Health Net 2011 Annual Report Download - page 67

of or to our members, limiting the ability of health plans to vary premiums based on assessments of underlying
risk, limiting the amount of compensation paid to health insurance executives that is tax deductible, expanding
regulations that govern premium rate increase requests, in addition to 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 rescissions, 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 of certain of the provisions was postponed until July 1, 2011 and a subset of those again until
January 1, 2012.
Various aspects of the health care reform legislation could have an adverse impact on our revenues,
enrollment and premium growth in certain products and market segments and the cost of operating our business.
Among other things, the legislation will require premium rate review in certain market segments, and require
premium rebates in the event minimum medical loss ratios are not met. We do not believe that we will be
required to pay a material amount in rebates with respect to our 2011 business, however, we cannot be certain
that we will not be required to pay material amounts in rebates in the future. In addition, the legislation will lower
the rates of Medicare payments we receive, may make it more difficult for us to attract and retain members, and
will increase the amount of certain taxes and fees we pay, which is expected to increase our effective tax rate in
future periods. However, we are unable to estimate the amount of these fees and taxes or the increase in our
effective tax rate because material information and guidance regarding the calculations of these fees and taxes
has not been issued. The new legislation will also 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). 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. The response of
other companies to the ACA and related adjustments to their offerings, if any, could cause meaningful disruption
in the local health care markets. For example, companies could modify their product features or benefits, change
their pricing relative to others in the market, adjust their mix of business or even exit segments of the market.
Companies could also seek to adjust their operating costs to support reduced premiums by making changes to
their distribution arrangements, decreasing spending on non-medical product features and services, or otherwise
reducing general and administrative expenses. Because of the magnitude, scope and complexity of the new
legislation, we also need to dedicate substantial resources and incur material expenses to implement the new
legislation, including implementing the current and future regulations that will provide guidance and clarification
on important parts of the legislation. Any delay or failure by us to execute our operational and strategic initiatives
with respect to health care reform or otherwise appropriately react to the legislation, implementing regulations
and actions of our competitors could result in operational disruptions, disputes with our providers or members,
regulatory issues, damage to our existing or potential member relationships or other adverse consequences.
There are numerous steps required to implement this legislation, with clarifying regulations and other
guidance expected over several years. As a result, many of the impacts of health care reform will not be known
for certain until the ultimate requirements of the legislation have been definitively determined. 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. At
this time, it remains unclear whether there will be any changes made to the ACA, whether to certain provisions or
its entirety.
Various health insurance reform proposals are also emerging at the state level. Many of the states in which
we operate are already implementing parts of the federal health care reform and many states have added new
requirements that are more exacting than the federal health care reform requirements. Also, many states may
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