Health Net 2010 Annual Report Download - page 63

In addition to new federal regulations, various health insurance reform proposals are also emerging at the
state level. Many of the states in which we operate are expected to seek to implement parts of the federal health
care reform and even to add new requirements, such as prior approval of rates. Even in cases where state action is
limited to implementing federal reforms, new or amended state laws will be required in many cases. States also
may disagree in their interpretations of the federal statute and regulations, and state “guidance” that is issued
could be unclear or untimely. The interaction of new federal regulations and the implementation efforts of the
various states in which we do business will create substantial uncertainty for us and other health insurance
companies about the requirements under which we must operate. Adding to the uncertainty, there also have been
Congressional and legal challenges to federal health care reform that, if ultimately successful, could result in
changes to the existing legislation or the repeal of ACA in its entirety. Additionally, in California, the ongoing
state budget deficits continue to threaten funding for the current Medicaid program and Children’s Health
Insurance Program, and the future expansion of these programs authorized by federal health care reform is
uncertain.
Due to the unsettled nature of these reforms and the numerous steps required to implement them, we cannot
predict how future regulations and laws, including state laws, implementing the new legislation will impact our
business. As a result, although we continue to evaluate the impacts of the new legislation, it could have a material
adverse effect on our business, financial condition and results of operations.
In addition, federal and state governmental authorities also are considering additional legislation and
regulations that could negatively impact us. We cannot predict whether additional legislation or regulations will
be enacted at the federal and state levels, and if they are, what provisions they will contain or what effect they
will have on us. As a result, additional federal and state legislation and regulations could have a material adverse
effect on our business, cash flows, financial condition and results of operations.
For additional information on federal and state health care reform and other potential new laws and
regulations, as well as discussion of the related risks that we face, see “Item 1. Business—Government
Regulation—Federal Legislation and Regulation—Health Care Reform Legislation” and “Item 1A. Risk
Factors—“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.”
2010 Financial Performance Summary
Health Net’s financial performance in 2010 is summarized as follows:
• In the year ended December 31, 2010, we reported net income of $204.2 million or $2.06 per diluted
share as compared to a net loss of $(49.0) million or $(0.47) per share, for the same period in 2009. Our
operating results for the year ended December 31, 2010 were impacted by pretax charges of $61.2
million related to our operations strategy and other cost management initiatives, and $9.0 million in
early debt extinguishment and related interest rate swap termination costs, partially reduced by a $46.5
million benefit from litigation reserve true-ups and a $42.0 million adjustment to loss on sale of
Northeast health plan subsidiaries. For additional information on our operations strategy, see “Item 1A.
Risk Factors—If we are unable to manage our general and administrative expenses, our business,
financial condition or results of operations could be harmed.” Our operating results for the year ended
December 31, 2009 were impacted by pretax charges of $105.9 million loss on sale of our Northeast
health plan subsidiaries, $174.9 million of asset impairment on Northeast Operations and $123.6
million in charges related to our operations strategy, reductions for litigation reserve true-ups and
Northeast Sale related expenses.
• Western Region Operations enrollment was 2.9 million as of December 31, 2010, a decrease of 57,000
members, or 1.9 percent, compared to December 31, 2009;
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