Health Net 2010 Annual Report Download - page 45

adjustment expenses, as of the ASA Termination Date for all claims of the subsidiaries through the winding-up
and running-out period of the acquired business (excluding certain unreserved claims). Depending on when the
ASA Termination Date occurs, the amount of such loss reserve could be substantial.
As a result of the provisions described above, we continue to have significant financial obligations to the
Buyer and its affiliates with respect to the acquired business. In the event that the amount of these financial
obligations exceed our expectations, our responsibilities to the Buyer and its affiliates with respect to these
obligations could have an adverse effect on our business, financial condition or results of operations.
The markets in which we do business are highly competitive. If we do not design and price our product
offerings competitively, our membership and profitability could decline.
We are in a highly competitive industry. Many of our competitors may have certain characteristics,
capabilities or resources, such as greater market share, superior provider and 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. In addition, other companies may enter our markets in the future.
The addition of new competitors in our industry 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, medical group, pharmaceutical and medical device industries. This
activity may create stronger competitors and/or result in higher health care costs. Furthermore, the adoption of
the ACA could further increase the likelihood of provider consolidation, which in turn could make it more
difficult for us to negotiate competitive rates. In addition, our contracts with government agencies, such as our T-
3 North Region contract, are frequently up for re-bid and the loss of any significant government contract to a
competitor, such as the T-3 North Region contract, 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.
If we do not compete effectively in our markets, if we do not design and price our products appropriately
and competitively, if we are unable to innovate and deliver products and services that demonstrate value to our
customers, if we set rates too high or too low in highly competitive markets, if we lose accounts with more
profitable products while retaining or increasing membership in accounts with less profitable products, if we do
not provide satisfactory service levels, if membership or demand for other services does not increase as we
expect or if membership or demand for other services declines, it could have a material adverse effect on our
business, financial condition and results of operations.
At the closing of the Northeast Sale, we entered into a Non-Competition Agreement with the Buyer that
contains prohibitions which could negatively impact our prospects, business, financial condition or results of
operations.
Under the Stock Purchase Agreement, at the closing of the transactions contemplated by the agreement, we
entered into a Non-Competition Agreement with the Buyer, pursuant to which we generally are prohibited from
competing with the acquired business in the States of New York, New Jersey, Connecticut and Rhode Island for
a period of five years, and from engaging in certain other restricted activities. Although we currently do not have
any intention to engage in such prohibited activities during the term of the Non-Competition Agreement,
circumstances could change and it may become in our best interests to engage in a business that is prohibited by
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