Health Net 2013 Annual Report Download - page 27

25
As a whole, the ACA’s fees, assessments and taxes will increase the costs of operating our business, including
increasing medical and other health care costs, and could materially adversely affect our business, cash flows, financial
condition and results of operations.
In addition, while the ACA does also present significant new business opportunities for us, we and other health
insurance companies face uncertainty and execution risk due to the multiple, complex ACA implementations that are
required in abbreviated time frames in new markets. Additionally, in many cases, our operational and strategic
initiatives must be implemented in evolving regulatory environments and without the benefit of established market data.
In addition, the lack of operating experience in these new marketplaces for insurers and, in certain cases, providers and
consumers, increases the likelihood of a dynamic marketplace that may require us to adjust our operating and strategic
initiatives over time, and there is no assurance that insurers, including us, will be able to do so successfully. Our
execution risk encapsulates, among other things, our simultaneous participation in the exchanges, Medicaid expansion
and California’s Coordinated Care Initiative (“CCI”), as further described under the heading “Business—Segment
Information—Western Region Operations Segment—California Coordinated Care Initiative” below. These initiatives
require us to effectively incorporate new and expanded populations and, among other things, have required that we
restructure our provider network in response, and will require us to remain diligent in monitoring the market to, among
other things, effectively and efficiently adapt to the ACA’s dynamic environment. Any delay or failure by us to execute
our operational and strategic initiatives with respect to health care reform or otherwise appropriately react to the
legislation, implementing regulations, actions of our competitors and the changing marketplace could result in
operational disruptions, disputes with our providers or members, increased exposure to litigation, regulatory issues,
damage to our existing or potential member relationships or other adverse consequences.
Due to the magnitude, scope, complexity and remaining uncertainties of the ACA, including the continuing
modification and interpretation of the ACA rules and the operational risks involved with simultaneous implementation
of multiple initiatives in new markets without established market data, we cannot predict the ultimate impact on our
business of future regulations and laws, including state laws, implementing the ACA. Depending in part on its ultimate
requirements, the ACA could have an adverse effect on our business, financial condition, cash flows and results of
operations.
The ACA has been the subject of various legal challenges and legislative initiatives, which increase the uncertainty
of how the law will impact us.
There are numerous steps required to implement the ACA, and although many significant regulations have been
finalized, further amendments to these regulations, additional clarifying regulations and other guidance are expected
over several years. We are still awaiting further final regulations or guidance on a number of key provisions, including
many related to the ACA’s health insurance exchanges as further described in the risk factor below under the heading,
“We cannot assure you that our participation in the ACA’s health insurance exchanges will be a success.” Final
regulations relating to the Medicare Shared Savings Program reflecting the use of ACOs have been issued, but as noted
above, the impact of these new regulations on the health care market and the role to be played by health plans in the
operation of ACOs remains to be determined, and HHS has indicated the possibility that it will further revise the ACO
program in the future. Moreover, even in cases where the federal government has issued final regulations, we and other
health insurers continue to face uncertainty because these final regulations are sometimes unclear or incomplete, subject
to further change or rely on sub-regulatory guidance. In addition to ongoing regulatory questions, many of the
operational components of health care reform are still being developed, including how market participants ultimately
interact and adapt to the new requirements within and outside the ACA’s state-run and federal health insurance
exchanges. As a result, many of the impacts of health care reform will not be evident until the ultimate requirements of
the ACA have been definitively determined, the various related programs have been fully implemented and both
insurers and regulators are able to make necessary adjustments.
In addition, certain legal and legislative challenges to the ACA remain despite the U.S. Supreme Court’s June
2012 decision in NFIB v. Sebelius. In Sebelius, the Supreme Court upheld the ACA’s individual mandate as valid under
Congress’ taxing power. The Sebelius decision also permits states to opt out of the elements of the ACA that require
expansion of Medicaid coverage in January 2014 without losing their existing federal Medicaid funding. Arizona and
California have extended coverage to the uninsured through Medicaid expansions; however, the law in Arizona
authorizing the expansion may be subject to litigation, which may remain unresolved until 2014 or later.
Notwithstanding Sebelius, other legal challenges to the ACA have been threatened or are still pending at lower
court levels, which could result in portions of the ACA being struck down. These threatened and pending challenges
include disputing the IRS’s official position that premium tax credits are available to low-income individuals who
purchase insurance through federally facilitated exchanges. In January 2014, a federal district court judge upheld the