Health Net 2013 Annual Report Download - page 29

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adjustment program may differ from the determination used by states in enforcing compliance with the market reform
requirements for small group health plans in some instances. If we do not successfully implement the various state law
requirements of the ACA, including with respect to the exchanges, our financial condition and results of operations may
be adversely affected.
We cannot assure you that our participation in the ACA’s health insurance exchanges will be a success.
The ACA requires the establishment of state-run or federally facilitated “exchanges” where individuals and small
groups may purchase health coverage. The states of California, Oregon and Washington have received approval by the
U.S. Department of Health and Human Services (“HHS”) to operate state-run exchanges, and HHS operates the
exchange in Arizona. We participate as Qualified Health Plans (“QHPs”) in the exchanges in California, Oregon and
Arizona. Our continued participation in these exchanges and future participation in any other exchanges in the states in
which we operate may be conditioned on the approval of the applicable state or federal government regulator, which
could result in the exclusion of some carriers, including us, from the exchanges.
From an operations standpoint, the initial open enrollment period for federal and state exchanges began on
October 1, 2013 and will continue through March 31, 2014. While we have started the process of enrolling members in
our QHPs, the exchanges have experienced certain implementation difficulties, and the timing and ultimate resolution
of these issues remains uncertain. For example, there have been technical problems impeding individuals and small
businesses from applying through the state and federal exchanges, hampering data collection and sharing efforts by
regulators and health insurers and limiting consumer access to the online provider directory in California. As the
enrollment process has advanced, state and federal regulators and exchange participants have engaged in discussions to
troubleshoot various operational issues that have arisen with exchange rollout and implementation. Federal regulators
have delayed certain functionalities and provided interim workarounds for other functionalities. Many of these technical
fixes may put increased technical burdens on health insurers and increase our role in processing enrollments and plan
changes and handling customer inquiries beyond what was initially anticipated. In addition, while we have adapted our
products and sales practices to the new direct-to-consumer channel opened by the exchanges, on a going forward basis,
the exchanges will also require us to market to and administer premium collection through a new population with which
we have limited experience, which may present additional operational challenges.
There are a number of other aspects of the exchanges that have yet to be fully implemented or where there are
still outstanding questions, including procedures for ensuring the accuracy of data displayed on the exchange websites
and how inaccuracies will be addressed and remedied, procedures for reconciling the enrollee information held by
insurers with that held by the exchange, procedures for allowing individuals to change personal information or make
changes to their plans based on special enrollment periods or changes in circumstances, procedures for agent, broker
and “assister” participation in the exchanges, procedures for the calculation, timing and payment of federal subsidies for
premiums and cost-sharing reductions, the determination of standards for privacy and security of data held by the
exchanges and related entities, and several aspects of the operation of reinsurance, risk corridors and risk adjustment
mechanisms. Many of the primary functionalities of the federally facilitated small business health option program
(SHOP) through which small employers can obtain coverage have been delayed until 2015. For 2014, this has increased
the burden on issuers providing SHOP plans in conducting enrollment and otherwise administering health plans.
Furthermore, the processes by which the federally facilitated SHOP will conduct enrollment, collect premiums and
disperse those premiums to issuers, and perform other administrative functions, as well as the standards for plans
participating in the federally facilitated SHOP are subject to change. In response to these and other changes in the health
care market over time, our competitors could modify their product features or networks, change their pricing relative to
others in the market and adjust their mix of business within or outside the exchanges, or, as some of our larger
competitors have done, exit certain segments of the market. Competitors seeking to gain a foothold in the changing
market may also introduce pricing that we may not be able to match, which may adversely affect our ability to compete
effectively. Finally, our exchange strategy relies heavily on our use of tailored network products and there is no
assurance that our tailored network strategy will be successful over time. See “—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” for additional information regarding our tailored network strategy.
Taken together, the exchanges’ operational issues, their untested nature, the evolving marketplace surrounding
them and the responses of state and federal decisionmakers to these issues have created lingering uncertainty for us and
other health insurers participating in the exchanges. For example, due in part to the technical implementation issues for
the exchanges, CMS announced in November 2013 that it would not consider certain health plans in the individual and
small group markets out of compliance with the ACA’s market reform requirements even if such requirements were not
satisfied by the imposed deadline. CMS also encouraged relevant state regulators to adopt a similar transitional policy.
Although the states in which we operate have not generally adopted such a transitional policy, states such as Arizona