Health Net 2015 Annual Report Download - page 32

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competitive market over time.
Various legislative and legal developments and the ongoing evolution of the regulatory framework for the
exchanges also have the potential to alter the economics and structure of our participation in the exchanges. For
example, changing eligibility rules and redetermination processes based on income, employer coverage and eligibility
management activities have impacted the size and mix of the exchange market pool of potential insured. In particular,
we and other health insurers have experienced increased adverse selection risk resulting from the availability of the
exchange’s special enrollment periods. While recent regulatory guidance and enhanced enforcement have attempted to
address such issues, the efficacy of any changes in addressing lingering instability in the exchange market pool is
generally beyond our control. Certain other key portions of the exchange’s regulatory framework continue to develop,
including regulatory allowances designed to help smooth the transition into the ACA such as transitional relief measures
and the ACA’s premium stabilization provisions. For additional information, see the risk factor above under the
heading, “—The ACA has been the subject of various legal challenges and legislative initiatives, which increase the
uncertainty of how the law will impact us,” and “—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.”
In addition, lawsuits filed by stakeholders on the exchanges have raised questions for exchange participants,
including us, surrounding provider network size, network capacity and the adequacy of communication between health
insurers and their consumers with respect to network composition for exchange products. State and federal regulators
have also expressed concern about provider network adequacy for exchange products. For example, recent legislative
and regulatory action with respect to the sufficiency of provider networks and adequacy of provider directories has
required us and other health insurers to devote resources and incur costs. These and other similar actions by courts or
regulators in this area may require us to adjust our tailored network exchange strategy or make other material
modifications to our business and operations. Our exchange strategy relies heavily on our use of tailored network
products and whether or not we are required to make adjustments to our networks, there is no assurance that our tailored
network strategy will be successful over time. See “—The markets in which we do business are highly competitive. If
we do not design and price our product offerings competitively, our membership and profitability could decline” for
additional information regarding our tailored network strategy.
Our individual membership has increased significantly since the exchanges opened in 2014. While we have
implemented operational initiatives with respect to this new population, we will continue to face operational challenges
inherent in untested programs. Accordingly, we will need to continue our efforts to refine information systems support,
enhance monitoring and reporting, manage eligibility and renewal processes, and enhance consumer outreach. Our
operational risk increases with the legal and regulatory uncertainty described above. Any failure to successfully
implement these initiatives or modifications in response to developing regulations may have an adverse impact on our
exchange membership and profitability on the exchanges.
Taken together, the exchanges’ untested nature, the evolving marketplace surrounding them and the responses of
state and federal decision makers to these issues have created lingering uncertainty for us and other health insurers
participating in the exchanges. The factors driving this uncertainty as described above-as well as other factors that could
impact the exchange marketplace, such as changes in the U.S. economy, changes in unemployment rates, average
household income and changes in employer coverage-are generally beyond our control. The fluid and novel nature of
the exchange marketplace impacts our ability to predict exchange enrollment, premiums and costs, which may have an
adverse effect on our revenues and results of operations. If we fail to effectively adapt our business strategy and
operations to these evolving regulations and markets, our financial condition and results of operations may be adversely
affected.
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 their 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