Health Net 2007 Annual Report Download - page 38

If we are required to publicly disclose information regarding our reimbursement rates and preferred drug
lists for our programs, it could have a material adverse effect on our business.
In 2006, a petition was submitted to the Connecticut Freedom of Information Commission (the “CT FOIC”)
seeking, among other things, information regarding provider reimbursement rates and maintenance of preferred
drug lists used by managed care organizations contracting with the Connecticut Department of Social Services in
connection with the Connecticut Medicaid program. In response to the petition, the CT FOIC ruled that the
Connecticut Department of Social Services (“DSS”) must furnish the information requested and had to amend its
existing contracts with managed care organizations participating in the Connecticut Medicaid program making
them subject to the Connecticut Freedom of Information Act. Health Net of Connecticut and two other managed
care organizations appealed the CT FOIC decision to the Connecticut Superior Court, which upheld the CT
FOIC’s decision. On February 11, 2008, we learned that the attorneys representing the appellees in this appeal
notified the managed care companies that responded to DSS’s Request for Proposals with respect to
Connecticut’s combined HUSKY A, SCHIP and Charter Oak Insurance Plan that they would all be subject to the
broadest interpretation of the Connecticut Freedom of Information Act, and therefore, pursuant to a Freedom of
Information Act request, would be required to disclose information concerning their commercial businesses, even
in states other than Connecticut. Consumer activists in Connecticut therefore appear to be supporting the
extension of the state’s Freedom of Information Act into non-Medicaid programs, such as those for the
uninsured.
The situation in Connecticut, where an expansive reading of the state’s Freedom of Information Act is being
adopted in state agencies, the Attorney General’s office, the legislature and the courts, poses the risk that similar
expansive readings of state freedom of information statutes could spread to other states, particularly New York
and New Jersey. If we are required to publicly disclose information regarding our reimbursement rates, preferred
drug lists or other trade secret information as a result of the expansion of the scope of state freedom of
information statutes, it could have a material adverse effect on our ability to contract with providers and compete
effectively in the marketplace.
Changes in the value of our investment assets could have a negative effect on our results of operations and
stockholders’ equity.
Substantially all of our investment assets are in interest-yielding debt securities of varying maturities. The
value of fixed-income securities is highly sensitive to fluctuations in short-and long-term interest rates, with the
value decreasing as such rates increase and increasing as such rates decrease. These securities may also be
negatively impacted by illiquidity in the market. The recent disruptions in the credit markets have negatively
impacted the liquidity of investments, such as our debt securities, and a worsening of credit market disruptions or
sustained market downturns could have additional negative effects on the liquidity and value of our investment
assets. In addition, our regulated subsidiaries are also subject to state laws and regulations that govern the types
of investments that are allowable and admissible in those subsidiaries’ portfolios. There can be no assurance that
our investment assets will produce total positive returns or that we will not sell investments at prices that are less
than the carrying value of these investments. Changes in the value of our investment assets, as a result of interest
rate fluctuations, illiquidity or otherwise, could have a negative affect on our stockholders’ equity. In addition, if
it became necessary for us to liquidate our investment portfolio on an accelerated basis, it could have an adverse
effect on our results of operations.
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
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