Health Net 2014 Annual Report Download - page 28

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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.
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. For example, there is a potential for uncertainty and disruption related to an upcoming
change in the definition of “small employer” for purposes of the types of plans that health insurance issuers can offer to
employers. Currently, all of the states in which we operate regulate group health plans with 50 or fewer employees as
small group plans. However, beginning in 2016, the ACA redefines the definition of small employer to include plans
with up to 100 employees. Federal regulators have announced transitional guidance that will allow groups in the 51–
100 size range to renew their current large group plans through plan years beginning on or before Oct. 1, 2016, but it is
not clear whether the states in which we operate will adopt this transitional policy. Any uncertainty with regard to the
change in definition or how the change will affect new and existing groups with 51-100 employees may lead to
uncertainty in our ability to predict costs and set premiums in 2016 and future years.
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 federally-facilitated health insurance exchanges. Moreover, federal regulators have
previously delayed implementation of certain ACA requirements through various extensions, allowances and transition
periods, 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. The markets impacted by these delays represent a significant portion of
our business, including our small group markets, and as a result, we will be implementing certain key ACA related
strategic and operational initiatives for the first time in 2015. These delays and developing regulations contribute to
lingering uncertainty surrounding the ACA, and the ultimate impact of health care reform on us may 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 has been subject to litigation, and it is not clear when this will be resolved.
Several lawsuits have been brought regarding whether the ACA authorizes the IRS to provide premium tax
credits (i.e., federal subsidies) to individuals who purchase coverage through a federally-facilitated exchange (“FFE”),
and different federal courts have come to different conclusions on this matter. The U.S. Supreme Court has agreed to
hear one of these challenges, King v. Burwell. Oral arguments are scheduled for March, 2015, although a final decision
from the Supreme Court is not expected until as late as June, 2015. Any significant restriction or prohibition of federal
subsidies for coverage obtained through FFEs may impact the affordability of FFE products for low income individuals,
which in turn may have a material adverse impact on our FFE exchange membership in Arizona, and have an adverse
impact on the Arizona individual market risk pool more generally. While such an outcome would most directly impact
states with FFEs such as Arizona, the potential uncertainty created by such a ruling may have collateral effects in states
with state-based exchanges or on the ACA in general, particularly in light of the newly Republican controlled Congress.
For more information on our ACA health insurance exchanges, see the risk factor below under the heading, “—We
cannot assure you that our participation in the ACA’s health insurance exchanges will continue to be a success.” Other
litigation regarding the implementation of the ACA remains ongoing, including litigation around federal regulations
regarding contraception coverage and regarding the ability of HHS to make payments to plans under the ACA’s cost
sharing reductions program.
On the legislative front, though repeal of the ACA in its entirety remains unlikely, Congress has proposed certain
legislative initiatives that may affect certain provisions of the ACA, including initiatives that could repeal or modify the
requirement that large employers provide coverage to employees, repeal the individual mandate, delay or repeal the tax
on medical devices, delay or repeal the health insurer fee, repeal the risk corridors program and other potential changes.