Health Net 2013 Annual Report Download - page 67

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• specifying certain actuarial value and cost-sharing requirements;
• eliminating medical underwriting for medical insurance coverage decisions, including “guaranteed
availability” with respect to individual and group coverage;
• limiting the ability of health plans to vary premiums based on assessments of underlying risk in the
individual and small group markets;
• increasing restrictions on rescinding coverage;
• prohibiting some annual and all lifetime limits on amounts paid on behalf of or to our members;
• limiting the tax-deductible amount of compensation paid to health insurance executives;
• requiring that most individuals obtain health care coverage or pay a penalty, commonly referred to as the
“individual mandate”;
• imposing a sales tax on medical device manufacturers; and
• increasing fees on pharmaceutical manufacturers.
The schedule for implementation of the provisions of the ACA generally varies from as early as enactment to as
late as 2018. A number of potentially significant provisions of the ACA became effective January 1, 2014, including the
health insurer fee, the operation of QHPs purchased through the exchanges, the risk adjustment, reinsurance, and risk
corridors programs described above, the guaranteed availability requirement, and the individual mandate. Other
provisions, such as the excise tax on certain high-premium insurance policies, and the employer mandate for certain
small- and mid-size employers, will not take effect until a later date. However, some of these provisions have had an
earlier impact on our operations, including in connection with the setting of our premium rates and general and
administrative expenses incurred in preparation for the ACA as discussed above.
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. Currently, Arizona and California have extended coverage to those now eligible under the Medicaid
expansion; however, the law in Arizona authorizing the expansion may be subject to litigation or referendum, which
may not be resolved until later in 2014 or beyond.
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; a number of cases challenging the rule that all health plans
must provide contraceptive services; and legislative changes to the ACA, 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. Further adding to the uncertainty of the healthcare reform arena is the delayed implementation of certain ACA
requirements by federal regulators.
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 the CCI, as described under the heading “Item 1. Business—Segment Information—Western
Region Operations—California Coordinated Care Initiative”. These initiatives will require us to effectively incorporate
new and expanded populations and, among other things, will require us to effectively and efficiently restructure our
provider network to, among other things, meet 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