Health Net 2013 Annual Report Download - page 28

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IRS’s rule, finding that it was consistent with the text of the ACA. However, that ruling is being appealed, and similar
cases are also pending in district courts. A successful challenge in this area could significantly affect the affordability of
insurance to low-income individuals in states that do not administer their own exchanges, such as Arizona. A number of
cases challenging the rule that all health plans must provide contraceptive services have progressed through federal
appellate courts. The Supreme Court issued an order temporarily enjoining the government from fully enforcing the
requirement against a non-profit organization, and is scheduled to hear arguments on a case involving for-profit
organizations in March 2014.
Finally, though legislative repeal of the ACA in its entirety is unlikely, Congress has proposed certain legislative
initiatives that may affect certain provisions of the ACA. In addition to the House measure introduced in October 2013
regarding the health insurer fee, in early October 2013 Congress passed and the President signed an appropriations act
related to the suspension of the federal government debt ceiling and end of the federal government shutdown. This
legislation required the Secretary of HHS to certify that exchanges have processes in place to verify the eligibility of all
individuals who apply for a premium tax credit or cost-sharing reductions. Although the impact of this legislation is
unclear, it could result in changes that make it more difficult for individuals to receive subsidies through the exchanges
and negatively affect exchange enrollment. In addition, other legislative changes to the ACA have been suggested or
introduced, such as with respect to delaying the collection of reinsurance fees, delaying implementation of the
individual mandate, or delaying or repealing the tax on medical devices, although none of these provisions have been
enacted. Additionally, federal regulators have delayed implementation of certain ACA requirements, including the
requirement that large employers provide coverage to full-time employees or pay a penalty, along with related reporting
requirements, and the requirement that federal and state small business health option program exchanges be able to
facilitate employee choice among multiple health plans, due to operational concerns impacting both employers and
health insurance issuers. Any such amendment or withholding of ACA funding by Congress, extended delays in the
issuance of clarifying regulations and other guidance, delays in implementation, or other lingering uncertainty regarding
the ACA could cause us to incur additional costs of compliance or require us to significantly modify or adjust certain of
the operational and strategic initiatives we have already established. Such modifications may result in the loss of some
or all of the substantial resources that have been and will be invested in the ACA implementation, require investment of
additional resources and, depending on the nature of the modification, could have a material adverse effect on our
business and the trading price of our common stock.
Various health insurance reform proposals are also emerging at the state level, which could have an adverse impact
on us.
Various health insurance reform proposals have been considered at the state level, and more are likely to be
considered in the future. Many of the states in which we operate have been implementing parts of the ACA and many
states have added new requirements that are more exacting than the ACA's requirements. States may also mandate
minimum medical loss ratios as described above, implement rate reforms and enact benefit mandates that go beyond
provisions included in the ACA. For example, while proposed California legislation requiring prior approval of
premium rates by the California Department of Insurance (the “CDI”) did not pass in 2011, an initiative measure in
California to require prior approval for individual and small group rates by the CDI has qualified for the 2014 ballot. In
addition, state exchange boards in California have the ability to limit the number of plans and negotiate the price of
coverage sold on these exchanges and to limit the service areas in which QHPs in the exchanges may operate. These
kinds of state regulations, among other things, and legislation could, among other things, limit or delay our ability to
increase premiums in future years even where actuarially supported, and thereby could adversely impact our revenues
and profitability. This also could increase the competition we face from companies that have lower health care or
administrative costs than we do and therefore can price their premiums at lower levels than we can.
Further, the interaction of new federal regulations and the implementation efforts of the various states in which
we do business will continue to create substantial uncertainty for us and other health insurance companies about the
requirements under which we must operate. Even in cases where state action is limited to implementing federal reforms,
new or amended state laws will be required in many cases, and we will be required to operate under and comply with
the various laws of each of the states in which we operate. States may disagree in their interpretations of the federal
statute and regulations, and state “guidance” that is issued could be unclear or untimely. In the case of the ACA
exchanges, we are required to operate under and comply with the regulatory authority of the federal government in
addition to the regimes of each of the states that establish and administer their own exchanges. State exchange standards
and processes related to areas such as enrollment, payment, certification standards, and other areas may differ from
those of the federally facilitated exchanges. In some cases, it may not be clear whether federal or state guidelines apply,
and federal and state guidelines may not align perfectly. For example, under currently proposed federal rules, the
determination of what constitutes a “small group” for purposes of determining whether a plan participates in the risk