Health Net 2015 Annual Report Download - page 29

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other things, have required that we restructure our provider network in response, and will require us to remain diligent
in monitoring the market to, among other things, effectively and efficiently adapt to the ACA’s dynamic environment.
Any delay or failure by us to successfully execute our operational and strategic initiatives with respect to health care
reform or otherwise appropriately react to changes 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 that may have an adverse impact on our business, financial condition, cash flows and
results of operations.
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.
On the legislative front, though repeal of the ACA in its entirety remains unlikely, ongoing legislative action has
impacted the ACA’s implementation. For example, the 2016 Budget Act, signed into law on December 18, 2015,
delayed or deferred several ACA fees and taxes, including the health insurer fee to be payable in 2017. Other recent
legislation has included the Protecting Affordable Coverage for Employees ("PACE") Act, signed into law on
October 7, 2015, which scaled back some of ACA’s required changes with respect to the definition of small groups.
Certain other initiatives that have been unable to establish momentum in the past, may gain support with the Republican
controlled Congress, and the future success of such initiatives may be impacted by the results of the upcoming
presidential and congressional elections.
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, in November 2015, the U.S. Department of Health and Human Services
(“HHS”) announced proposed changes to the ACA’s risk adjustment program methodology and released proposed
regulations related to the ACA’s other premium stabilization provisions, the exchanges and other health insurance
marketplace rules.
In addition to ongoing regulatory developments, many of the operational components of health care reform are
still being developed, including how market participants ultimately interact and adapt to the 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, which impacted markets that represent a significant portion of our business, including our small group markets.
As a result, we implemented certain key ACA related strategic and operational initiatives for the first time in 2015.
Similarly, in 2016, a number of requirements or activities related to our participation in the exchanges will be
implemented for the first time, including reporting requirements relating to CMS’s “Quality Rating System” and
reporting of a Quality Improvement Strategy. Moreover, in 2016, issuers will be reconciling payments under the ACA’s
cost sharing reduction (“CSR”) program for the first time. These delays and developing regulations contribute to
lingering operational 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 operational adjustments.
The ACA also continues to face certain legal challenges, including litigation around federal regulations regarding
contraception coverage and the ability of HHS to make payments to plans under the CSR program. With respect to the
CSR program, the House of Representatives has brought suit challenging the ability of HHS to make payments to plans
under the CSR program, arguing that there is not an explicit appropriation for the payments. On September 9, 2015, a
Federal District Court in the District of Columbia issued a procedural ruling finding that the House of Representatives
had standing to bring the lawsuit, though no ruling has yet been made on the merits. There remains significant
uncertainty about the time frame, outcome or ultimate impact of this litigation, but a final ruling that adversely impacts
the CSR program may hinder our ability to offer coverage through the ACA's health insurance exchanges.
Certain of the proposed legislative and regulatory 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