Health Net 2014 Annual Report Download - page 29

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Certain initiatives that have been unable to establish momentum in the past, may gain support with the newly
Republican controlled Congress.
Certain of the proposed legislative changes described above, withholding of ACA funding by Congress, extended
delays in the issuance of clarifying regulations and other guidance, delays in implementation, legal challenges 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 continue to emerge 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. In most cases states can
mandate minimum medical loss ratios("MLRs") , implement rate reforms and enact benefit mandates that go beyond
provisions included in the ACA. For additional discussion on MLRs and its impact on our business, see "—We face
competitive and regulatory pressure to contain premium prices. If the premiums we charge are insufficient to cover our
costs, it could have a material adverse effect on our business, financial condition or results of operations." 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 Qualified Health Plans (“QHPs”) in the exchanges may
operate. These kinds of state regulations 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 current and new federal regulations and the continuing implementation of federal
health care reform by 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. 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 laws, rules and regulations 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 have differed and may differ in the future 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 current federal guidance, the determination of what constitutes a “small group” for
purposes of determining whether a plan participates in the risk 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.
If we do not effectively incorporate the ACA’s premium stabilization and other related provisions into our business,
or these provisions are not successful in mitigating our financial risks, our results of operations may be materially
adversely affected.
The ACA also includes premium stabilization provisions designed to apportion risk amongst insurers, including
the reinsurance, risk adjustment, and risk corridors programs.
The permanent risk adjustment program is applicable to plans in the individual and small group markets that are
subject to the ACA’s market reforms. This risk adjustment program became effective at the beginning of 2014 and has
and will continue to shape the economics of health care coverage both within and outside the exchanges. These
provisions will effectively transfer funds from health plans with relatively lower risk enrollees to plans with relatively
higher risk enrollees to help protect against the consequences of adverse selection. The individual and small group
markets represent a significant portion of our commercial business and the relevant amounts transferred may be
substantial. To adapt to this new economic framework, we have dedicated significant resources and incurred significant
costs to implement numerous strategic and operational initiatives both within and outside the exchanges that, among
other things, require us to focus on and manage different populations of potential members than we have in the past.