Health Net 2009 Annual Report Download - page 39

current status of the T3 North Region contract award, please see “—Segment Information—Government
Contracts Segment—TRICARE”. On January 22, 2010, Moody’s Investors Service reaffirmed our “Ba3” senior
debt ratings and changed the outlook for the Company to “stable.” Each of the rating agencies reviews our ratings
periodically and there can be no assurance that current ratings will be maintained in the future. Our ratings reflect
each rating agency’s independent opinion of our financial strength, operating performance, ability to meet our
debt obligations or obligations to policyholders and other factors. Potential further downgrades from ratings
agencies, should they occur, may adversely affect our business, financial condition and results of operations.
The markets in which we do business are highly competitive. If we do not design and price our product
offerings competitively, our membership and profitability could decline.
We are in a highly competitive industry. Many of our competitors may have certain characteristics,
capabilities or resources, such as greater market share, superior provider and supplier arrangements and existing
business relationships, that give them an advantage in competing with us. These competitors include HMOs,
PPOs, self-funded employers, insurance companies, hospitals, health care facilities and other health care
providers. In addition, other companies may enter our markets in the future.
In addition, financial services or other technology-based companies could enter the market and compete
with us on the basis of their streamlined administrative functions. The addition of new competitors can occur
relatively easily and customers enjoy significant flexibility in moving between competitors. There is a risk that
our customers may decide to perform for themselves functions or services currently provided by us, which could
result in a decrease in our revenues. In addition, our providers and suppliers may decide to market products and
services to our customers in competition with us.
In recent years, there has been significant merger and acquisition activity in our industry and in industries
that act as our suppliers, such as the hospital, medical group, pharmaceutical and medical device industries. This
activity may create stronger competitors and/or result in higher health care costs. In addition, our contracts with
government agencies, such as our TRICARE North contract, are frequently up for re-bid and the loss of any
significant government contract to a competitor, such as the T3 North Region contract, could have an adverse
effect on our financial condition and results of operations. To the extent that there is strong competition or that
competition intensifies in any market, our ability to retain or increase customers, our revenue growth, our pricing
flexibility, our control over medical cost trends and our marketing expenses may all be adversely affected.
If we do not compete effectively in our markets, if we do not design and price our products appropriately
and competitively, if we are unable to innovate and deliver products and services that demonstrate value to our
customers, if we set rates too high or too low in highly competitive markets, if we lose accounts with more
profitable products while retaining or increasing membership in accounts with less profitable products, if we do
not provide satisfactory service levels, if membership or demand for other services does not increase as we
expect or if membership or demand for other services declines, it could have a material adverse effect on our
business, financial condition and results of operations.
At the closing of the Northeast Sale, we entered into a Non-Competition Agreement with the Buyer that
contains prohibitions which could negatively impact our prospects, business, financial condition or results of
operations.
Under the Stock Purchase Agreement, at the closing of the transactions contemplated by the agreement, we
entered into a Non-Competition Agreement with the Buyer, pursuant to which we generally are prohibited from
competing with the acquired business in the States of New York, New Jersey, Connecticut and Rhode Island for
a period of five years, and from engaging in certain other restricted activities. Although we currently do not have
any intention to engage in such prohibited activities during the term of the Non-Competition Agreement,
circumstances could change and it may become in our best interests to engage in a business that is prohibited by
the agreement. If this were to occur, in order to engage in the business we would be required to obtain the
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