Health Net 2005 Annual Report Download - page 28

Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant
uncertainties, and, as a matter of course, any number of them may prove to be incorrect. For example, during
2005, we experienced higher than expected Government contracts revenue and health care costs due to
consequences of overseas military activity. In prior years, commercial and Medicare health care costs have been
higher than anticipated, causing margins to narrow more than expected and causing a negative impact on our
financial and operating results.
The achievement of any forecast depends on numerous risks and other factors, including those described in
this Annual Report on Form 10-K, many of which are beyond our control. As a result, we cannot assure that our
performance will meet any management forecasts or that the variation from such forecasts will not be material
and adverse. You are cautioned not to base your entire analysis of our business and prospects upon isolated
predictions, but instead are encouraged to utilize the entire mix of publicly available historical and forward-
looking information, as well as other available information affecting us, our services, and our industry when
evaluating our forecasts and other forward-looking statements relating to our operations and financial
performance.
The markets in which we do business are highly competitive and our inability to effectively compete could
have an adverse effect on our business, financial condition or results of operations.
We compete with a number of other entities in the geographic and product markets in which we operate,
some of which may have certain characteristics, capabilities or resources, such as greater market share, superior
supplier arrangements and existing business relationships, that give them an advantage in competing with us.
These competitors include HMOs, PPOs, self-funded employers, insurance companies, hospitals, health care
facilities and other health care providers. We believe that increased funding provided by the MMA will increase
the number of competitors in senior health services and could affect our Medicare Advantage program. In
addition, financial services or other technology-based companies could enter the market and compete with us on
the basis of their streamlined administrative functions. The addition of new competitors can occur relatively
easily and customers enjoy significant flexibility in moving between competitors. There is a risk that our
customers may decide to perform for themselves functions or services currently provided by us, which could
result in a decrease in our revenues. In addition, our providers and suppliers may decide to market products and
services to our customers in competition with us.
In recent years, there has been significant merger and acquisition activity in our industry and in industries
that act as our suppliers, such as the hospital, physician, pharmaceutical and medical device industries. This
activity may create stronger competitors and/or result in higher health care costs. In addition, our contracts with
government agencies are frequently up for re-bid and the loss of any significant government contract to a
competitor could have an adverse effect on our financial condition and results of operations. To the extent that
there is strong competition or that competition intensifies in any market, our ability to retain or increase
customers, our revenue growth, our pricing flexibility, our control over medical cost trends and our marketing
expenses may all be adversely affected.
Our efforts to capitalize on business opportunities provided by consumer-directed healthcare, such as our
HSA program, could prove to be unsuccessful.
According to Corporate Research Group, HSAs, HRAs and consumer-directed healthcare are expected to
comprise 15% to 20% of the healthcare market by the year 2010 in terms of enrollment. America’s Health
Insurance Plans (“AHIP”) reported that, as of June 2005, the number of individual and group members choosing
HSA-compatible high-deductible health plans was approximately 1 million, more than double the 483,000 that
had signed up as of September 2004. AHIP also reported that most of the recent growth has come from groups
offering HSA-compatible plans to their employees.
As of December 31, 2005, nearly every major managed care organization has launched, announced or is
developing HSA-compatible high-deductible health plans. As of December 31, 2005, we had launched HSA
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