Health Net 2011 Annual Report Download - page 44

If the current unfavorable economic conditions continue or further deteriorate, it could adversely affect our
revenues and results of operations.
The economic conditions in the United States continue to be challenging. Continued concerns about high
unemployment rates, government debt, geopolitical issues, the availability and cost of credit and other capital,
the U.S. real estate market, consumer spending and other factors continue to negatively impact expectations for
the U.S. economy. These events could adversely affect our revenues and results of operations.
These market conditions expose us to a number of risks, including risks associated with the potential
financial instability of our customers. If our customer base experiences cash flow problems or other financial
difficulties, it could, in turn, adversely impact membership in our plans. For example, our customers may modify,
delay or cancel plans to purchase our products, or may make changes in the mix of products purchased from us.
If our customers experience financial issues, they may not be able to pay, or may delay payment of, accounts
receivable that are owed to us. Further, our customers or potential customers may force us to compete more
vigorously on factors such as price and service to retain or obtain their business, and in order to compete
effectively in our markets, we also must deliver products and services that demonstrate value to our customers
and that are designed and priced properly and competitively. Prior to the effective date of the ACA’s guaranteed
issue requirement, the adverse economic conditions may also cause employers to stop offering certain health care
coverage as an employee benefit or elect to offer this coverage on a voluntary, employee-funded basis as a means
to reduce their operating costs. A significant decline in membership in our plans and the inability of current and/
or potential customers to pay their premiums as a result of unfavorable economic conditions could have a
material adverse effect on our business, including our revenues, profitability and cash flow. In addition, a
prolonged economic downturn could negatively impact the financial position of hospitals and other providers
and, as a result, could adversely affect our contracted rates with such parties and increase our medical costs.
High unemployment rates and significant employment layoffs and downsizings may also impact the number
of enrollees in managed care programs and the profitability of our operations. For example, in 2011, our
commercial membership decreased by 1.2 percent due, in part, to the difficult economic conditions in the regions
where we do business. If economic conditions continue to be difficult and unemployment rates continue to be
high, we may experience a reduction in existing and new business, which may have a material adverse effect on
our business, financial condition and results of operations.
Largely as a result of the recent economic conditions and new members from California’s SPD program, we
saw an increase in our Medi-Cal membership of approximately 108,000 members, or 12.0%, in 2011. However,
the state of California is currently experiencing unprecedented budget deficits. An extended economic downturn
could continue to adversely affect state and federal budgets, including California’s, resulting in reduced
reimbursements or payments in our federal and state government health care coverage programs, including
Medicare, Medi-Cal and CHIP. A reduction in California’s Medi-Cal reimbursement rates could be implemented
retrospectively to payments already negotiated and/or received from the government and could adversely affect
our revenues and financial results. This risk is amplified as our Medi-Cal membership increases. See “—A
significant reduction in revenues from the government programs in which we participate could have an adverse
effect on our business, financial condition or results of operations” for additional information regarding
proposals to reduce California’s Medi-Cal provider reimbursement rates. In addition, state and federal budgetary
pressures could cause new or higher levels of assessments or taxes for our commercial programs, such as
surcharges on select fee-for-service and capitated medical claims or premium taxes on insurance companies and
health maintenance organizations, and could adversely affect our results of operations. To help balance the
budget, California has enacted measures to reduce certain provider reimbursements and introduce copayments for
certain services. For additional information regarding the proposed reductions in certain provider
reimbursements, see “—A significant reduction in revenues from the government programs in which we
participate could have an adverse effect on our business, financial condition or results of operations.” These
changes would require federal approval, but if implemented, also could reduce the amounts of payments that we
receive from the state in connection with our state health programs business. Moreover, any enrollment freeze or
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