Health Net 2005 Annual Report Download - page 33

Terrorist and other malicious activity could cause us to incur unexpected health care and other costs.
The September 11, 2001 terrorist attacks, the war on terrorism and the threat of future acts of terrorism,
including bio-terrorism, have negatively affected, and could continue to negatively affect, the U.S. economy in
general and the health care industry specifically. We have updated our procedures for dealing with potential
terrorist-related activity such as the September 11, 2001 attacks, the anthrax cases in 2001 and potential future
events involving malicious activity. Even with such updated procedures, there can be no assurance that future
acts of terrorism or other malicious activity will not occur or that such events will not materially or negatively
affect us. Depending on the government’s actions and the responsiveness of public health agencies and insurance
companies, future acts of terrorism and bio-terrorism could lead to, among other things, increased use of health
care services, disruption of information and payment systems, increased health care costs due to restrictions on
our ability to carve out certain categories of risk (such as acts of terrorism) and disruption of the financial and
insurance markets in general.
A pandemic, such as a worldwide outbreak of a new influenza virus, could materially and adversely affect
our ability to control health care costs.
An outbreak of a pandemic disease, such as the Avian Influenza A Virus, could materially and adversely
affect our business and operating results. Although we cannot predict if and when a pandemic will occur, or
accurately forecast how many people will be affected by a pandemic, the U.S. Department of Health and Human
Services (the “DHHS”) and other Government agencies have cautioned that the impact of a pandemic on the
United States could be substantial. DHHS has cited studies suggesting that, in the absence of any control
measures, such as a vaccination, a “medium-level” pandemic in the United States could cause 89,000 to 207,000
deaths, 314,000 to 734,000 hospitalizations, 18 million to 42 million outpatient visits and another 20 million to
47 million people being sick.
While, to date, the avian flu has struck mostly the poultry population in Southeast Asia and parts of Europe
and Africa, it has affected humans in a small number of cases. Upon mutation to a form that can be transmitted
from human to human, the avian flu virus has the potential to spread rapidly worldwide. Estimates of the
contagion and mortality rate of any mutated avian flu virus that can be transmitted from human to human are
highly speculative. We continue to monitor developing facts. A significant global outbreak of avian flu among
humans could have a material adverse effect on our results of operations and financial condition as a result of
increased inpatient and outpatient hospital costs and the cost of anti-viral medication to treat the virus.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease office space for our principal executive offices in Woodland Hills, California. Our executive
offices, comprising approximately 115,448 square feet, are occupied under a lease that expires December 31,
2014. A significant portion of our California HMO operations are also housed in Woodland Hills, in a separate
333,954 square foot leased facility. The lease for this two-building facility expires December 31, 2011.
Combined rent and rent related obligations for our Woodland Hills facilities were approximately $14.4 million in
2005.
We also lease an aggregate of approximately 512,110 square feet of office space in Rancho Cordova,
California for certain Health Plan Services and Government Contract operations. Our aggregate rent and rent
related obligations under these leases were approximately $9.4 million in 2005. These leases expire at various
dates ranging from 2006 to 2016. We also lease a total of approximately 109,285 square feet of office space in
San Rafael and Pointe Richmond, California for certain specialty services operations.
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