able to: (i) manage G&A expenses while taking actions acrossperformed successfully with regard to each of the enterprise, throughout the year, to ensure appropriate resources were allocated to important business activities and new business initiatives; (ii) successfully reposition its commercial book of businessStrategic Initiatives, as reflected by, among other things, repricing that the Company (a) established improved capabilities for revenue programs, including 3Rs and RAF; achieved a critical 4.0 Medicare Star rating, and earned a 2016 Star bonus payment for the Company’s California HMO contract; and incorporated market data into the Company’s internal modeling to improve margins impacted by ACA taxes and fees and costs associated with certain new treatments and medications; (b) designed commercial products and developed implementation strategies for the upcoming small business group transition to ACA; adjusted product designs and pricing in the individual market geared toward achieving and/or repositioning select large group accountsretaining appropriate market share on and being approved to participateoff the exchanges; experienced significant growth in commercial individual exchanges in Arizona, California and Oregon; (iii) reposition its state health programs business including by enrolling Medicaid members in Maricopa County, Arizona and preparing to enroll additionalthe Medicaid expansion memberspopulation; and implemented medical and utilization management strategies to enhance our integrated population management capabilities; (c) commenced enrollment in CaliforniaLos Angeles and ArizonaSan Diego counties for the dual eligible demonstration programs in Los Angeles and (iv) finalize an agreement relatingSan Diego, administered all key health plan functions and built management teams to monitor ongoing support needs, efficiency and compliance; (d) improved certain key G&A metrics through implementation of savings initiatives and leveraging growth in 2014, and executed the commencementMaster Services Agreement with Cognizant; and (e) sustained performance in our existing Government Contracts business, progressed toward extending our TRICARE business relationship; and successfully expanded the Company’s business relationship with the U.S. Department of Veterans Affairs. As a part of their qualitative review of the Duals Demonstration. As such,Company’s 2014 performance, the level of 2013 Combined Western Region and Government Contracts PTI performance combined with the Company’s performance with regard to,Compensation Committee also considered, among other things, that the Strategic Initiatives permitted a MIP fundingnumber of up to 125%members enrolled in the dual eligible demonstration

programs as of target. However,December 31, 2014 did not meet expectations because of higher than expected opt-out rates and that Medicare margins were lower than expected in an effort to be fiscally conservative as the Company prepared for fiscal 2014 and beyond,2014. Following their review, the Compensation Committee determined to fundapproved funding the 2014 MIP at only 100%110% of target.the target funding level. For additional detail, including actual payouts to each of our named executive officers under the MIP for 2014 performance, see the discussion below under “—How do we determine the amount for each element of executive officer compensation?—Analysis of Compensation During Fiscal 2013—2014—Annual Performance-Based Incentive Cash Awards.”

Long-Term Equity Incentive Compensation.Compensation

Annual grants of equity awards are intended to align the interests of our executive officers with those of our stockholders and link our named executive officers’ compensation to stockholder value.

Equity Grant Guidelines—General.    Each year, the Compensation Committee approves grant guidelines that provide a range of shares available for grant to all employees who are eligible to participate in our equity program, including our named executive officers. When developing grant guidelines for our named executive officers, several factors are considered, including but not limited to market median grant values and market trends in equity grant guidelines based on competitive market data provided by Semler, our targeted rate of share usage, or burn rate, participants’ salary grade levels in the organization, participation guidelines, remaining shares available for issuance under our equity plans and longer-term stock price trends and option valuations.trends. The grant guidelines are designed to deliver competitive equity value to the eligible recipient population and ensure that we maintain our targeted burn rate, which the Compensation Committee approves each year.rate. The Compensation Committee, in its discretion, may approve grant guidelines and equity awards that are below the market median in order to maintain our targeted burn rate.

Our targeted burn rate attempts to control the rate of dilution for stockholders and provide a reasonable amount of value sharing with our executives. We measure burn rate in stock option equivalents assuming a conversion factor for every full value share granted. Our historical number of diluted weighted average shares outstanding and rate of share usage over the past five years, asis shown in the table below, illustrates our ability to maintain our rate of share usage between 2% and 2.5% of our outstanding Common Stock in recent years.below.

Stockholder Dilution From Stock Grants: Historic Rates of Usage at Health Net

20132014 Equity Grant Guidelines.    In December 2012,2013, the Compensation Committee made initial determinations with regard to our 2013 targettargeted burn rate for all equity grants to long-term incentive plan participants2014 and the grant guidelines for 2013 long-term incentiveequity awards to participants in our 2014 equity award program, including our named executive officers. In making these determinations,When determining the grant guidelines, the Compensation Committee assumedused a $24.35“value” approach whereby target equity award values (the “Target LTI Value”) for our named executive officers were determined, and then converted into a target number of full value shares assuming a $30.96 trading price for our common stock, which represented the 20-day average closing price of our common stock as of December 6, 2012. The median award values for our named executive officers in the grant guidelines recommended by the Compensation Committee were, on average, approximately 17% below the market median and for Mr. Law reflected his position at that time. The Compensation Committee recommended awarding grants below the market median in order to stay within our targeted burn rate.November 5, 2013. The Compensation Committee approved the 20132014 long-term incentive awards to our named executive officers on March 7, 2013,February 21, 2014, which was also the grant date of the 20132014 awards to our named executive officers, and such awards reflected Mr. Law’s new position.officers.

The actual grant date fair valuesTarget LTI Value of the long-term incentive awards granted to our named executive officers, including the value of such awardsTarget LTI Value relative to the 50^th percentile of market, median, are shown in the “2013“2014 Target Long-Term Equity Compensation” table below. For further discussion on how Semler determines the market median and how this data affected the Compensation Committee’s 20132014 compensation decisions, please see the discussion below under “—How do we determine the amount for each element of executive officer compensation?—Competitive compensation analysis for fiscal 2013” below.2014.”

Determinations Regarding Form and Mix of 20132014 Equity Awards.    In December 2012, the Compensation Committee determined that long-term incentive grants consisting of PSUs and service-based RSUs would be granted to our named executive officers. In 2013,2014, the Compensation Committee continued the prior year’s mix of long-term incentive grants, which in 2012 consisted of 75% of the award valueTarget LTI Value in PSUs and 25% of the award valueTarget LTI Value in service-based RSUs. The Compensation Committee determined that it

was appropriate to award a significant portion of the long-term incentive grants to our named executive officers in the form of PSUs in order to motivate our executives to achieve optimal performance by closely tying their compensation to the Company’s performance. The Compensation Committee believes that the use of RSUs with service-based vesting supports retention objectives and motivates executives to increase long-term value to our stockholders.

RSUs awarded as part of the 20132014 annual award grant vest one-third per year over three years, subject to the recipient’s continued service through each vesting date. PSUs awarded as part of the 20132014 annual award grant must be earned through the Company’s achievement of a pre-established performance goal, which in 20132014 was GAAP2014 EPS (“2013 EPS”) of $2.02.$2.23, which was in line with our internal business plan and budget at the time the performance goal was established. If the performance target was achieved, the PSUs would then vest on the first, second and third anniversary of the grant date, subject to the recipient’s continued employment through each vesting date. The Compensation Committee believed that a one-year performance period combined with a three-year time-based vesting schedule was appropriate for the PSUs awarded in the 2014 annual award program because at the time of the awards, among other things, the managed care industry continued to be highly complex, experience unprecedented change and face a number of significant regulatory and marketplace challenges.

Our actual 20132014 EPS was $2.12 and$2.32, which exceeded the pre-established performance goal. The Compensation Committee accordingly determined in February 20142015 that all of the shares underlying the March 7, 2013February 21, 2014 PSU grants were earned and 1/3 of such shares will vest on each of the first three anniversaries of the grant date, subject to continued employment with us through each vesting date.

Mr. Law was granted a supplemental PSU grant of 35,000 shares in connection with his promotion to Health Care Services Officer on March 7, 2013. One-third of the supplemental PSU grant may be earned and vest no earlier than the first anniversary of the grant date if the Compensation Committee determines that during 2013 Mr. Law achieved the individual performance goal of developing an integrated healthcare services strategy, and developing an organizational structure and tools and reporting methodologies to support the integrated services strategy (“First Performance Goal”). An additional one-third of the supplemental PSU grant may be earned and vest no earlier than the second anniversary of the grant date if the Compensation Committee determines that during 2014 Mr. Law achieved the individual performance goal of executing on the integrated healthcare services strategy that he developed. If Mr. Law achieves both of the individual performance goals discussed above, the last one-third of the supplemental PSU grant may be earned and vest on December 31, 2015, subject to Mr. Law

remaining continuously employed by us through such vesting date. In February 2014, the Compensation Committee determined that Mr. Law achieved the First Performance Goal by developing an integrated health care services delivery strategy, implementing a regional organization structure and partnering with the Company’s Finance and Actuarial leadership to develop a regional forecast model with key data analytics that supports additional cost reductions and improved Company performance. Accordingly one-third of the supplemental PSU grant was earned and vested on March 7, 2014, the first anniversary of the grant date.

Retirement Plans.Plans

Qualified defined contribution retirement plan—Health Net, Inc. 401(k) Savings Plan (“401(k) Plan”).    We offer the 401(k) Plan to all of our eligible employees, including our named executive officers. The 401(k) Plan allows pre-tax salary deferral contributions of one to thirty percent (1% to 30%) of total eligible compensation up to the Internal Revenue Service maximum limits, including any catch-up contributions for employees age 50 or older. We match one hundred percent (100%) of the first three percent (3%) of eligible compensation contributed by an employee to the 401(k) Plan and match an additional fifty percent (50%) of the next two percent (2%) of eligible compensation contributed by an employee. All matching contributions aremade in 2014 were one hundred percent (100%) vested when made. Named executive officers may not elect Health Net, Inc. Common Stock as an investment option in the 401(k) Plan. Other than Mr. Tough, all of our named executive officersMessrs. Gellert, Woys, Capezza and Sell and Ms. Hefner participated in the 401(k) Plan during 20132014 and each received matching contributions or matching contribution commitments of $10,200.$10,400.

Nonqualified voluntary deferred compensation plan—Health Net, Inc. Deferred Compensation Plan (“Deferred Compensation Plan”).    Our named executive officers and certain of our other management employees are eligible to defer certain compensation under the Deferred Compensation Plan, which permits personal savings beyond the IRS contribution limits on qualified plans and may provide certain tax benefits. The Compensation Committee believes the opportunity to defer compensation is a competitive benefit, enhancing our ability to attract and retain talented managers while building plan participants’ long-term commitment to Health Net. The return on the deferred amounts is linked to the performance of market-based investment choices made available to participants under the plan. None of our named executive officers elected to participate in the Deferred Compensation Plan in 2013.2014. A description of the material terms of the Deferred Compensation Plan can be found in this proxy statementbelow under the section entitled “Nonqualified“Executive Compensation—Nonqualified Deferred Compensation for 2013.2014.”

Nonqualified defined benefit pension plan—Health Net, Inc. Supplemental Executive Retirement Plan (“SERP”).    We maintain a nonqualified supplemental executive retirement program, which provides benefits to a very limited number of our executives with supplemental retirement income beyond the IRS contribution limits for qualified plans, affording participants a measure of financial stability and security and building the participants’ long-term commitment to Health Net. The Compensation Committee has been extremely selective in approving participants in the SERP. Messrs. Gellert and Woys are the only named executive officers who participate in the SERP. Messrs. Gellert and Woys are 100% vested in their accounts under the SERP. A description of the material terms of the SERP can be found below under the table entitled “Pension“Executive Compensation—Pension Benefits for 2013.2014.”

Severance and Change in Control BenefitsBase Salary.

We have entered into employment agreementsBase salaries provide our named executive officers with a degree of financial certainty and stability, compensating them for performing their core job duties and recognizing individual achievements and contributions. The base salary for each of our named executive officers pursuant to which they generally are eligible for severance and changeis set forth in control benefits from Health Net. The severance and change in control payments and benefits provided under thetheir respective employment agreements are independent of other elements of compensation. The PSUs grantedand is subject to our named executive officers in 2013 have been fully earned and will become fully vested upon a change in control. In 2014,adjustment by the Board or the Compensation Committee with input from its independent compensation consultant, determined to eliminate single-trigger acceleration for PSU awards starting with the 2014 PSUs, due to our commitment to strong governance standards and current best practices, which codifies double trigger provisions across all our equity vehicles going forward. That is, our other outstanding unvested equity awards (other than the PSUs granted to Oversight Executives in 2013) provide for accelerated vesting upon the occurrence of both a change in control and involuntary termination of employment by the acquirer or by the executive under the definition of “good reason” within two years of such change in control. A description of the material terms of our severance and change in control arrangements can be found later in this proxy statement under the section entitled “Severance and Change in Control Arrangements.”

The Compensation Committee believes that employment agreements with our named executive officers benefit Health Net by clarifying the terms of their employment and ensuring that we are protected by non-solicitation, non-disclosure and compensation recovery provisions. The Compensation Committee believes that severance and change in control benefits are necessary to attract and retain senior talent in the managed care industry, which protects the interests of our stockholders. Our severance and change in control arrangements are designed to attract key employees, preserve employee morale and productivity and encourage retention in the face of the potentially disruptive impact of internal restructuring activities or an actual or potential change in control. In addition, these benefits allow executives to assess takeover bids objectively without regard to the potential impact on their own job security. We do not permit tax gross-up payments under Section 280G of the Code on severance and change in control pay for any person who became an executive officer after 2007. Messrs. Gellert and Woys are the only named executive officers that are entitled to such gross-up payments, which are provided for in each of their long-standing employment agreements. However, as indicated in the table entitled “Potential Payments Upon Change in Control or Termination”, neither executive would trigger excise tax or related tax gross-up payments upon a change in control, assuming a change in control occurred on December 31, 2013. In addition, Mr. Law’s employment agreement provides that, to the extent that any change in control payment or benefit would be subject to an excise tax imposed in connection with Section 4999 of the Code, such payments and/or benefits may be subject to a “best pay cap” reduction to the extent necessary so that the executive receives the greater of the (i) net amount of the change in control payments and benefits reduced such that such payments and benefits will not be subject to the excise tax and (ii) net amount of the change in control payments and benefits without such reduction.

The Compensation Committee periodically reviews payments, benefit levels and the estimated costs related to our severance and change in control arrangements in order to ensure that such arrangements continue to serve Health Net’s and our stockholders’ best interests in retaining key executives.

Limited Perquisites and Other Personal Benefits.

General.    We provide our named executive officers with various perquisites and personal benefits, which serve as important recruiting and retention tools.

We generally do not permit tax gross-up payments in connection with perquisites provided to executive officers, except pursuant to certain Company-wide policies which are limited in nature. Under our Company-wide Relocation Policy, we provide tax gross-up payments with respect to standard relocation benefits. Under our Company-wide policy relating to spousal travel, we also provide tax gross-up payments relating to spousal travel for limited Company-sponsored events, which typically include sales and broker events that serve as an important part of our business. The Compensation Committee determined it is appropriate to continue to provide tax gross-up payments with respect to these perquisites, to the extent permitted by applicable tax law, because such tax gross-up payments serve an important recruiting and retention function and are broad-based benefits provided to all employees and are not limited to our executive officers.

Financial Counseling.    All named executive officers are entitled to reimbursement of $5,000 per year for costs incurred for personal financial counseling services, including tax preparation, estate and/or tax planning. We provide these benefits to assist our named executive officers to efficiently manage their time and financial affairs, minimize distractions and maintain focus on business issues.

Relocation Benefits/Engagement Bonuses.    In order to prevent geographic restrictions on our recruitment and hiring opportunities, we periodically provide new hires with relocation benefits and/or engagement bonuses. All of our exempt professional employees, including our named executive officers, are eligible to receive relocation benefits as part of our relocation policy when it is determined that relocation is desired and/or required due to the specific circumstances of the assignment. In addition, under our relocation policy, we provide tax gross-up payments for income taxes paid in connection with this benefit. Our relocation policy does not compensate participants for any loss(depending on the sale of their homes. None of our named executive officers received relocation benefits in 2013.

Housing Allowanceexecutive’s level). We provide corporate housing to Mr. Gellert pursuant to the terms of his long-standing employment agreement, as described in the “All Other Compensation” table. This permits him to reside

close to our corporate headquarters in Woodland Hills and perform his daily duties as our Chief Executive Officer while he continues to maintain his personal residence in the San Francisco area.

Life Insurance.    We provide Company-paid group term life insurance pursuant to a broad-based plan to all of our eligible employees, including our named executive officers, in an amount equal to one timesFurther discussion regarding 2014 base salary. All of our eligible employees, including our named executive officers, may purchase additional life insurance for themselves and/or their dependents at their own expense.

Automobile Allowance or Company Car.    Although our automobile allowance program was terminated in 2003 after a review of market practices, individuals participating in the program at the time of its termination, including Messrs. Gellert and Woys, were “grandfathered”salary is presented below under the program and continue to receive this benefit. During 2013, Mr. Gellert was provided with a Company car in lieu of a cash automobile allowance and Mr. Woys received a monthly automobile allowance, as described in the “Summary Compensation Table” and “All Other Compensation” table.

Physical Exams.    All named executive officers are required, on an annual basis, to undergo a physical examination. We reimburse the executive for any out-of-pocket expenses relating to the physical examination that are not otherwise covered by the executive’s health insurance plan. The purpose of this policy is to ensure proactive health management for our executive officers.

The perquisites and other personal benefits described above are disclosed and quantified in the “Summary Compensation Table” and “All Other Compensation” table and described in the “Narrative to Summary Compensation Table and Plan-Based Awards Table” in this proxy statement.

“—How do we determine the amount for each element of executive officer compensation?

We believe the levels of compensation we provide should be competitive, reasonable and appropriate for our business needs and circumstances. The Board and the Compensation Committee use comparative market data as a guide in reviewing and determining,” including details on 2014 base salaries annual performance-based incentive cash awards and long-term equity incentive compensation, as discussed below. The Board and the Compensation Committee also consider our target total direct compensation when making compensation determinations with respect to each component of compensation. The Board’s and the Compensation Committee’s approach each year is to consider competitive compensation practices and relevant factors rather than establishing compensation at specific benchmark percentiles. This enables us to respond to dynamics in the labor market and provides us with flexibility in maintaining and enhancing our executive officers’ engagement, focus, motivation and enthusiasm for our future.

In addition to the factors described in the paragraph above, the Board and the Compensation Committee, as applicable, determine the compensation levels for our named executive officers on an annual basis by considering numerous factors, including the following:

We do not have a pre-defined framework that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the executives. Ultimately, it is the judgment ofDuring Fiscal 2014.” For 2014, the Compensation Committee with input from our Chief Executive Officer, Chief Operating Officer and/or Senior Vice President, Organization Effectiveness,and the Board, as applicable, that determines compensation forconsidered market data, among other things, when they awarded 2.5% merit increases to the base salaries of all of our named executive officers, other than Mr. Capezza. To support our Chief Executive OfficerG&A reduction initiatives, the merit increases were effective as of July 12, 2014.

Annual Performance-Based Incentive Cash Awards

Annual performance-based incentive cash awards help to motivate our named executive officers to meet or exceed our short-term performance objectives. Each named executive officer is eligible to participate in our annual cash incentive program, the MIP, and has a target bonus amount expressed as a percentage of base salary. Each such executive officer has a maximum bonus opportunity under our second-highest paidannual cash incentive program equal to 200% of his or her individual target bonus amount. In determining the target bonus amount for each named executive officer.officer, the Compensation Committee considers multiple factors, including market data provided by its independent compensation consultant, as described under “—How do we determine the amount for each element of executive officer compensation?”

For 2014, the Compensation Committee determined to use a financial funding measure for the MIP, 2014 PTI, in combination with a qualitative determination of the Company’s performance based on, among other things, the following five strategic initiatives (the “Strategic Initiatives”):

The MIP was to be funded if the Company met or exceeded a pre-established level of 2014 PTI, which was $358 million. PTI as a financial funding measure emphasizes operational performance, which supports the Company’s long-term financial growth and development and rewards the creation of value for our stockholders. If the Compensation Committee determines that this pre-established funding threshold is met, then the Compensation Committee considers the Company’s performance with regard to, among other things, the Strategic Initiatives to determine the funding level of the 2014 MIP, which is also the company performance score. The Compensation Committee recommendsthen considers each named executive officer’s performance with regard to a number of performance factors in determining actual award amounts paid to each named executive officer. A description of the compensationmaterial terms of the MIP, as well as additional information regarding the performance factors discussed above, can be found below under “—How do we determine the amount for our Chief Executive Officer and our second-highest paideach element of executive officer compensation?—Analysis of Compensation During Fiscal 2014—Annual Performance-Based Incentive Cash Awards.” As noted above under “—Executive Summary—2014 Performance Highlights,” the Company’s actual 2014 PTI was $385.1 million. This exceeded the pre-established funding target of $358 million, which was in line with our internal business plan and budget at the time the funding target was established, and permitted funding the 2014 MIP at a level up to 125% of the independent memberstarget funding level.

During their qualitative review of our Board for approval. The compensation recommendations for the second-highest paid executive also include input from our Chief Executive Officer.

As indicated above, while the Board andCompany’s 2014 performance, the Compensation Committee usedetermined that the Company performed successfully with regard to each of the Strategic Initiatives, as reflected by, among other things, that the Company (a) established improved capabilities for revenue programs, including 3Rs and RAF; achieved a critical 4.0 Medicare Star rating, and earned a 2016 Star bonus payment for the Company’s California HMO contract; and incorporated market data as one factorinto the Company’s internal modeling to improve margins impacted by ACA taxes and fees and costs associated with certain new treatments and medications; (b) designed commercial products and developed implementation strategies for the upcoming small business group transition to ACA; adjusted product designs and pricing in makingthe individual market geared toward achieving and/or retaining appropriate market share on and off the exchanges; experienced significant growth in the Medicaid expansion population; and implemented medical and utilization management strategies to enhance our integrated population management capabilities; (c) commenced enrollment in Los Angeles and San Diego counties for the dual eligible demonstration programs in Los Angeles and San Diego, administered all key health plan functions and built management teams to monitor ongoing support needs, efficiency and compliance; (d) improved certain key G&A metrics through implementation of savings initiatives and leveraging growth in 2014, and executed the Master Services Agreement with Cognizant; and (e) sustained performance in our existing Government Contracts business, progressed toward extending our TRICARE business relationship; and successfully expanded the Company’s business relationship with the U.S. Department of Veterans Affairs. As a part of their respective compensation determinations, neither relies solely on market data to make these decisions. Further, as stated below, based on input received fromqualitative review of the Compensation Committee’s independent compensation consultant, the Board andCompany’s 2014 performance, the Compensation Committee use market data fromalso considered, among other things, that the number of members enrolled in the dual eligible demonstration

programs as of December 31, 2014 did not meet expectations because of higher than expected opt-out rates and that Medicare margins were lower than expected in 2014. Following their review, the Compensation Committee approved funding the 2014 MIP at 110% of the target funding level. For additional detail, including actual payouts to each of our “modeled peer group”named executive officers under the MIP for 2014 performance, see the discussion below under “—How do we determine the amount for each element of executive officer compensation?—Analysis of Compensation During Fiscal 2014—Annual Performance-Based Incentive Cash Awards.”

Long-Term Equity Incentive Compensation

Annual grants of equity awards are intended to address consolidationalign the interests of our executive officers with those of our stockholders and link our named executive officers’ compensation to stockholder value.

Equity Grant Guidelines—General.    Each year, the Compensation Committee approves grant guidelines that provide a range of shares available for grant to all employees who are eligible to participate in our industryequity program, including our named executive officers. When developing grant guidelines for our named executive officers, several factors are considered, including but not limited to market median grant values and inconsistencies among our traditional peer group companies. For further discussionmarket trends in equity grant guidelines based on thecompetitive market data provided by Semler, our targeted rate of share usage, or burn rate, participants’ salary grade levels in the organization, participation guidelines, remaining shares available for issuance under our equity plans and how this data affectedlonger-term stock price trends. The grant guidelines are designed to deliver competitive equity value to the Board’seligible recipient population and ensure that we maintain our targeted burn rate. The Compensation Committee, in its discretion, may approve grant guidelines and equity awards that are below the market median in order to maintain our targeted burn rate.

Our targeted burn rate attempts to control the rate of dilution for stockholders and provide a reasonable amount of value sharing with our executives. We measure burn rate in stock option equivalents assuming a conversion factor for every full value share granted. Our historical number of diluted weighted average shares outstanding and rate of share usage over the past five years, is shown in the table below.

Stockholder Dilution From Stock Grants: Historic Rates of Usage at Health Net

2014 Equity Grant Guidelines.    In December 2013, the Compensation Committee made initial determinations with regard to our targeted burn rate for 2014 and the grant guidelines for equity awards to participants in our 2014 equity award program, including our named executive officers. When determining the grant guidelines, the Compensation Committee’s 2013 compensation decisions, please see “—Competitive compensation analysisCommittee used a “value” approach whereby target equity award values (the “Target LTI Value”) for fiscal 2013” below.

Emphasis onour named executive officers were determined, and then converted into a target number of full value shares assuming a $30.96 trading price for our common stock, which represented the 20-day average closing price of our common stock as of November 5, 2013. The Compensation Committee approved the 2014 long-term performance-based compensation. 

Consistent with our philosophy to align total compensation paidincentive awards to our named executive officers with long-term stockholder interests,on February 21, 2014, which was also the Board andgrant date of the Compensation Committee endeavor2014 awards to set target total direct compensation such that more than half of our executive officers’ annual compensation is in the form of long-term equity, rather than cash, and is oriented to rewarding longer-term performance, as opposed to annual performance.

The following table reflects the actual 2013 compensation of our President and Chief Executive Officer and our other named executive officers (excluding our President and Chief Executive Officer) as a group.officers.

2013 Compensation Pay Mix

Consultants and advisors.

Since May 2007, Semler has been the Compensation Committee’s exclusive independent compensation consultant. During that time, Semler has provided services to the Compensation Committee primarily related to executive compensation and services to the Governance Committee related to director compensation. Semler did not provide any other services to Health Net in 2013.

The Compensation Committee utilized its sole discretion to retain Semler as its independent compensation consultant in order to assist the Compensation Committee in carrying out its responsibilities. Semler reports directly and exclusively to the Compensation Committee with respect to executive compensation matters and the Compensation Committee is directly responsible for appointing Semler, determining its compensation levels and overseeing the work performed.

During 2013, Semler provided the following services to the Compensation Committee:

The Governance Committee has the sole authority, as it deems appropriate, to retain or terminate Semler in order to assist the Governance Committee in carrying out its responsibilities with respect to non-employee director compensation. With respect to non-employee director compensation matters, Semler reports directly and exclusively to the Governance Committee, and the Governance Committee has the sole authority to approve Semler’s fees and other retention terms that relate to such work.

During 2013, Semler provided the following services to the Governance Committee with regards to non-employee director compensation:

Competitive compensation analysis for fiscal 2013.

Although the Board and the Compensation Committee use data from a traditional “peer group” of companies in the health care industry to help determine compensation for our named executive officers, the

health care companies in our traditional peer group are not similarincluding Target LTI Value relative to us in size, revenue, market position and other factors. Therefore, as recommended by Semler, the Board and the Compensation Committee also utilized several other sources of data to perform competitive compensation analysis for fiscal year 2013 in order to develop a complete and comprehensive comparison to peer companies.

In October 2012, Semler provided the Compensation Committee with a market overview approach to competitive compensation analysis that considered four data sources: (i) a “modeled peer group,” comprised of general industry survey data adjusted for the historical relationship with the Company’s peer group over the last five years and using regressions to establish scope consistent with our revenue; (ii) “managed care and general industry” survey data developed by Mercer, Towers Watson and Equilar, which includes both public and private managed care companies; (iii) a “cost of management analysis” that provides information about what other companies are paying by pay rank and in aggregate for their top positions; and (iv) “traditional peer group” proxy data as reported for the named executive officers. The Compensation Committee approved this approach to competitive assessment because it helps to address the ongoing consolidation in our industry as well as inconsistencies (size, market position, revenue, etc.) among our traditional peer group companies. On Semler’s recommendation, the Compensation Committee relied primarily on the “modeled peer group” data and secondarily on the “cost of management analysis” and “traditional peer group” proxy data in determining the compensation of our named executive officers in 2013, other than Mr. Law. The “managed care and general industry” survey data was not utilized in making determinations regarding our 2013 named executive officers’ compensation, but was utilized in determining the 2013 compensation of certain of our other employees. With respect to Mr. Law, who was promoted to Health Care Services Officer on March 7, 2013, we considered the Company compensation data for the executives in similar leadership roles and compensation data for the executive previously holding such office, which have been based primarily on the “modeled peer group” data and secondarily on the “cost of management analysis” and “traditional peer group” proxy data. All references to “market data” or the “50^th percentile of market” in this CD&A are references to data derived from the “modeled peer group” survey.

In October 2012, Semler advised that the 2013 total target direct compensation for our named executive officers and Mr. Law’s position at the time was generally consistent with the market median and within the “competitive range.” For purposes of this Compensation Discussion and Analysis we consider the “competitive range” to be between 90% and 110% of the 50^th percentile of market, for cash based compensation data and between 85% and 115% for compensation data including an equity component, given the greater variability in equity market data. Market data obtained for purposes of competitive compensation analysis was only one factor used in determining 2013 compensation for our named executive officers. Other factors are describedshown in the section“2014 Target Long-Term Equity Compensation” table below. For further discussion on how Semler determines the market median and how this data affected the Compensation Committee’s 2014 compensation decisions, please see the discussion below under “—How do we determine the amount offor each element of executive officer compensation?—Competitive compensation analysis for fiscal 2014.”

Details concerning the surveys used are summarized below:

Management involvement in compensation decisionsDeterminations Regarding Form and Mix of 2014 Equity Awards.    In addition to market and other factors, the Board and2014, the Compensation Committee consider input from our Chief Executive Officer, Chief Operating Officer and/or Senior Vice President, Organization Effectiveness, as applicable, in making their respective decisions regardingcontinued the compensationprior year’s mix of long-term incentive grants, which consisted of 75% of the other named executive officers.

In the first quarter following the performance year, our Chief Executive Officer, Chief Operating OfficerTarget LTI Value in PSUs and our Senior Vice President, Organization Effectiveness, conduct a formal assessment (including obtaining individual self-assessments) of each named executive officer’s performance, including with respect to the performance factors developed for use in connection with our annual incentive cash award program. For additional detail on how our annual performance-based incentive cash awards are determined, see “—Analysis of Compensation During Fiscal 2013—Annual Performance-Based Incentive Cash Awards” below. Our Chief Executive Officer then provides the Compensation Committee with his assessment25% of the Company’s performance during the performance year and the results of the formal assessment of the other named executive officers, and provides recommendations for each named executive officer’s compensation, including salary adjustments, bonus payouts and equity grants, based on these assessments.Target LTI Value in service-based RSUs. The Compensation Committee uses these assessments and recommendations as a basis for its compensation decisions regarding our named executive officers and for its recommendation with regard to the compensation of our second-highest paid executive, which then must be approved by the independent members of the Board.

The evaluation of our Chief Executive Officer is a formal process whereby all members of our Board have the opportunity to provide input on our Chief Executive Officer’s performance, including with regard to applicable performance factors. Our Chief Executive Officer provides a self-assessment to the independent members of the Board each year, and each such Board member is then asked to evaluate our Chief Executive Officer’s achievements. The individual independent Board members’ evaluations are consolidated and sent back to each independent Board member. The Compensation Committee uses this consolidated feedback as a basis for its recommendation with regard to the compensation of our Chief Executive Officer, including salary adjustments, bonus payouts and equity grants, which then must be approved by the independent members of the Board.

Analysis of Compensation During Fiscal 2013.

General. In 2013, we provided our named executive officers with base salaries that ranged from 94% to 120% of the 50^th percentile of the market. In 2013, we provided our named executive officers with target annual cash incentive opportunities under our MIP that ranged from 75% to 122% of the 50^th percentile of the market. The actual amount of MIP awards paid to our named executive officers for 2013 ranged from 75% to 122% of the 50^th percentile of market. Consistent with our objectives of linking executive pay with performance and aligning the interests of our executives with those of our stockholders, we continued our practice of placing an emphasis on long-term incentive awards, which comprised approximately 63% of actual total direct compensation for our Chief Executive Officer and approximately 59%, on average, for our other named executive officers as a group in 2013. For 2013, the grant date fair value of our actual long-term incentive awards ranged from 76% to 114% of the 50^th percentile of the market, excluding Mr. Law. Due to the supplemental PSU award Mr. Law received in connection with his promotion, additional responsibilities and specified performance objectives, Mr. Law’s actual long-term incentive award grant date fair value, was at 194% of the 50^th percentile of the market. As discussed in further detail below, we exceeded the 2013 EPS target of $2.02 and the Compensation Committee determined that it

was appropriate to award a significant portion of the PSUs awardedlong-term incentive grants to our named executive officers in 2013the form of PSUs in order to motivate our executives to achieve optimal performance by closely tying their compensation to the Company’s performance. The Compensation Committee believes that the use of RSUs with service-based vesting supports retention objectives and motivates executives to increase long-term value to our stockholders.

RSUs awarded as part of the 2014 annual award grant vest one-third per year over three years, subject to the recipient’s continued service through each vesting date. PSUs awarded as part of the 2014 annual award grant must be earned through the Company’s achievement of a pre-established performance goal, which in 2014 was 2014 EPS of $2.23, which was in line with our internal business plan and budget at the time the performance goal was established. If the performance target was achieved, the PSUs would then vest on the first, second and third anniversary of the grant date, subject to the recipient’s continued employment through each vesting date. The Compensation Committee believed that a one-year performance period combined with a three-year time-based vesting schedule was appropriate for the PSUs awarded in the 2014 annual award program because at the time of the awards, among other things, the managed care industry continued to be highly complex, experience unprecedented change and face a number of significant regulatory and marketplace challenges.

Our actual 2014 EPS was $2.32, which exceeded the pre-established performance goal. The Compensation Committee accordingly determined in February 2015 that all of the shares underlying the February 21, 2014 PSU grants were fully earned.earned and 1/3 of such shares will vest on each of the first three anniversaries of the grant date, subject to continued employment with us through each vesting date.

Retirement Plans

Qualified defined contribution retirement plan—Health Net, Inc. 401(k) Savings Plan (“401(k) Plan”).    We offer the 401(k) Plan to all of our eligible employees, including our named executive officers. The 401(k) Plan allows pre-tax salary deferral contributions of one to thirty percent (1% to 30%) of total eligible compensation up to the Internal Revenue Service maximum limits, including any catch-up contributions for employees age 50 or older. We match one hundred percent (100%) of the first three percent (3%) of eligible compensation contributed by an employee to the 401(k) Plan and match an additional fifty percent (50%) of the next two percent (2%) of eligible compensation contributed by an employee. All matching contributions made in 2014 were one hundred percent (100%) vested when made. Named executive officers may not elect Health Net, Inc. Common Stock as an investment option in the 401(k) Plan. Messrs. Gellert, Woys, Capezza and Sell and Ms. Hefner participated in the 401(k) Plan during 2014 and each received matching contributions or matching contribution commitments of $10,400.

Nonqualified voluntary deferred compensation plan—Health Net, Inc. Deferred Compensation Plan (“Deferred Compensation Plan”).    Our named executive officers and certain of our other management employees are eligible to defer certain compensation under the Deferred Compensation Plan, which permits personal savings beyond the IRS contribution limits on qualified plans and may provide certain tax benefits. The Compensation Committee believes the opportunity to defer compensation is a competitive benefit, enhancing our ability to attract and retain talented managers while building plan participants’ long-term commitment to Health Net. The return on the deferred amounts is linked to the performance of market-based investment choices made available to participants under the plan. None of our named executive officers elected to participate in the Deferred Compensation Plan in 2014. A description of the material terms of the Deferred Compensation Plan can be found below under “Executive Compensation—Nonqualified Deferred Compensation for 2014.”

Nonqualified defined benefit pension plan—Health Net, Inc. Supplemental Executive Retirement Plan (“SERP”).    We maintain a nonqualified supplemental executive retirement program, which provides benefits to a very limited number of our executives with supplemental retirement income beyond the IRS contribution limits for qualified plans, affording participants a measure of financial stability and security and building the participants’ long-term commitment to Health Net. The Compensation Committee has been extremely selective in approving participants in the SERP. Messrs. Gellert and Woys are the only named executive officers who participate in the SERP. Messrs. Gellert and Woys are 100% vested in their accounts under the SERP. A description of the material terms of the SERP can be found below under “Executive Compensation—Pension Benefits for 2014.”

Base Salary

Base salaries provide our named executive officers with a degree of financial certainty and stability, compensating them for performing their core job duties and recognizing individual achievements and contributions. The base salary for each of our named executive officers is set forth in their respective employment agreements and is subject to adjustment by the Board or the Compensation Committee (depending on the executive’s level). Further discussion regarding 2014 base salary is presented below under “—How do we determine the amount for each element of executive officer compensation?,” including details on 2014 base salaries for our named executive officers under “—Analysis of Compensation During Fiscal 2014.” For 2014, the Compensation Committee and the Board, as applicable, considered market data, among other things, when they awarded 2.5% merit increases to the base salaries of all of our named executive officers, other than Mr. Capezza. To support our G&A reduction initiatives, the merit increases were effective as of July 12, 2014.

Annual Performance-Based Incentive Cash Awards

Annual performance-based incentive cash awards help to motivate our named executive officers to meet or exceed our short-term performance objectives. Each named executive officer is eligible to participate in our annual cash incentive program, the MIP, and has a target bonus amount expressed as a percentage of base salary. Each such executive officer has a maximum bonus opportunity under our annual cash incentive program equal to 200% of his or her individual target bonus amount. In determining the target bonus amount for each named executive officer, the Compensation Committee considers multiple factors, including market data provided by its independent compensation consultant, as described under “—How do we determine the amount for each element of executive officer compensation?”

For 2014, the Compensation Committee determined to use a financial funding measure for the MIP, 2014 PTI, in combination with a qualitative determination of the Company’s performance based on, among other things, the following five strategic initiatives (the “Strategic Initiatives”):

The MIP was to be funded if the Company met or exceeded a pre-established level of 2014 PTI, which was $358 million. PTI as a financial funding measure emphasizes operational performance, which supports the Company’s long-term financial growth and development and rewards the creation of value for our stockholders. If the Compensation Committee determines that this pre-established funding threshold is met, then the Compensation Committee considers the Company’s performance with regard to, among other things, the Strategic Initiatives to determine the funding level of the 2014 MIP, which is also the company performance score. The Compensation Committee then considers each named executive officer’s performance with regard to a number of performance factors in determining actual award amounts paid to each named executive officer. A description of the material terms of the MIP, as well as additional information regarding the performance factors discussed above, can be found below under “—How do we determine the amount for each element of executive officer compensation?—Analysis of Compensation During Fiscal 2014—Annual Performance-Based Incentive Cash Awards.” As noted above under “—Executive Summary—2014 Performance Highlights,” the Company’s actual 2014 PTI was $385.1 million. This exceeded the pre-established funding target of $358 million, which was in line with our internal business plan and budget at the time the funding target was established, and permitted funding the 2014 MIP at a level up to 125% of the target funding level.

During their qualitative review of the Company’s 2014 performance, the Compensation Committee determined that the Company performed successfully with regard to each of the Strategic Initiatives, as reflected by, among other things, that the Company (a) established improved capabilities for revenue programs, including 3Rs and RAF; achieved a critical 4.0 Medicare Star rating, and earned a 2016 Star bonus payment for the Company’s California HMO contract; and incorporated market data into the Company’s internal modeling to improve margins impacted by ACA taxes and fees and costs associated with certain new treatments and medications; (b) designed commercial products and developed implementation strategies for the upcoming small business group transition to ACA; adjusted product designs and pricing in the individual market geared toward achieving and/or retaining appropriate market share on and off the exchanges; experienced significant growth in the Medicaid expansion population; and implemented medical and utilization management strategies to enhance our integrated population management capabilities; (c) commenced enrollment in Los Angeles and San Diego counties for the dual eligible demonstration programs in Los Angeles and San Diego, administered all key health plan functions and built management teams to monitor ongoing support needs, efficiency and compliance; (d) improved certain key G&A metrics through implementation of savings initiatives and leveraging growth in 2014, and executed the Master Services Agreement with Cognizant; and (e) sustained performance in our existing Government Contracts business, progressed toward extending our TRICARE business relationship; and successfully expanded the Company’s business relationship with the U.S. Department of Veterans Affairs. As a part of their qualitative review of the Company’s 2014 performance, the Compensation Committee also considered, among other things, that the number of members enrolled in the dual eligible demonstration

programs as of December 31, 2014 did not meet expectations because of higher than expected opt-out rates and that Medicare margins were lower than expected in 2014. Following their review, the Compensation Committee approved funding the 2014 MIP at 110% of the target funding level. For additional detail, including actual payouts to each of our named executive officers under the MIP for 2014 performance, see the discussion below under “—How do we determine the amount for each element of executive officer compensation?—Analysis of Compensation During Fiscal 2014—Annual Performance-Based Incentive Cash Awards.”

Long-Term Equity Incentive Compensation

Annual grants of equity awards are intended to align the interests of our executive officers with those of our stockholders and link our named executive officers’ compensation to stockholder value.

Equity Grant Guidelines—General.    Each year, the Compensation Committee approves grant guidelines that provide a range of shares available for grant to all employees who are eligible to participate in our equity program, including our named executive officers. When developing grant guidelines for our named executive officers, several factors are considered, including but not limited to market median grant values and market trends in equity grant guidelines based on competitive market data provided by Semler, our targeted rate of share usage, or burn rate, participants’ salary grade levels in the organization, participation guidelines, remaining shares available for issuance under our equity plans and longer-term stock price trends. The grant guidelines are designed to deliver competitive equity value to the eligible recipient population and ensure that we maintain our targeted burn rate. The Compensation Committee, in its discretion, may approve grant guidelines and equity awards that are below the market median in order to maintain our targeted burn rate.

Our targeted burn rate attempts to control the rate of dilution for stockholders and provide a reasonable amount of value sharing with our executives. We measure burn rate in stock option equivalents assuming a conversion factor for every full value share granted. Our historical number of diluted weighted average shares outstanding and rate of share usage over the past five years, is shown in the table below.

Stockholder Dilution From Stock Grants: Historic Rates of Usage at Health Net

2014 Equity Grant Guidelines.    In December 2013, the Compensation Committee made initial determinations with regard to our targeted burn rate for 2014 and the grant guidelines for equity awards to participants in our 2014 equity award program, including our named executive officers. When determining the grant guidelines, the Compensation Committee used a “value” approach whereby target equity award values (the “Target LTI Value”) for our named executive officers were determined, and then converted into a target number of full value shares assuming a $30.96 trading price for our common stock, which represented the 20-day average closing price of our common stock as of November 5, 2013. The Compensation Committee approved the 2014 long-term incentive awards to our named executive officers on February 21, 2014, which was also the grant date of the 2014 awards to our named executive officers.

Target LTI Value of the long-term incentive awards granted to our named executive officers, including Target LTI Value relative to the 50^th percentile of market, are shown in the “2014 Target Long-Term Equity Compensation” table below. For further discussion on how Semler determines the market median and how this data affected the Compensation Committee’s 2014 compensation decisions, please see the discussion below under “—How do we determine the amount for each element of executive officer compensation?—Competitive compensation analysis for fiscal 2014.”

Determinations Regarding Form and Mix of 2014 Equity Awards.    In 2014, the Compensation Committee continued the prior year’s mix of long-term incentive grants, which consisted of 75% of the Target LTI Value in PSUs and 25% of the Target LTI Value in service-based RSUs. The Compensation Committee determined that it

was appropriate to award a significant portion of the long-term incentive grants to our named executive officers in the form of PSUs in order to motivate our executives to achieve optimal performance by closely tying their compensation to the Company’s performance. The Compensation Committee believes that the use of RSUs with service-based vesting supports retention objectives and motivates executives to increase long-term value to our stockholders.

RSUs awarded as part of the 2014 annual award grant vest one-third per year over three years, subject to the recipient’s continued service through each vesting date. PSUs awarded as part of the 2014 annual award grant must be earned through the Company’s achievement of a pre-established performance goal, which in 2014 was 2014 EPS of $2.23, which was in line with our internal business plan and budget at the time the performance goal was established. If the performance target was achieved, the PSUs would then vest on the first, second and third anniversary of the grant date, subject to the recipient’s continued employment through each vesting date. The Compensation Committee believed that a one-year performance period combined with a three-year time-based vesting schedule was appropriate for the PSUs awarded in the 2014 annual award program because at the time of the awards, among other things, the managed care industry continued to be highly complex, experience unprecedented change and face a number of significant regulatory and marketplace challenges.

Our actual 2014 EPS was $2.32, which exceeded the pre-established performance goal. The Compensation Committee accordingly determined in February 2015 that all of the shares underlying the February 21, 2014 PSU grants were earned and 1/3 of such shares will vest on each of the first three anniversaries of the grant date, subject to continued employment with us through each vesting date.

Retirement Plans

Qualified defined contribution retirement plan—Health Net, Inc. 401(k) Savings Plan (“401(k) Plan”).    We offer the 401(k) Plan to all of our eligible employees, including our named executive officers. The 401(k) Plan allows pre-tax salary deferral contributions of one to thirty percent (1% to 30%) of total eligible compensation up to the Internal Revenue Service maximum limits, including any catch-up contributions for employees age 50 or older. We match one hundred percent (100%) of the first three percent (3%) of eligible compensation contributed by an employee to the 401(k) Plan and match an additional fifty percent (50%) of the next two percent (2%) of eligible compensation contributed by an employee. All matching contributions made in 2014 were one hundred percent (100%) vested when made. Named executive officers may not elect Health Net, Inc. Common Stock as an investment option in the 401(k) Plan. Messrs. Gellert, Woys, Capezza and Sell and Ms. Hefner participated in the 401(k) Plan during 2014 and each received matching contributions or matching contribution commitments of $10,400.

Nonqualified voluntary deferred compensation plan—Health Net, Inc. Deferred Compensation Plan (“Deferred Compensation Plan”).    Our named executive officers and certain of our other management employees are eligible to defer certain compensation under the Deferred Compensation Plan, which permits personal savings beyond the IRS contribution limits on qualified plans and may provide certain tax benefits. The Compensation Committee believes the opportunity to defer compensation is a competitive benefit, enhancing our ability to attract and retain talented managers while building plan participants’ long-term commitment to Health Net. The return on the deferred amounts is linked to the performance of market-based investment choices made available to participants under the plan. None of our named executive officers elected to participate in the Deferred Compensation Plan in 2014. A description of the material terms of the Deferred Compensation Plan can be found below under “Executive Compensation—Nonqualified Deferred Compensation for 2014.”

Nonqualified defined benefit pension plan—Health Net, Inc. Supplemental Executive Retirement Plan (“SERP”).    We maintain a nonqualified supplemental executive retirement program, which provides benefits to a very limited number of our executives with supplemental retirement income beyond the IRS contribution limits for qualified plans, affording participants a measure of financial stability and security and building the participants’ long-term commitment to Health Net. The Compensation Committee has been extremely selective in approving participants in the SERP. Messrs. Gellert and Woys are the only named executive officers who participate in the SERP. Messrs. Gellert and Woys are 100% vested in their accounts under the SERP. A description of the material terms of the SERP can be found below under “Executive Compensation—Pension Benefits for 2014.”

Severance and Change in Control Benefits

We have entered into employment agreements with each of our named executive officers, pursuant to which they generally are eligible for severance and change in control benefits from Health Net. The severance and change in control payments and benefits provided under the employment agreements are independent of other elements of compensation. In 2014, the Compensation Committee, with input from its independent compensation consultant, determined to eliminate single-trigger acceleration for PSU awards starting with the 2014 PSUs, due to our commitment to strong governance standards and current best practices. This action codified double trigger provisions across all of our employee equity vehicles going forward. Additionally, in 2014 the Compensation Committee, with input from its independent compensation consultant, determined to provide for more favorable change in control severance benefits, in line with market practices, for Ms. Hefner and Messrs. Sell and Tough, which were subsequently codified in the amended and restated employment agreements for each of Ms. Hefner (the “Restated Hefner Agreement”), Mr. Sell (the “Restated Sell Agreement”) and Mr. Tough (the “Restated Tough Agreement”). A description of the material terms of our severance and change in control arrangements can be found below under “Executive Compensation—Severance and Change in Control Arrangements.”

The Compensation Committee believes that employment agreements with our named executive officers benefit Health Net by clarifying the terms of their employment and ensuring that we are protected by non-solicitation, non-disclosure and compensation recovery provisions. The Compensation Committee believes that severance and change in control benefits are necessary to attract and retain senior talent in the managed care industry, which protects the interests of our stockholders. Our severance and change in control arrangements are designed to attract key employees, preserve employee morale and productivity and encourage retention in the face of the potentially disruptive impact of internal restructuring activities or an actual or potential change in control. In addition, these benefits allow executives to assess takeover bids objectively without regard to the potential impact on their own job security. We do not permit tax gross-up payments under Section 280G of the Code on severance and change in control pay for any person who became an executive officer after 2007. Messrs. Gellert and Woys are the only named executive officers that are entitled to such gross-up payments, which are provided for in each of their long-standing employment agreements. However, as indicated in the table below under “Executive Compensation—Potential Payments Upon Change in Control or Termination”, neither executive would trigger excise tax or related tax gross-up payments upon a change in control, assuming a change in control occurred on December 31, 2014. In addition, Ms. Hefner and Messrs. Sell and Tough’s employment agreements provide that, to the extent that any change in control payment or benefit would be subject to an excise tax imposed in connection with Section 4999 of the Code, such payments and/or benefits may be subject to a “best pay cap” reduction to the extent necessary so that the executive receives the greater of the (i) net amount of the change in control payments and benefits reduced such that such payments and benefits will not be subject to the excise tax and (ii) net amount of the change in control payments and benefits without such reduction.

The Compensation Committee periodically reviews payments, benefit levels and the estimated costs related to our severance and change in control arrangements in order to ensure that such arrangements continue to serve Health Net’s and our stockholders’ best interests in retaining key executives.

As a result of Mr. Capezza’s termination of employment, effective on September 2, 2014, he received severance benefits pursuant to the terms of his employment agreement. Mr. Capezza entered into a consulting agreement with us to assist with the transition of his responsibilities and duties. A description of the material terms of Mr. Capezza’s severance benefits and consulting agreement can be found below under “Executive Compensation—Severance and Change in Control Arrangements.”

Limited Perquisites and Other Personal Benefits

General.    We provide our named executive officers with various perquisites and personal benefits, which serve as important recruiting and retention tools.

We generally do not permit tax gross-up payments in connection with perquisites provided to executive officers, except pursuant to certain Company-wide policies which are limited in nature. Under our Company-wide Relocation Policy, we provide tax gross-up payments with respect to standard relocation benefits. Under

our Company-wide policy relating to spousal travel, we also provide tax gross-up payments relating to spousal travel for limited Company-sponsored events, which typically include sales and broker events that serve as an important part of our business. The Compensation Committee determined it is appropriate to continue to provide tax gross-up payments with respect to these perquisites, to the extent permitted by applicable tax law, because such tax gross-up payments serve an important recruiting and retention function and are broad-based benefits provided to all employees and are not limited to our executive officers.

Financial Counseling.    All named executive officers are entitled to reimbursement of $5,000 per year for costs incurred for personal financial counseling services, including tax preparation, estate and/or tax planning. We provide these benefits to assist our named executive officers to efficiently manage their time and financial affairs, minimize distractions and maintain focus on business issues.

Relocation Benefits/Engagement Bonuses.    In order to prevent geographic restrictions on our recruitment and hiring opportunities, we periodically provide new hires with relocation benefits and/or engagement bonuses. All of our exempt professional employees, including our named executive officers, are eligible to receive relocation benefits as part of our relocation policy when it is determined that relocation is desired and/or required due to the specific circumstances of the assignment. In addition, under our relocation policy, we provide tax gross-up payments for income taxes paid in connection with this benefit. Our relocation policy does not compensate participants for any loss on the sale of their homes. None of our named executive officers received relocation benefits in 2014.

Housing Allowance/Temporary Living Expenses.    We provide corporate housing to Mr. Gellert pursuant to the terms of his long-standing employment agreement, as described in the “All Other Compensation” table. This permits him to reside close to our corporate headquarters in Woodland Hills and perform his daily duties as our Chief Executive Officer while he continues to maintain his personal residence in the San Francisco area. In 2014, we also paid for Ms. Hefner’s reasonable temporary living expenses in Northern California as a result of her frequent required travel to our offices in Northern California.

Life Insurance.    We provide Company-paid group term life insurance pursuant to a broad-based plan to all of our eligible employees, including our named executive officers, in an amount equal to one times base salary. All of our eligible employees, including our named executive officers, may purchase additional life insurance for themselves and/or their dependents at their own expense.

Automobile Allowance or Company Car.    Although our automobile allowance program was terminated in 2003 after a review of market practices, individuals participating in the program at the time of its termination, including Messrs. Gellert, Woys and Sell and Ms. Hefner, were “grandfathered” under the program and continue to receive this benefit. During 2014, Mr. Gellert was provided with a Company car in lieu of a cash automobile allowance and Mr. Woys, Mr. Sell and Ms. Hefner received a monthly automobile allowance, as described below under “Executive Compensation—Summary Compensation Table” and “Executive Compensation—All Other Compensation Table.”

Physical Exams.    All named executive officers are required, on an annual basis, to undergo a physical examination. We reimburse the executive for any out-of-pocket expenses relating to the physical examination that are not otherwise covered by the executive’s health insurance plan. The purpose of this policy is to ensure proactive health management for our executive officers.

The perquisites and other personal benefits described above are disclosed and quantified below under “Executive Compensation—Summary Compensation Table” and “Executive Compensation—All Other Compensation Table” and described under “Executive Compensation—Narrative to Summary Compensation Table and Plan-Based Awards Table.”

How do we determine the amount for each element of executive officer compensation?

We believe the levels of compensation we provide should be competitive, reasonable and appropriate for our business needs and circumstances. The Board and the Compensation Committee use comparative market data as a guide in reviewing and determining base salaries, annual performance-based incentive cash awards and long-

term equity incentive compensation, as discussed below. The Board and the Compensation Committee also consider our target total direct compensation when making compensation determinations with respect to each component of compensation. The Board’s and the Compensation Committee’s approach each year is to consider competitive compensation practices and relevant factors rather than establishing compensation at specific benchmark percentiles. This enables us to respond to dynamics in the labor market and provides us with flexibility in maintaining and enhancing our executive officers’ engagement, focus, motivation and enthusiasm for our future.

In addition to the factors described in the paragraph above, the Board and the Compensation Committee, as applicable, determine the compensation levels for our named executive officers on an annual basis by considering numerous factors, including the following:

We do not have a pre-defined framework that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the executives. Ultimately, it is the judgment of the Compensation Committee, with input from our Chief Executive Officer, Chief Financial and Operating Officer and/or Senior Vice President, Organization Effectiveness, as applicable, that determines compensation for our named executive officers other than our Chief Executive Officer and our second-highest paid executive officer. The Compensation Committee recommends the compensation for our Chief Executive Officer and our second-highest paid executive officer to the independent members of our Board for approval. The compensation recommendations for the second-highest paid executive also include input from our Chief Executive Officer.

As indicated above, while the Board and the Compensation Committee use market data as one factor in making their respective compensation determinations, neither relies solely on market data to make these decisions. Further, as stated below, based on input received from the Compensation Committee’s independent compensation consultant, the Board and the Compensation Committee use market data from our “modeled peer group” to address consolidation in our industry and inconsistencies among our traditional peer group companies. For further discussion on the market data provided by Semler and how this data affected the Board’s and the Compensation Committee’s 2014 compensation decisions, see below under “—Competitive compensation analysis for fiscal 2014.”

Emphasis on long-term, performance-based compensation

Consistent with our philosophy to align total compensation paid to our named executive officers with long-term stockholder interests, the Board and the Compensation Committee endeavor to set target total direct compensation such that more than half of our executive officers’ annual compensation is in the form of long-term equity, rather than cash, and is oriented to rewarding longer-term performance, as opposed to annual performance. For further discussion on the pay mix percentages, see above under “—Executive Summary—Linking 2014 Named Executive Officer Compensation to Performance.”

Consultants and advisors

Since May 2007, Semler has been the Compensation Committee’s exclusive independent compensation consultant. During that time, Semler has provided services to the Compensation Committee primarily related to executive compensation and compensation risk analysis and services to the Governance Committee related to director compensation. Semler did not provide any other services to Health Net in 2014.

The Compensation Committee utilized its sole discretion to retain Semler as its independent compensation consultant in order to assist the Compensation Committee in carrying out its responsibilities. Semler reports directly and exclusively to the Compensation Committee with respect to executive compensation matters and the Compensation Committee is directly responsible for appointing Semler, determining its compensation levels and overseeing the work performed by Semler.

During 2014, Semler provided the following services to the Compensation Committee:

The Governance Committee has the sole authority, as it deems appropriate, to retain or terminate Semler in order to assist the Governance Committee in carrying out its responsibilities with respect to non-employee director compensation. With respect to non- employee director compensation matters, Semler reports directly and exclusively to the Governance Committee, and the Governance Committee has the sole authority to approve Semler’s fees and other retention terms that relate to such work.

During 2014, Semler provided the following services to the Governance Committee with regards to non-employee director compensation:

Competitive compensation analysis for fiscal 2014

Although the Board and the Compensation Committee used data from a traditional “peer group” of companies in the health care industry to help determine compensation for our named executive officers in 2014, the health care companies in our traditional peer group were not similar to us in size, revenue, market position and other factors. Therefore, as recommended by Semler, the Board and the Compensation Committee also utilized several other sources of data to perform competitive compensation analysis for fiscal year 2014 in order to develop a complete and comprehensive comparison to peer companies.

In October 2013, Semler provided the Compensation Committee with a competitive compensation analysis based on a market overview approach that considered four data sources: (i) a “modeled peer group,” comprised of general industry survey data adjusted for the historical relationship with the Company’s peer group over the last five years and using regressions to establish scope consistent with our revenue; (ii) “managed care and general industry” survey data developed by Mercer and Towers Watson, which includes both public and private managed care companies; (iii) a “cost of management” analysis that provides information about what other companies are paying by pay rank and in the aggregate for their top positions; and (iv) “traditional peer group” proxy data as reported for the named executive officers. The Compensation Committee approved this approach to competitive assessment because it helped to address the ongoing consolidation in our industry as well as inconsistencies (size, market position, revenue, etc.) among our traditional peer group companies.

On Semler’s recommendation, the Compensation Committee relied primarily on the “modeled peer group” data and secondarily on the “cost of management” analysis and “traditional peer group” proxy data in determining the compensation of our named executive officers in 2014. Ms. Hefner’s role was the one exception: her title was Senior Vice President, Customer and Technology Services at that time. When determining her compensation, the Compensation Committee relied primarily on the “managed care” and “general industry” survey data, weighted 75% and 25%, respectively. For all but Ms. Hefner’s position, all references to “market data” or the “50^th percentile of market” in this CD&A are references to data derived from the “modeled peer group” survey.

In October 2013, Semler advised that the 2014 total target direct compensation for our named executive officers as a group was generally consistent with the market median and within the “competitive range” assuming “target” achievement of both the cash bonus opportunity under the MIP and performance-vested long term incentive opportunity. For purposes of this CD&A, we consider the “competitive range” to be between 90% and 110% of the 50^th percentile of market for cash based compensation data and between 85% and 115% of the 50^th percentile of market for compensation data including an equity component given the greater variability in equity market data. Market data obtained for purposes of competitive compensation analysis was only one factor used in determining 2014 compensation for our named executive officers. Other factors are described above under “—How do we determine the amount for each element of executive officer compensation?”

Details concerning the surveys used are summarized below:

Type of Survey Group/Data		Companies in Group/Data
Cost of Management Analysis—Provides information about what other companies are paying by rank and in the aggregate for their top positions		Towers Watson General Industry Survey—All participants.
Traditional Peer Group—Proxy data from competitor companies in the healthcare industry		Aetna, Inc.; CIGNA Corp.; Humana, Inc.; UnitedHealth Group, Inc.; and WellPoint, Inc.

Management involvement in compensation decisions

In addition to market and other factors, the Board and the Compensation Committee consider input from our Chief Executive Officer, Chief Financial and Operating Officer and/or Senior Vice President, Organization Effectiveness, as applicable, in making their respective decisions regarding the compensation of the other named executive officers.

In the first quarter following the performance year, our Chief Executive Officer, Chief Financial and Operating Officer and our Senior Vice President, Organization Effectiveness, conduct a formal assessment (including obtaining individual self-assessments) of each named executive officer’s performance, including with respect to the performance factors developed for use in connection with our annual incentive cash award program. For additional detail on how our annual performance-based incentive cash awards are determined, see below under “—Analysis of Compensation During Fiscal 2014—Annual Performance-Based Incentive Cash Awards.” Our Chief Executive Officer then provides the Compensation Committee with his assessment of the Company’s performance during the performance year and our CEO and Chief Financial and Operating Officer, as applicable, provide the results of the formal assessment of the other named executive officers, and provide recommendations for each named executive officer’s compensation, including salary adjustments, bonus payouts and equity grants, based on these assessments. The Compensation Committee uses these assessments and recommendations as a basis for its compensation decisions regarding our named executive officers and for its recommendation with regard to the compensation of our Chief Executive Officer and second-highest paid executive, which then must be approved by the independent members of the Board. The compensation recommendations for the second-highest paid executive also include input from our Chief Executive Officer.

The evaluation of our Chief Executive Officer is a formal process whereby all members of our Board have the opportunity to provide input on our Chief Executive Officer’s performance, including with regard to applicable performance factors. Our Chief Executive Officer provides a self-assessment to the independent members of the Board each year, and each such Board member is then asked to evaluate our Chief Executive Officer’s achievements. The individual independent Board members’ evaluations are consolidated and sent back to each independent Board member. The Compensation Committee uses this consolidated feedback as a basis for its recommendation with regard to the compensation of our Chief Executive Officer, including salary adjustments, bonus payouts and equity grants, which then must be approved by the independent members of the Board.

Analysis of Compensation During Fiscal 2014

General.    In 2014, we provided our named executive officers with target total direct compensation that ranged from 91% to 107% of the 50^th percentile of the market. This included the following components: (i) base salaries that ranged from 90% to 123% of the 50^th percentile of the market, (ii) target annual cash incentive opportunities under our MIP that ranged from 72% to 126% of the 50^th percentile of the market, and (iii) target long-term incentive opportunities that ranged from 85% to 124% of the 50^th percentile of the market. In addition, consistent with our objectives of linking executive pay with performance and aligning the interests of our executives with those of our stockholders, we continued our practice of placing an emphasis on long-term incentive awards, which comprised approximately 64% of target total direct compensation for our Chief Executive Officer and approximately 52%, on average, for our other named executive officers as a group in 2014.

Base Salary.    The table below shows the base salary, as well asand includes a description of the market positions of the base salaries, for each of the named executive officers as of December 31, 20132014 and the percentage increase in such base salary compared to each named executive officer’s base salary as of December 31, 2012.2013.

20132014 Base Salary Review

Annual Performance-Based Incentive Cash Awards.    For each of our named executive officers, the executive’s target incentive opportunity as a percentage of base salary remained the same in 2013,2014, as compared to 2012, except for Mr. Law whose bonus target increased from 50% to 80% in combination with his promotion on March 7, 2013. The table below shows our 20132014 target annual incentive cash award opportunities and positions relative to the 50^th percentile of the market.

20132014 Target Annual Incentive Cash Award Opportunity

The Compensation Committee approved funding the 2013 MIP at up to 125% of each participant’s target bonus if the Company’s actual performance exceeded a pre-established performance target of $263 million of 2013 Combined Western Region and Government Contracts PTI. Following a quantitative review of the Company’s actual 2013 Combined Western Region and Government Contracts PTI, the actual funding level was then to be determined following a qualitative review of the Company’s 2013 performance based on, among other things, the Company’s achievement of the Strategic Initiatives. The Company’s actual 2013 Combined Western Region and Government Contracts PTI was $282 million, which exceeded the pre-established performance target, and the Company performed successfully with regard to the Strategic Initiatives. Although these results would have permitted funding the 2013 MIP at a Company Performance Score of up to 125%, in an effort to be fiscally conservative as the Company prepared for fiscal 2014 and beyond, the Compensation Committee determined to fund the MIP with a Company Performance Score of only 100% of target.

The actual amount of an executive’sa named executive officer’s annual incentive cash award for 20132014 was ultimately determined by (i) multiplying the product of the executive’s annual base salary at December 31, 20132014 and his or her individual target award percentage, and then (ii) multiplying the result of the foregoing by the Company Performance Score (which is equal to the funding level and was approved at 100%110%) and further (iii) multiplying the result of the foregoing by such executive’s Individual Performance Score, as illustrated below:

(Annual Base Salary x Target Award Percentage) x Company Performance Score x Individual Performance Score = Annual Incentive Cash Award Payout

Additionally, in no event can the annual incentive cash award payout to any named executive officer exceed 200% of his or her individual target bonus amount.

The funding level of the 2014 MIP ranges from 0%, if the pre-established performance threshold of 2014 PTI is not reached, to 125%, if the pre-established performance target of $358 million of 2014 PTI, which was in line with our internal business plan and budget at the time the funding target was established, is exceeded. If the pre-established funding threshold is met, the Compensation Committee has the discretion to fund the 2014 MIP within one of three funding ranges, depending on the amount of 2014 PTI. The three funding ranges are as follows:

The Compensation Committee considers the Company’s performance with regard to, among other things, the Strategic Initiatives, to determine the funding level within the appropriate funding range, which also serves as the Company Performance Score. The Company’s actual 2014 PTI was $385.1 million, which permitted funding the 2014 MIP within a funding range between 101% and 125% of the target funding level. In addition, the Compensation Committee determined that the Company performed successfully with regard to each of the Strategic Initiatives. Following this determination, the Compensation Committee approved funding the 2014 MIP at 110% of the target funding level, which was also the Company Performance Score. For additional detail, see the information under “—What are the elements of named executive officer compensation and why do we provide each element?—Annual Performance-Based Incentive Cash Awards.”

To determine each named executive officer’s Individual Performance Score, which may range from 0% to 200%, Mr. Gellert presented to the Compensation Committee performance evaluations for Messrs.Mr. Woys and Capezza,Ms. Hefner, as well as a self-evaluation of his own performance for 2013,2014, and Mr. Woys presented to the Compensation Committee performance evaluations for Messrs. LawSell and Tough. Mr. Gellert’s and Mr. Woys’ evaluations included an assessment of the named executive officers’ performance with respect to the following performance factors: (i) individual and/or business unit contributions to 20132014 combined Western Region and Government Contracts PTI, Western Region Operations year-end total medical membership, combined Western Region Operations and Government Contracts segment revenues, Western Region Operations total MCR, Western Region Operations general & administrative expense ratio, GAAP EPS, and Combined Western Region Operations and Government Contracts EPS; (ii) individual and/or business unit contributions to the achievement of the Strategic Initiatives; (iii) leadership; (iv) talent development; (v) succession planning; (vi) regulatory and operational compliance; (vii) organizational climate; (viii) successful responses to changing market conditions, including, but not limited to, changes resulting from health care reform, to ensure the Company is well positioned for 20142015 and beyond; and (viii)(ix) business unit performance and operationsoperations; and (x) process improvements to drive enterprise outcome (collectively, the “Performance Factors”). The Performance Factors were not an exhaustive listing of factors to be considered and were intended to be subjective factors. In addition, no single factor was to be determinative, nor must all factors behave been considered with respect to a particular individual. Mr. Gellert recommended to the Compensation Committee Messrs. Capezza’sMr. Woys’ and Woys’Ms. Hefner’s Individual Performance ScoresScore while Mr. Woys recommended to the Compensation Committee Messrs. Law’sSell’s and Tough’s Individual Performance Scores.

The Compensation Committee then made a final determination, in its sole and absolute discretion, as to the Individual Performance Score for each named executive officer after considering Mr. Gellert’s and Mr. Woys’ recommendations, reviewing the individual’s performance with respect to the Performance Factors, and considering its own observations and assessments of our named executive officers and Health Net’s performance. The Compensation Committee approved Messrs. Capezza’s, Law’sSell’s and Tough’s Individual Performance Scores as recommended by Mr. Gellert and Mr. Woys as applicable, of 75%, 100% and 110%, respectively.respectively and approved Ms. Hefner’s Individual Performance Score as recommended by Mr. Gellert of 110%. For Mr. Gellert and Mr. Woys (our second-highest paid executive), the Compensation Committee recommended an Individual Performance Score of 100% for each150% and 110%,

respectively, to the Board, which the Board approved. When approving the Individual Performance Scores of our named executive officers, the Compensation Committee and the Board, as appropriate, considered each named executive officer’s individual and business unit contributions to the Performance Factors among other things, including, but not limited to, Mr. Woys’ and Ms. Hefner’s significant contributions in finalizing the Master Services Agreement, Mr. Sell’s significant contributions in increasing the Company’s exchange membership and Mr. Tough’s significant contributions in growing the Company’s state health programs and maintaining and growing the Company’s government contract opportunities. In addition, when approving Mr. Gellert’s Individual Performance Score, the Board considered, among other things, Mr. Gellert’s leadership and significant contributions in support of the Company’s successful performance with regard to the Strategic Initiatives and in positioning the Company to benefit from the unprecedented changes in the managed care industry that significantly contributed to the Company’s strong financial and operational performance in 2014.

Target Total Cash Compensation (base salary at December 31, 2013, plus actual annual performance-based incentive cash awards paid).    The table below shows where actualtarget total cash compensation (defined as the sum of (i) base salary at December 31, 2014 and (ii) target annual performance-based incentive cash award) for 20132014 was positioned in relation to the competitive market data for each of our named executive officers.

2014 Target Total Cash Compensation

2013 Actual Total Cash Compensation.    The table below shows where actual total cash compensation (defined as the sum of (i) base salary at December 31, 20132014 and (ii) actual 2014 annual performance-based incentive cash paid) for 2014 was positioned in relation to target total cash compensation for 2014.

2014 Actual Total Cash Compensation