Health Net 2010 Annual Report Download - page 26

Any or all forward-looking statements in this Annual Report on Form 10-K and in any other public filings
or statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many of the factors discussed below will be important in
determining future results. These factors should be considered in conjunction with any discussion of operations
or results by us or our representatives, including any forward-looking discussion, as well as information
contained in press releases, presentations to securities analysts or investors or other communications by us. You
should not place undue reliance on any forward-looking statements, which reflect management’s analysis,
judgment, belief or expectation only as of the date thereof. Except as may be required by law, we do not
undertake to address or update forward-looking statements.
Federal health care reform legislation, as well as potential additional changes in federal or state legislation
and regulations, could have an adverse impact on our revenues and the costs of operating our business and
could materially adversely affect our business, cash flows, financial condition and results of operations.
During the first quarter of 2010, the President signed the ACA into law, which will result in significant
changes to the U.S. health care system and alter the dynamics of the health care insurance industry. The
provisions of the new legislation include, among others, imposing significant new taxes and fees on health
insurers, including an excise tax on high premium insurance policies, stipulating a minimum medical loss ratio,
new annual fees on companies in our industry which may not be deductible for income tax purposes, limiting
Medicare Advantage payment rates, mandated additional benefits, elimination of medical underwriting for
medical insurance coverage decisions, or “guaranteed issue,” increased restrictions on rescinding coverage,
prohibitions on some annual and all lifetime limits on amounts paid on behalf of or to our members, requirements
that limit the ability of health plans to vary premiums based on assessments of underlying risk, limitations on the
amount of compensation paid to health insurance executives that is tax deductible, additional regulations
governing premium rate increase requests, requirements that individuals obtain coverage and the creation of
government controlled “exchanges” where individuals and small business groups may purchase health coverage.
Some provisions of the health care reform legislation became effective in 2010, including those that increase
the restrictions on rescinding coverage, those that bar health insurance companies from placing lifetime limits on
“essential benefits,” which are only partially defined, those that prohibit annual limits below specified caps for
essential benefits for some benefit plans and those that require health plans to cover certain out-of-network
services with no additional co-pay to their enrollees. Some provisions that significantly increase federal
regulation of the handling of appeals and grievances were to become effective in 2010, but enforcement was
postponed until July 1, 2011. Some of the potentially more significant changes, including the annual fees on
health insurance companies, the excise tax on high premium insurance policies, the guaranteed issue
requirements, the requirement that individuals obtain coverage, and the creation of exchanges, as described
above, do not become effective until 2014 or later. Implementation of other provisions generally varies from as
early as enactment or six months from the date of enactment to as late as 2018. In advance of the September 2010
federal implementation date, we voluntarily provided the option of continuing coverage for adult dependents up
to age 26 who are currently enrolled on their parents’ health care policies. In addition, we reaffirmed our existing
policy against rescinding members without approval from an external third-party reviewer, which has been in
effect since 2007.
Various aspects of the health care reform legislation could have an adverse impact on our revenues and the
cost of operating our business. For example, the new legislation will lower the rates of Medicare payments we
receive, may make it more difficult for us to attract and retain members, increase the amount of certain taxes and
fees we pay, impose a sales tax on medical device manufacturers and increase the amount of fees pharmaceutical
manufacturers pay (both of which in turn could increase our medical costs), require rebates related to minimum
medical loss ratios and require premium rate review. We could also face additional competition as competitors
seize on opportunities to expand their business as a result of the new legislation, though there remains
considerable uncertainty about the impact of these changes on the health insurance market as a whole and what
actions our competitors could take. Because of the magnitude, scope and complexity of the new legislation, we
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