Health Net 2007 Annual Report Download - page 28

California, we are exposed to the risk of a deterioration in our financial results arising from a significant
economic downturn in one or more of these states. If economic conditions in these states significantly deteriorate,
we may experience a reduction in existing and new business, which may have a material adverse effect on our
business, financial condition and results of operations. In addition, if any one of our health plans experiences
significant losses, our consolidated results of operations may be materially and adversely affected. Losses of
accounts or deterioration in margins in any one of the states in which we operate could have an adverse effect on
our financial condition or results of operations.
Proposed federal and state legislation and regulations affecting the managed health care industry could
adversely affect us.
The United States Congress and federal and state regulatory agencies frequently consider legislative
proposals and regulatory initiatives which, if enacted, could materially affect the managed health care industry
and the regulatory environment. These proposals have included initiatives which, if enacted, could have material
adverse effects on our operations, including subjecting us to additional litigation risk, regulatory compliance
costs and restrictions on our business operations. Such measures have proposed, among other things, to:
• Restrict or eliminate health insurers and health plans in the marketplace;
• Restrict a health insurer or health plan’s profitability or regulate the medical cost ratio;
• Require health plans to pay significantly higher taxes, or reduce government funding of government-
sponsored health programs in which we participate;
• Mandate certain benefits and administrative or other services that could increase the cost of healthcare
or administrative services, or restrict our right to manage the member’s care through authorization
requirements, requirements of medical necessity, or formularies for covered pharmaceuticals;
• Restrict our ability to contract with and manage access to providers and provider groups, enhance
certain provider payments or appeal rights, or restrict our ability to select and terminate providers;
• Mandate certain grievance and appeal rights for our members or providers, including establishment of
third-party reviews of certain care decisions; and
• Regulate the individual coverage market by restricting or mandating premium levels, restrict our
underwriting discretion, or restrict our ability to rescind coverage based on a member’s
misrepresentations and omissions.
Recently, the issue of affordable health insurance and the challenge of insuring the uninsured have
generated much public attention. In states where we conduct business, governors and state legislatures are
considering various proposals to cover the uninsured. These proposals include, but are not limited to,
restructuring the health insurance market to mandate coverage, guaranteeing insurance in the individual market,
merging individual and small group markets, placing a cap on loss ratios or premiums or otherwise taking steps
to expand access to health insurance in a manner that does not allow for management of risk.
We cannot predict the outcome of the legislative and regulatory proposals described above or any other such
legislative or regulatory proposals, nor the extent to which we may be affected by the enactment of any such
legislation or regulations. Such legislation or regulation, including measures that would cause us to change our
current manner of operation or increase our exposure to liability, could have a material adverse effect on our
results of operations, financial condition and ability to compete in our industry. We also cannot predict the
outcome of the 2008 federal and state elections and the impact, if any, that the election outcomes will ultimately
have on our operations.
26