Health Net 2011 Annual Report Download - page 23

retaining business. A violation of specific laws and regulations by us or our agents could result in, among other
things, the imposition of fines and penalties on us, changes to our business practices, the termination of our
contracts or debarment from bidding on contracts. See “—Government Contracts Segment—Other Department
of Defense Contracts” for additional information on the MFLC contract and “Item 1A. Risk Factors—We are
subject to risks associated with outsourcing services and functions to third parties” for additional information on
our outsourcing activities.
State Laws and Regulations
Our Western Region Operations HMOs, insurance companies and behavioral health plan are subject to
extensive state regulation. Set forth below are the principal regulatory agencies that govern these health plans and
insurance companies.
Company Regulatory Agency
Arizona HMO Arizona Department of Insurance
California HMO California Department of Managed Health Care. Additionally the California
Department of Health Care Services regulates Medi-Cal, and the Managed Risk
Medical Insurance Board regulates Healthy Families.
Oregon HMO Oregon Department of Consumer and Business Services
Health Net Life Insurance
Company (Arizona and
California PPO)
California Department of Insurance generally, and the Department of Insurance of
each state in which it does business
MHN California Department of Managed Health Care, New York Department of Insurance
Additionally, the administrative services that we provided to United and certain of its affiliates as part of our
Northeast Operations pursuant to the United Administrative Services Agreements prior to July 1, 2011 and
pursuant to the Claims Servicing Agreements after July 1, 2011, are subject to state laws and regulations. The
Connecticut Department of Insurance, the New Jersey Department of Banking and Insurance, the New Jersey
Department of Human Services and Division of Medical Assistance and Health Services (for Medicaid only), the
New York Department of Insurance and the New York Department of Health are the principal state regulatory
agencies that govern our provision of administrative services in the Northeast pursuant to the United
Administrative Services Agreements and Claims Servicing Agreements. For additional information about our
Northeast Operations segment, see “—Northeast Operations Segment.”
Insurance and HMO laws impose a number of financial requirements and restrictions on our regulated
subsidiaries, which vary from state to state. They generally include certain minimum capital and deposit and/or
reserve requirements, restrictions on dividends and other distributions to the parent corporations and affiliated
corporations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Statutory Capital Requirements.” These financial requirements
are subject to change, which may require us to commit additional capital to certain regulated subsidiaries or may
limit our ability to move capital through dividends and other distributions.
While there are state-by-state variations, HMO regulation generally is extremely comprehensive. Among the
areas regulated by these HMO regulatory agencies are:
• Adequacy of financial resources, network of health care providers and administrative operations;
• Sales and enrollment requirements, disclosure documents and notice requirements;
• Product offerings, including the scope of mandatory benefits and required offerings of benefits that are
optional coverages;
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