Health Net 2004 Annual Report Download - page 17

• create policies related to the privacy of PHI and
The regulations also establish significant criminal penalties and civil sanctions for non-compliance. We are in compliance with
the HIPAA privacy regulations and the requirements relating to transactions and codesets. The security regulations have a compliance
date of April 2005 and we have implemented many of the security regulations well in advance of the compliance date. In addition, we
have created a security plan to ensure appropriate compliance prior to the effective date for the remaining security regulations.
The Gramm-Leach-Bliley Act generally requires insurers to provide customers with notice regarding how their personal health
and financial information is used and the opportunity to “opt out” of certain disclosures before the insurer shares non-public personal
information with a non-affiliated third party. Like HIPAA, this law sets a “floor” standard, allowing states to adopt more stringent
requirements governing privacy protection.
Federal HMO Act. Under the Federal Health Maintenance Organization Act of 1973 (the “HMO Act”), services to members
must be provided substantially on a fixed, prepaid basis without regard to the actual degree of utilization of services. Premiums
established by an HMO may vary from account to account through composite rate factors and special treatment of certain broad
classes of members, and through prospective (but not retrospective) rating adjustments. Several of our HMOs are federally qualified
in certain parts of their respective service areas under the HMO Act and are therefore subject to the requirements of such act to the
extent federally qualified products are offered and sold.
ERISA. Most employee benefit plans are regulated by the federal government under the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”). Employment-based health coverage is such an employee benefit plan. ERISA is administered,
in large part, by the U.S. Department of Labor (“DOL”). ERISA contains disclosure requirements for documents that define the
benefits and coverage. It also contains a provision that causes federal law to preempt state law in the regulation and governance of
certain benefit plans and employer groups, including the availability of legal remedies under state law. In 2002, the DOL adopted
regulations under ERISA which mandated certain claims and appeals processing requirements. These regulations became fully
effective on January 1, 2003 and, during 2003, we made certain adjustments in our claims systems to comply with these regulations.
The cost of the adjustments was not material from a financial point of view.
Miscellaneous. Our Medicare contracts are subject to regulation by CMS. CMS has the right to audit HMOs and PPOs operating
under Medicare contracts to determine the quality of care being rendered and the degree of compliance with CMS’ contracts and
regulations. Our Medicaid business is also subject to regulation by CMS, as well as state agencies, and is generally examined on a
periodic basis by such state agencies.
California Laws and Regulations
• enter into specific written agreements with business associates to whom PHI is disclosed.
Health Insurance Act of 2003. In October 2003, the Governor of California signed the Health Insurance Act of 2003 (the
“California Health Insurance Act”), commonly referred to as “pay or play,” which would have required all California employers
employing more than 200 employees to pay a fee or show proof of health insurance or other acceptable health coverage for both
employees and their dependents beginning January 1, 2006. The California Health Insurance Act was repealed by referendum in
November 2004. The vote to repeal the Act was close and supporters have threatened to circulate an initiative measure to reenact it.
No assurances can be given as to whether or not such a measure will be considered in 2005 or thereafter.
California HMO Regulations. California HMOs, such as HN California and our behavioral health plan, MHN, are subject to
California state regulation, principally by the Department of Managed Health Care (“DMHC”) under the Knox-Keene Act. Among
the areas regulated by the Knox-Keene Act are:
• adequacy of administrative operations,
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• the scope of benefits required to be made available to members,