Health Net 2006 Annual Report Download - page 20

While there are state-by-state variations, HMO regulation generally is very comprehensive. Among the
areas regulated by these regulatory agencies are:
• Adequacy of financial resources, network of health care providers and administrative operations;
• Sales and enrollment requirements, disclosure documents and notice requirements;
• Product offerings, including the scope of mandatory benefits and required offerings of benefits that are
optional coverages;
• Procedures for member grievance resolution and medical necessity determinations;
• Accessibility of providers, handling of provider claims (including out-of-network claims) and
adherence to timely and accurate payment and appeal rules; and
• Linguistic and cultural accessibility standards, governance requirements and reporting requirements.
Variations in state regulation also arise in connection with the intensity of government oversight. Variations
include: the need to file or have affirmatively approved certain proposals before use or implementation by the
health plan; the degree of review and comment by the regulatory agency; the amount and type of reporting by the
health plan to the regulatory agency; the extent and frequency of audit or other examination; and the authority
and extent of investigative activity, enforcement action, corrective action authority, and penalties and fines.
Insurance and HMO laws impose a number of financial requirements and restrictions on our regulated
subsidiaries, which vary from state to state. They generally include certain minimum capital and deposit and/or
reserve requirements, restrictions on dividends and other distributions to the parent corporations and affiliated
corporations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Statutory Capital Requirements.” Several states have increased
minimum capital requirements, in response to proposals by the National Association of Insurance Commissioners
to institute risk-based capital requirements. These financial requirements are subject to change, which may
require us to commit additional capital to certain regulated subsidiaries or may limit our ability to move capital
through dividends and other distributions.
Our regulated subsidiaries are also subject to legal restrictions on our ability to price our products. Some
products may be subject to regulatory approval of premium levels. Generally, insurance and HMO laws require
premium to be established at amounts reasonably related to our costs.
Pending Federal and State Legislation
There are a number of other legislative initiatives and proposed regulations currently pending or previously
proposed at the federal and state levels which could increase regulation of, and costs incurred by, the health care
industry. These measures and other initiatives, if enacted, could have significant adverse effects on our
operations. See “Item 1A. Risk Factors—Proposed federal and state legislation and regulations affecting the
managed health care industry could adversely affect us.” We cannot predict the outcome of any of the pending
legislative or regulatory proposals, nor the extent to which we may be affected by the enactment of any such
legislation or regulation.
Intellectual Property
We have registered and maintain various service marks, trademarks and trade names that we use in our
businesses, including marks and names incorporating the “Health Net” phrase, and from time to time we apply
for additional registrations of such marks. We utilize these and other marks and names in connection with the
marketing and identification of products and services. We believe such marks and names are valuable and
material to our marketing efforts.
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