Health Net 2010 Annual Report Download - page 15

Additional Information Concerning Our Business
Competition
We operate in a highly competitive environment in an industry currently subject to significant changes from
business consolidations, new strategic alliances, legislative reform and market pressures brought about by a
better informed and better organized customer base. Our health plans face substantial competition from for-profit
and nonprofit HMOs, PPOs, self-funded plans (including self-insured employers and union trust funds), Blue
Cross/Blue Shield plans, and traditional indemnity insurance carriers, some of which have substantially larger
enrollments and greater financial resources than we do. The development and growth of companies offering
Internet-based connections between health care professionals, employers and members, along with a variety of
services, could also create additional competitors. We believe that the principal competitive features affecting our
ability to retain and increase membership include the range and prices of benefit plans offered, size and quality of
provider network, quality of service, responsiveness to user demands, financial stability, comprehensiveness of
coverage, diversity of product offerings, and market presence and reputation. The relative importance of each of
these factors and the identity of our key competitors vary by market. We believe that we compete effectively
against other health care industry participants in our Western Region Operations segment.
Our primary competitors in California are Kaiser Permanente, Anthem Blue Cross of California,
UnitedHealth Group, Inc. and Blue Shield of California. Together, these four plans and Health Net account for a
majority of the insured market in California. Kaiser is the largest HMO in California based on number of
enrollees and Anthem Blue Cross of California is the largest PPO provider in California based on number of
enrollees. There are also a number of small, regional-based health plans that compete with Health Net in
California, mainly in the small business group market segment. In addition, two of the major national managed
care companies, Aetna, Inc. and CIGNA Corp., are active in California. Their respective commercial full-risk
market share is not as significant as our primary competitors in California and we believe that each remains in
California primarily to serve their national, self-funded accounts’ California employees.
Our largest competitor in Arizona is UnitedHealth Group, Inc. Our Arizona HMO also competes with Blue
Cross Blue Shield of Arizona, CIGNA, Aetna and Humana Inc. Our Oregon health plan competes primarily with
Kaiser, UnitedHealth Group, Providence, Regence Blue Cross/Blue Shield, PacificSource, Lifewise and ODS
Health Plans, Inc.
Marketing and Sales
We market our products and services to individuals and employer groups through internal sales staff,
independent brokers, agents and consultants and through the Internet. For our group health business, we market
our products and services utilizing a three-step process. We first market to potential employer groups, group
insurance brokers and consultants. We then provide information directly to employees once the employer has
selected our health coverage. Finally, we engage members and employers in marketing for member and group
retention. For our small group business, members are enrolled by their employer based on the plan chosen by the
employer. In general, once selected by a large employer group, we solicit enrollees from the employee base
directly. During “open enrollment” periods when employees are permitted to change health care programs, we
use a variety of techniques to attract new enrollees and retain existing members, including, without limitation,
direct mail, work day and health fair presentations and telemarketing. Our sales efforts are supported by our
marketing division, which engages in product research and development, multicultural marketing, advertising
and communications, and member education and retention programs.
Premiums for each employer group are generally contracted on a yearly basis and are payable monthly. We
consider numerous factors in setting our monthly premiums, including employer group needs and anticipated
health care utilization rates as forecasted by us based on the demographic composition of, and our prior
experience in, our service areas. Premiums are also affected by applicable state and federal law and regulations
that may directly or indirectly affect premium setting. For example, California law limits experience rating of
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