Health Net 2011 Annual Report Download - page 68

continue to consider legislation to extend coverage to the uninsured through Medicaid expansions, mandate
minimum medical loss ratios, implement rate reforms and enact benefit mandates that go beyond essential
benefits. In addition, some states have passed legislation or are considering proposals to establish an insurance
exchange within the state to comply with provisions of the health care reform legislation that become effective in
2014. These kinds of state regulations and legislations could increase the pressure on us to contain our premium
prices and thereby could negatively impact our revenues and profitability. This also could increase the
competition we face from companies that have lower health care or administrative costs than we do and therefore
can price their premiums at lower levels than we can. 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.
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 health care reform legislation
will impact our business. To date, the legislation has not had a material adverse impact on our business, financial
results and results of operations. However, in the future, depending in part on the ultimate requirements of the
legislation, it could have a material adverse effect on our business, 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 a discussion of the related risks that we face, see “Item 1. Business—Government
Regulation—Federal Legislation and Regulation—Health Care Reform Legislation,” “Item 1A. Risk Factors—
Federal health care reform legislation 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” and “Item 1A. Risk Factors—Various health insurance reform proposals are also emerging at the
state level which could have an adverse impact on us.”
Recent Developments
On January 9, 2012, we announced that our subsidiary, HNL, has entered into a definitive agreement to sell
its Medicare stand-alone Prescription Drug Plan (“Medicare PDP”) business to a subsidiary of CVS Caremark for
approximately $160 million in cash.
The transaction is subject to closing conditions and applicable regulatory approvals, including approval
from the Centers for Medicare and Medicaid Services (“CMS”), and is expected to close in the second quarter of
2012. As of December 31, 2011, we had approximately 400,000 Medicare PDP members in 49 states and the
District of Columbia. Annualized revenue for the Medicare PDP business is approximately $490 million. We will
continue to provide prescription drug plans for our Medicare Advantage plan offerings.
2011 Financial Performance Summary
Health Net’s financial performance in 2011 is summarized as follows:
• In the year ended December 31, 2011, we reported net income of $72.1 million or $0.80 per diluted
share as compared to a net income of $204.2 million or $2.06 per share, for the same period in 2010.
Our operating results for the year ended December 31, 2011 were impacted by a $181 million pretax
expense related to a judgment in the AmCareco litigation (as defined in “Results of Operations—
Consolidated Results—Summary of Operating Results— Year Ended December 31, 2011 compared to
Year Ended December 31, 2010”). In addition, our operating results for the year ended December 31,
2011 were impacted by a $40.8 million favorable adjustment to loss on sale of Northeast health plan
subsidiaries and a $6.8 million benefit from litigation reserve true-ups, partially offset by pretax costs
66