Health Net 2006 Annual Report Download - page 16

engages in product research and development, multicultural marketing, advertising and communications, and
member education and retention programs.
Premiums for each employer group are generally contracted on a yearly basis and are payable monthly. We
consider numerous factors in setting our monthly premiums, including employer group needs and anticipated
health care utilization rates as forecasted by us based on the demographic composition of, and our prior
experience in, our service areas. Premiums are also affected by applicable regulations that in certain
circumstances prohibit experience rating of group accounts (i.e., setting the premium for the group based on its
past use of health care services) and by state regulations governing the manner in which premiums are structured.
In some of our markets we sell individual policies, which are generally sold through independent brokers
and agents. In some states, carriers are allowed to individually underwrite these policies (i.e. select applicants to
whom coverage will be provided and others who are denied), although in other states there may be a requirement
of guaranteed issue that restricts the carrier’s discretion. In guaranteed issue states, exclusions for preexisting
conditions are generally permitted. Where individual underwriting is permitted, the carrier may rescind the policy
coverage if the individual misrepresents his or her medical history in the application process. See “Item 1. Risk
Factors—Proposed federal and state legislation affecting the managed health care industry could adversely affect
us” for additional information on health plans’ right to rescind coverage.
We believe that the importance of the ultimate health care consumer (or member) in the health care product
purchasing process is likely to increase in the future, particularly in light of advances in technology and online
resources. Accordingly, we are focusing our marketing strategies on the development of distinct brand identities
and innovative product service offerings that will appeal to potential health plan members. For example, we
introduced Decision PowerSM, which is a series of programs designed to more directly involve patients in their
health care decisions. These programs allow our members to access information and consult with health coaches
as they are making decisions regarding health care issues. In addition, in 2006 we added a number of
enhancements on the It’s Your Life – WellsightSM on the Company’s website. The new Wellsite gives
commercial and Medicare members easy access to information they need to make smarter choices about their
health and about their health care and health care costs. As more employers begin to offer consumer directed
health plans such as Health Savings Accounts (“HSAs”) and Health Reimbursement Accounts (“HRAs”), we
believe consumers need to be able to learn, plan and make complex decisions regarding their health care. Our
new Wellsite combines access to current Health Net and vendor content and tools.
Consumer-Directed Health Care Plans; Health Savings Accounts and Health Reimbursement Accounts
Health Savings Accounts were created in 2003 as part of the MMA. HSAs are individually owned accounts,
similar to an IRA or a 401(k) retirement plan, that generally allow employees or individuals to make
contributions to the account on a pretax basis. Funds in HSAs can be used to pay for certain qualified medical
expenses such as plan deductibles, copayments and coinsurance on a tax-free basis. HSA funds can be invested
and earnings on the investments are generally tax-free. HSAs must be used in conjunction with high-deductible
health plans. High-deductible health plans provide in-and out-of-network benefits and cover a wide range of
health care services.
Our Northeast and Arizona health plans launched HSA programs in 2005 and our California and Oregon
health plans launched HSA programs in 2006. Our HSA programs and other consumer-driven health care
products provide our members with tools to determine what health care services they may need and to estimate
how much those services would cost. We support our consumer-directed programs with web-based services that
assist members in educating themselves about health care. The web-based program includes WebMD’s Subimo
estimator tools, Decision PowerSM, prescription drug and hospital comparison tools.
In 2007, we expect to further enhance our consumer-driven health care initiative by offering the Health Net
Health Reimbursement Account. An HRA is a health reimbursement arrangement funded solely by an employer
14