Health Net 2013 Annual Report Download - page 26

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our goodwill or other intangible assets; investment portfolio impairment charges; volatility in the financial markets;
liabilities incurred in connection with our divested operations; and general business and market conditions.
Additional factors that could cause our actual results to differ materially from those reflected in forward-looking
statements include, but are not limited to, the risks set forth below, and the other risks discussed in our other filings with
the SEC.
Any or all forward-looking statements in this Annual Report on Form 10-K and in any other public filings or
statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many of the factors discussed below will be important in determining future
results. These factors should be considered in conjunction with any discussion of operations or results by us or our
representatives, including any forward-looking discussion, as well as information contained in press releases,
presentations to securities analysts or investors or other communications by us. You should not place undue reliance on
any forward-looking statements, which reflect management's analysis, judgment, belief or expectation only as of the
date thereof and are subject to changes in circumstances and a number of risks and uncertainties. Except as may be
required by law, we do not undertake to address or update forward-looking statements.
Federal health care reform legislation has had and will continue to have an adverse impact on the costs of operating
our business and could materially adversely affect our business, cash flows, financial condition and results of
operations.
The ACA transformed the U.S. health care system through a series of complex initiatives. The measures initiated
by the ACA and the associated preparation for and implementation of these measures have had, and will continue to
have an adverse impact on our revenues and the costs of operating our business and could materially adversely affect
our business, cash flows, financial condition and results of operations. Due in part to the scope and complexity of these
initiatives, as well as their ongoing implementation, the ultimate impact of the ACA on us remains difficult to predict.
The ACA imposes significant fees, assessments and taxes on us and other health insurers, health plans and
industry participants. Among others, the ACA imposes a significant non-deductible tax (technically called a “fee”) on
health insurers, effective for calendar years beginning after December 31, 2013. This “health insurer fee” will be
assessed at a total of $8 billion in 2014, will increase thereafter, and will be allocated pro rata amongst industry
participants based on a ratio of net health insurance premiums written for the previous calendar year to total net
premiums written for the U.S. health insurance industry, subject to certain exceptions. We expect to make our first
payment of the health insurer fee in 2014. We currently estimate our allocable share of the health insurer fee payable in
2014, based upon 2013 premiums, will be approximately $145 million. However, this estimate is subject to inherent
uncertainty as the amount of industry premiums upon which the fee allocation is based has not yet been announced. We
will experience significant volatility in our cash flow from operations relative to our results of operations in a given
period because the health insurer fee will be payable in a single lump sum based on prior year premiums. Due in large
part to the impact of the health insurer fee, which is non-deductible for federal income tax purposes, we expect our
effective income tax rate will be significantly higher than the 35% statutory federal tax rate and will exceed 50%,
excluding unusual charges or benefits.
In addition, while certain types of entities and benefits are fully or partially exempt from the health insurer fee,
including, among others, government entities, certain non-profit insurers and self-funded plans, we are unable to take
advantage of any significant exemptions due to our current mix of plans and product offerings. Consequently, the health
insurer fee will represent a higher percentage of our premium revenues than those of our competitors who have business
lines that are exempt from the health insurer fee or whose non-profit status may result in a reduced health insurer fee.
Moreover, some of our competitors may have greater economies of scale or a different mix of business, which, among
other things, may lead to lower expense ratios and higher profit margins than we have. Since the health insurer fee is
not tax deductible and is based on net health insurance premiums written, rather than profits, it will generally represent
a higher percentage of our profits as compared to those competitors. As a result, the health insurer fee will likely impact
us to a greater degree than certain of our larger competitors and those of our competitors who may be able to exempt
significant portions of their premium base from the health insurer fee allocation, for example. We generally will be
unable to match those competitors’ ability to support reduced premiums by virtue of any full or partial exemptions from
the health insurer fee, or by virtue of making changes to distribution arrangements, decreasing spending on non-medical
product features and services, or otherwise adjusting operating costs and reducing general and administrative expenses,
which may have an adverse effect on our profitability and our ability to compete effectively with these competitors. For
example, our ability to incorporate the impact of the health insurer fee into our 2014 premium rates, which are set a year
in advance in 2013, was limited, in large part due to competitive pressures.