Health Net 2014 Annual Report Download - page 9

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into by DHCS, HNCS and Health Net of California, Inc. on November 2, 2012, which is further discussed above under
the heading “—Western Region Operations Segment—Medicaid and Related Products.”
Term and Termination. Assuming that no party elects to terminate or not to renew the Cal MediConnect Contract,
the dual eligibles demonstration will continue through December 31, 2017. CMS or DHCS may immediately terminate
the Cal MediConnect Contract for various reasons, or may terminate for no reason with 180 days’ prior written notice.
Western Region Exchanges
The ACA required the establishment of state-run or federally facilitated “exchanges” where individuals and small
groups may purchase health coverage. California and Oregon received approval by the U.S. Department of Health and
Human Services (“HHS”) and began operating state-run exchanges in 2013. HHS operates the exchange in Arizona.
We currently participate as Qualified Health Plans ("QHPs") in the exchanges in California and Arizona. Open
enrollment for the coverage year beginning January 1, 2015 began on October 1, 2014 and ended on February 15, 2015.
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 from the exchanges. Certain factors to be considered for continued participation in the
exchanges may be subject to change. We believe the exchanges represent a significant commercial business opportunity
for us, and the growth we experienced through the first open enrollment period demonstrated that our tailored network
products are particularly well suited to the exchange environment as demonstrated by the 21% of market share we
acquired in the first year of the exchanges with 81% of that concentrated in our tailored network offerings as of
December 31, 2014. As of December 31, 2014, we had approximately 269,784 active individual members through the
California, Arizona and Oregon exchanges, including 182,962 in our Silver tier HMO product, CommunityCareSM.
We have made and are continuing to make significant efforts to design and implement a cohesive operational and
economic strategy with respect to the exchanges and the ACA’s other relevant provisions, including premium
stabilization provisions designed to apportion risk amongst insurers. Implementation of the exchanges remains ongoing,
as significant portions of the insurance market, including small business groups, are expected to enter the exchanges for
the first time in 2015. Moreover, in the second year of the exchanges, we expect that the marketplace will react to the
pricing data, information and other feedback that is and becomes available following the completion of the first year of
the exchanges. Accordingly, we will need to continue to monitor this market and remain nimble in our strategic
approach. This changing framework may alter the economics and structure of our participation in the exchanges, and if
we are not able to successfully adapt to any such changes in certain areas of our markets, our financial condition, cash
flows and results of operations may be adversely affected. For a discussion of the risks related to the exchanges, and the
state and federal government actions impacting the exchanges and the effect on our competitive landscape, see “Item
1A. Risk Factors—Federal health care reform legislation has had and will continue to have an adverse impact on the
costs of operating our business and a failure to successfully execute our operational and strategic initiatives with
respect thereto could adversely affect our business, cash flows, financial condition and results of operations,” and “—
Various health insurance reform proposals are also emerging at the state level, which could have an adverse impact on
us.”
In the Arizona individual market we offer HMO products in three counties and PPO plans statewide both through
the exchange and off- exchange. We offer HMO and PPO products to small business groups statewide both through the
exchange and off-exchange. We currently operate in 13 of 19 exchange rating regions in California in the individual
market, and in all 19 California exchange rating regions in the small business health options program (“SHOP”). In
Southern California, we offer HMO and HSP products in the individual market that collectively cover all metal tiers and
the catastrophic category level and offer PPO and EPO products that collectively cover all metal tiers in the SHOP.
Outside of Southern California, we offer EPO products in the individual market that cover all metal tiers and the
catastrophic category level and offer PPO and EPO products that collectively cover all metal tiers in the SHOP.
Medicare Products
We provide a wide range of Medicare products, including Medicare Advantage plans with and without
prescription drug coverage and Medicare supplement products that supplement traditional fee-for-service Medicare
coverage. Our subsidiaries have a number of contracts with the Centers for Medicare & Medicaid Services (“CMS”)
under the Medicare Advantage program authorized under Title XVIII of the Social Security Act of 1935, as amended.
Medicare Advantage Products
As of December 31, 2014, we were one of the nation's largest Medicare Advantage contractors based on
membership of 274,781 members. We contract with CMS under the Medicare Advantage program to provide Medicare