Health Net 2004 Annual Report Download - page 30

the transition to or from information systems, any inability or failure to properly maintain management information systems, or any
inability or failure to successfully update or expand processing capability or develop new capabilities to meet our business needs,
could result in operational disruptions, loss of existing customers, difficulty in attracting new customers, disputes with customers and
providers, regulatory problems, significant increases in administrative expenses and/or other adverse consequences. In addition, we
may, from time-to-time, obtain significant portions of our systems-related or other services or facilities from independent third parties
which may make our operations vulnerable to adverse effects if such third parties fail to perform adequately.
If we are unable to manage our general and administrative expenses, our business, results of operations and financial
condition could be harmed.
The level of our administrative expenses can affect our profitability, and administrative expense increases are difficult to predict.
While we attempt to effectively manage such expenses, including through the development of online functionalities and other projects
designed to create administrative efficiencies (such as the Health Net One systems consolidation project), increases in staff- related
and other administrative expenses may occur from time to time due to business or product start-ups or expansions, growth,
membership declines or changes in business, difficulties or delays in projects designed to create administrative efficiencies,
acquisitions, reliance on outsourced services, regulatory requirements, including compliance with HIPAA regulations, or other
reasons. In May 2004, we commenced an involuntary workforce reduction of approximately 500 positions in order to enhance
efficiency and reduce administrative costs. If we experience significant increases in our general and administrative expenses in the
future we may be required to consider taking actions similar to those taken in May 2004. If we are unable to manage our general and
administrative expenses, our business, financial condition and results of operations could be harmed.
We depend, in part, on independent brokers and sales agents to market our products and services, and recent regulatory
investigations have focused on certain brokerage practices, including broker compensation arrangements and bid quoting
practices.
We market our products and services both through sales people employed by us and through independent sales agents.
Independent sales agents typically do not work with us on an exclusive basis and may market health care products and services of our
competitors. We face intense competition for the services and allegiance of independent sales agents and we cannot assure you that
these agents will continue to market our products at a reasonable cost. Although we have a number of sales employees and agents, if
key sales employees or agents or a large subset of these individuals were to leave us, our ability to retain existing customers and
members could be impaired.
There have been a number of recent investigations and enforcement actions against insurance brokers and insurers regarding
inappropriate or undisclosed payments made by insurers to brokers for the placement of insurance business. While we are not aware
of any unlawful practices by any of our agents or brokers in connection with the marketing and sales of our products and services,
current investigations by the New York Attorney General and other regulators could result in changes in industry practices that could
have an adverse effect on our ability to market our products.
The market price of our common stock is volatile.
The market price of our common stock is subject to volatility. In 2004, the HMO Index, an index comprised of 12 managed care
organizations, recorded a 46% rise in its value, while the value of Health Net’s stock decreased by approximately 11%. There can be
no assurance that our common stock will trade at a pace equivalent to this index or to the Standard & Poors’ 400 Mid-Cap Index of
which Health Net common stock is also a component. The market prices of our common stock and the securities of certain other
publicly-traded companies in our industry have shown volatility and sensitivity in response to many factors, including public
communications regarding managed care, legislative or regulatory actions, litigation or threatened litigation,
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