NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Health Net, Inc. will hold its 20092011 Annual Meeting of Stockholders on Thursday,Wednesday, May 21, 200918, 2011 at 10:00 a.m. (Pacific Time) at 21281 Burbank Boulevard in Woodland Hills, California 91367, for the following purposes:

The Board of Directors has fixed Friday,Monday, March 27, 2009,28, 2011, as the record date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting or any adjournmentcontinuation, adjournments or postponementpostponements of the Annual Meeting.

At the Annual Meeting, each share of Common Stock, $.001 par value per share, of Health Net represented at the Annual Meeting will be entitled to one vote on each matter properly brought before the Annual Meeting. Jay M. Gellert and Linda V. Tiano, Esq.Angelee F. Bouchard have been appointed as proxy holders, with full rights of substitution, for the holders of Common Stock.

By Order of the Board of Directors,

Linda V. Tiano, Esq.Angelee F. Bouchard

Senior Vice President, General Counsel and

Secretary

April 8, 20094, 2011

YOUR VOTE IS IMPORTANT

All stockholders are cordially invited to attend the 20092011 Annual Meeting of Stockholders of Health Net, Inc. in person. However, to ensure your representation at the Annual Meeting, please mark, sign and date the enclosed proxy card and return it as soon as possible in the enclosed self-addressed, postage-paid envelope. Alternatively, you may vote your shares by telephone by calling 1-800-560-1965, or over the Internet athttp://www.eproxy.com/hnt. If you vote by telephone or over the Internet, your electronic vote authorizes the named proxies in the same manner as if you returned a signed and dated proxy card by mail. If you attend the Annual Meeting in person, you may vote at the meeting even if you have previously returned a proxy.

Table of Contents

PROXY STATEMENT

FOR THE 20092011 ANNUAL MEETING

OF STOCKHOLDERS

TO BE HELD

MAY 21, 200918, 2011

MEETING AND VOTING INFORMATION

General

The accompanying proxy is solicited by the Board of Directors of Health Net, Inc. (“Health Net,” “we,” “us” or “our”) for use at our 20092011 Annual Meeting of Stockholders (the “Annual Meeting” or “2009“2011 Annual Meeting”) to be held on Thursday,Wednesday, May 21, 200918, 2011 at 10:00 a.m. (Pacific Time) at 21281 Burbank Boulevard, Woodland Hills, California 91367, and at any continuation, adjournments or postponements thereof. Directions to attend the meeting can be found on our Internet Web site,website,www.healthnet.com.¹ We expect to mail this proxy statement and accompanying proxy card beginning on or about April 8, 20094, 2011 to all stockholders entitled to vote at the Annual Meeting. In this proxy statement, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on May 21, 2009. 18, 2011

This proxy statement and our 20082010 Annual Report on Form 10-K are available on our Internet Web sitewebsite address athttp://www.healthnet.com/InvestorRelations/2009Proxy.2011Proxy. This Web sitewebsite address contains the following documents: the notice of the Annual Meeting, this proxy statement, including thea proxy card sample, and the 20082010 Annual Report on Form 10-K. You are encouraged to access and review all of the important information contained in the proxy materials before voting.

We are offering a live webcast of the Annual Meeting on our Internet Web site,website,www.healthnet.com. The webcast of the Annual Meeting will consist of live sound, real-time access to printed material and the ability of stockholders to submit questions during the question and answer period. To participate in the webcast of the Annual Meeting, a stockholder should log on towww.healthnet.com on Thursday,Wednesday, May 21, 200918, 2011 shortly before 10:00 a.m. (Pacific Time) and follow the instructions provided under the “Investor Relations” section of the Web site.website. Stockholders willnot be permitted to vote over the Internet during the Annual Meeting.

Who Can Vote; Outstanding Shares

Only holders of record of our Common Stock, $.001 par value per share (“Common Stock”), at the close of business on March 27, 200928, 2011 (the “Record Date”) are entitled to vote at the Annual Meeting. Each share of Common Stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the Annual Meeting. As of the Record Date, we had outstanding 103,851,72491,996,975 shares of Common Stock.

In accordance with Delaware law, a list of stockholders entitled to vote at the Annual Meeting will be available at the Annual Meeting, and for 10 days prior to the Annual Meeting in the Investor Relations department at our corporate office at 21650 Oxnard Street, Woodland Hills, California 91367, between the hours of 9:00 a.m. and 4:00 p.m. Pacific time.(Pacific time).

Quorum and Votes Required

Our bylaws require that the holders of a majority of the total number of shares entitled to vote be present in person or by proxy in order for the business of the Annual Meeting to be transacted. Abstentions and “broker non-votes” will be counted as present for purposes of determining the presence or absence of a quorum for the transaction

of business at the Annual Meeting. “Broker non-votes” occur when a bank, broker or other nominee holding shares for a beneficial owner does not vote those shares on a particular proposal because it does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. Participation by a stockholder in the live webcast of the Annual Meeting will not be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting.

Stockholder approval of each proposal requires the following votes:

officers more or less frequently than the option approved by our stockholders. Brokers do not have discretionary authority to vote on this proposal. Broker non-votes and abstentions will not be counted as votes cast and will have no effect on the vote on this proposal.

Voting by Proxy

If you hold your shares of Common Stock as a record holder, you may vote by specifying your choices by marking the appropriate spaces on the enclosed proxy card, signing and dating the card and returning it in the enclosed self-addressed, postage-paid envelope. Alternatively, you may vote your shares by telephone by calling 1-800-560-1965, or over the Internet athttp://www.eproxy.com/hntbefore12:00 p.m. (Central Time) on May 20, 2009.17, 2011. If you vote by telephone or over the Internet, your electronic vote authorizes the named proxies in the same manner as if you returned a signed and dated proxy card by mail.Voting over the Internet or telephone will not be permitted after 12:00 p.m. (Central Time) on Wednesday,Tuesday, May 20, 2009.17, 2011.

Note that if you hold shares of Common Stock in the Health Net, Inc. 401(k) Savings Plan (the “401(k) Plan”), you may vote your shares by telephone or by Internet as described above, but your voting instructions must be receivedbefore 12:00 p.m. (Central Time) on Friday, May 13, 2011 in order for the 401(k) Plan trustee to vote your shares.

Instructions on how to submit a proxy via the Internet and telephone are located on the attachment to the proxy card included with this proxy statement. The Internet and telephone voting procedures are designed to authenticate our stockholders by use of a control number located on the attachment to the proxy card included herewith.

If you hold your shares through a bank, broker or other nominee, check the instructions provided by that entity to determine which voting options are available to you. Please be aware that any costs related to voting over the Internet, such as Internet access charges, will be your responsibility.

All properly signed proxies that are received before the polls are closed at the Annual Meeting and that are not revoked will be voted at the Annual Meeting according to the instructions indicated on the proxies or, if no direction is indicated, they will be votedvoted:

In their discretion, the proxy holders named in the proxy are authorized to vote on any other matters that may properly come before the Annual Meeting and any continuation, adjournments or postponements thereof.

Voting in Person

If you are a stockholder of record and plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee, and you wish to vote in person at the Annual Meeting, you must bring to the Annual Meeting a legal proxy from the record holder of the shares (your broker or other nominee) authorizing you to vote at the Annual Meeting.

Stockholders who wish to attend the Annual Meeting will be required to present verification of ownership of our Common Stock, such as a bank or brokerage firm account statement and will be required to present a valid government-issued picture identification, such as a driver’s license or passport, to gain admittance to the Annual Meeting.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

Revocability of Proxies

Any stockholder giving a proxy has the power to revoke it at any time before the proxy is voted at the Annual Meeting. AIf you are a stockholder of record, you may revoke your proxy may be revoked in any of the following three ways:

If you hold shares of Common Stock in the 401(k) Plan, you may revoke your proxy using any of the above three methods, but must do sobefore 12:00 p.m. (Central Time) on Friday, May 13, 2011.

If your shares are held by a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so.

Solicitation

Our Board of Directors is soliciting proxies for the Annual Meeting from our stockholders. We will bear the entire cost of the solicitation of proxies, including preparation, assembly and mailing of this proxy statement, the proxy and any additional materials furnished to stockholders. Proxies may be solicited by directors, officers and a small number of our regular employees personally or by mail, telephone or telegraph, but such persons will not be specially compensated for such service. We have retained MacKenzie Partners, Inc. to assist in the solicitation of proxies for a fee of approximately $10,000$15,000 plus reasonable out-of-pocket costs and expenses. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians that hold shares of our Common Stock of record for beneficial owners for forwarding to such beneficial owners. We may also reimburse persons representing beneficial owners for their costs of forwarding the solicitation material to such owners.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Annual Meeting, please contact our Investor Relations department at (800) 291-6911.

Your vote is important. Please sign, date and return a proxy card (or vote your shares over the Internet or by telephone) promptly so your shares can be represented, even if you plan to attend the Annual Meeting in person. The voting results will be included in our Quarterlya Current Report on Form 10-Q for8-K filed within the second quarter ended June 30, 2009.time required by the SEC.

INTRODUCTION

We are an integrateda publicly traded managed care organization that delivers managed health care services through health plans and government sponsoredgovernment-sponsored managed care plans. Our mission is to help people be healthy, secure and comfortable. We operate and conduct our businesses through subsidiaries of Health Net, Inc., which is among the nation’s largest publicly traded managed health care companies. Unless In this proxy statement, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries.

Our health plans and government contracts subsidiariesWe provide health benefits through our health maintenance organizations (“HMOs”), insured preferred provider organizations (“PPOs”) and point-of-service (“POS”) plans to approximately 6.76.0 million individuals across the country through group, individual, Medicare (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, Department of Defense, including TRICARE, and Veterans Affairs programs. Our behavioral health services subsidiary, Managed Health Network, Inc., provides behavioral health, substance abuse and employee assistance programs to approximately 6.95.4 million individuals, including our own health plan members. Our subsidiaries also offer managed health care products related to prescription drugs and offer managed health care product coordination for multi-region employers and administrative services for self-funded benefits programs. In addition, we own health and life insurance companies licensed to sell PPO, POS, exclusivepreferred provider organization (“PPO”), point-of-service (“POS”) and indemnity products, as well as auxiliary non-health products such as life and accidental death and dismemberment, dental, vision, behavioral health and disability insurance, including our Medicare Part D Pharmacy coverage under Medicare.insurance.

We were incorporated in 1990. Our current operations are the result of the April 1, 1997 merger transaction (the “FHS Combination”) involving Health Systems International, Inc. (“HSI”) and Foundation Health Corporation (“FHC”). We changed our name to Health Net, Inc. in November 2000. Prior to the FHS Combination, we were the successor to the business conducted by Health Net of California, Inc., now our HMO subsidiary in California, and HMO and PPO networks operated by QualMed, Inc. (“QualMed”), which combined with us in 1994 to create HSI.

The mailing address of our principal executive office is 21650 Oxnard Street, Woodland Hills, CA 91367, and our Internet Web sitewebsite address iswww.healthnet.com.

PROPOSALITEM 1—ELECTION OF DIRECTORS

General; Board Structure

Our certificate of incorporation provides for directors to be elected on an annual basis. Under our certificate of incorporation and bylaws, the Board of Directors will consist of between three and twenty members, with the exact number to be fixed from time to time by the Board of Directors. The number of members constituting the Board of Directors has been fixed by the Board of Directors at twelve.

Ournine and our Board of Directors currently consists of nine members. Assuming the election of each of the director nominees at the Annual Meeting, the Board will continue to consist of nine members. We have engaged a third party search firm to assist the Governance Committee of our Board of Directors in the process of identifying and evaluating potential new director candidates.

Our bylaws contain certain mandatory retirement and resignation provisions that apply to members of our Board of Directors. Specifically, a director will be deemed to have retired and resigned from the Board of Directors effective immediately prior to the first annual meeting of stockholders occurring after such director attains seventy-two years of age. However, with respect to members of the Board of Directors who were serving as of February 4, 1999, this retirement and resignation applies once such director reaches seventy-five years of age. Additionally, the Board of Directors has the power to waive the application of these provisions on a case-by-case basis by affirmative vote of two-thirds of the directors after considering all of the applicable facts and circumstances. The Board of Directors has waived the application of such provisions with respect to Patrick Foley (who is seventy-seven years of age and was a member of the Board of Directors on February 4, 1999) for one year. None of the other director nominees are affected by this mandatory retirement provision.

Our bylaws alsoCorporate Governance Guidelines provide that a director who has held office for any period of ninetwelve consecutive years after October 14, 2003, shall not be qualified to be elected as a director at the first annual meeting of stockholders occurring after the end of such ninthtwelve consecutive year and shall be deemed to have retired and resigned from the Board of Directors effective immediately upon the completion of such ninthtwelve consecutive year in office; provided, however, that the Board of Directors shall havehas the power to waive the application of such provisions to a given director on a case-by-case basis by an affirmative vote of two-thirds of the directors after considering all of the applicable facts and circumstances. ThisThe term limit provision doeshas not affectimpacted any of the director nominees.

Director Nominees

At the Annual Meeting, stockholders will electvote for nine directors. Each director will be re-elected to hold office for a term of one year or until the 20102012 Annual Meeting of Stockholders. Each elected director will continue in office until such director’s successor is elected and has been qualified, or until such director’s earlier death, resignation or removal.

Pursuant to our bylaws, based on the recommendation of the Governance Committee, of our Board of Directors has designated the following nine nominees for election. Each of the nominees has consented to serve as a director if elected. There are no family relationships among any directors.of the nominees or executive officers. The following table sets forth certain information with respect to the nominees:nominees, as of March 28, 2011:

On August 23, 2010, one of our long-time directors, Thomas T. Farley, passed away. In 2010, Mr. Farley served on our Audit, Finance and Governance Committees from January until his death.

As set forth under “Meeting and Voting Information—Quorum and Votes Required,” our bylaws include a majority voting standard for the election of directors in uncontested elections, such as this one. Accordingly, the persons receiving a pluralitymajority of the votes cast upby the shares present in person or represented by proxy at the Annual Meeting and entitled to the number of directors to be elected,vote shall be elected. Abstentions and broker non-votes will not be counted, and stockholders eligible to vote at the Annual Meeting do not have cumulative voting rights with respect to the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them “them“FOR”FOR” the election of each of the nine nominees named above. SinceBecause only nine nominees have been named, proxies cannot be voted for a number of persons greater than nine.nine or for individuals other than those named as nominees in this proxy statement.

It is expected that the nominees named above will stand for election at the 20092011 Annual Meeting of Stockholders, but if any of the nominees declines or is unable to do so, the proxies will be voted for another person or persons designated by the Governance Committee of our Board of Directors.

The Board of Directors recommends a vote

“FOR” each named nominee.

Information Concerning Current Members of the Board of Directors and Nominees

Ms. Citrino has served as our director since December 2009. Ms. Citrino has been a Senior Managing Director in the Corporate Advisory Services group at The Blackstone Group, a global investment and advisory firm, since 2004. Ms. Citrino has served as a director of Dollar Tree, Inc., a NASDAQ Stock Market (NASDAQ)-listed company, since 2005, and is a member of its Audit Committee. Previously, Ms. Citrino was

employed at Morgan Stanley for over 20 years. While at Morgan Stanley, she served as the Global Head of Consumer Products Investment Banking, Co-Head of Health Care Services Investment Banking, and as a Mergers and Acquisitions Analyst.

Our Board of Directors has concluded that, in light of her distinguished career as an investment banker, Ms. Citrino should serve as one of our directors because she provides our Board of Directors with a wealth of knowledge regarding business operations, business strategy and the health care industry as well as valuable financial and investment expertise. Further, her extensive experience valuing businesses provides our Board of Directors with key insights and knowledge of what makes our company work efficiently and effectively.

Mr. Craver has served as our director since March 2004. Mr. Craver has served in many different capacities at Edison International (“Edison”), an international electric power generator, distributor and structured finance provider since 1996. Since August 2008, Mr. Craver has served as Chairman, President and Chief Executive Officer of Edison International, having been President of such entityan electric power provider, since April 2008. Prior to that,August 2008, and held several other positions at the company since 1996. Mr. Craver was Chairmanalso is a current director of the Edison Electric Institute and the Electric Power Research Institute, both industry trade organizations. He is also the Co-Chairman of the Electric Drive Transportation Association, and a director of the Autry National Center, both of which are non-profit organizations.

Some of the previous positions held by Mr. Craver at Edison International were: Chief Executive Officer of Edison Mission Group, since 2005, one of theits principal subsidiaries of Edison International that owns and operates independentcompetitive power productiongeneration facilities, and Chief Executive Officer of Edison Capital, an Edison company that is a provider of capital and financial services. Mr. Craver has served as Executive Vice President,services, from January 2005 to April 2008; Chief Financial Officer and Treasurer of Edison International sincefrom January 2000 to December 2004; and in other financial and executive management positions sincebeginning in 1996. From 1984 to 1996, Mr. Craver held various financial management positions at First Interstate Bancorp, including Executive Vice President and Corporate Treasurer of the holding company and Executive Vice President and Chief Financial Officer of a banking subsidiary. Mr. Craver served in various capital markets trading, underwriting and marketing positions at Bankers Trust Company of New York from 1980 to 1984 and at Security Pacific National Bank from 1973 to 1980.

Mr. Craver is also currently a directorbrings to our Board of Directors extensive senior executive management and financial experience at public companies. Mr. Craver gained his finance and accounting expertise as Chief Financial Officer of Edison Electric InstituteInternational and the Electric Power Research Institute, both industry trade organizations,during his banking career. Because of his broad financial experience, Mr. Craver serves as one of our SEC “audit committee financial experts” and provides our Board of the Autry National Center, a non-profit organization.Directors with valuable insight into finance and accounting related matters, as well as general management experience in large, complex and highly-regulated public companies. For these reasons our Board of Directors has concluded that Mr. Craver should serve as one of our directors.

Ms. Escarra has served as our director since July 2006. MsSince March 2006, Ms. Escarra has served as President and CEOChief Executive Officer of FeedFeeding America, since March 2006. Prior thereto, a non-profit organization focused on hunger-relief.

Ms. Escarra hadEscarra’s distinguished professional experience includes a 30-year career at Delta Air Lines, Inc. (“Delta”). Most, most recently from May 2001 until October 2004, Ms. Escarrahaving served as Delta’sDelta Air Line’s Executive Vice President and Chief Marketing Officer.Officer from May 2001 until October 2004. Ms. Escarra iswas a former director of A.G. Edwards, Inc. from 2002 to 2007 and the former Chair of the Board of the Atlanta Convention and Visitors Bureau.

Mr. FarleyWith over thirty years of business and consumer marketing experience, including at a large public company, our Board of Directors has servedconcluded that Ms. Escarra should serve as one of our director since April 1997. Previously, he serveddirectors as a directorshe provides our Board of HSI since January 1994. Mr. Farley served as a directorDirectors with valuable business expertise, especially on matters relating to marketing and business strategy. With her extensive business experience, Ms. Escarra understands the challenges of QualMed from February 1991 until February 1995 and is a senior partner in the law firm of Petersen & Fonda, P.C., Pueblo, Colorado. Mr. Farley was formerly President of the governing board of Colorado State University, the University of Southern Colorado and Ft. Lewis College and Chairman of the Colorado Wildlife Commission. He served as Minority Leader of the Colorado House of Representatives from 1967 to 1975. Mr. Farley was a director of the Public Service Company of Colorado,operating a public gascompany in a dynamic and electric company, from 1983ever-changing business environment. Her present service leading a large non-profit organization lends a unique social awareness perspective to 1997, and is a former director of Colorado Public Radio. Mr. Farley is a current director/advisor of Wells Fargo Bank of Pueblo and Sunset, and a member of theour Board of Regents of Santa Clara University, a Jesuit institution. He was recently appointed by the Governor of Colorado to the Board of Governors, the nine member governing board of the Colorado State University System.Directors.

Ms. Fitzgerald has served as our director since March 2001. Ms. Fitzgerald is a director of Diebold, Inc., a New York Stock Exchange (NYSE)-listed company specializing in providing integrated self-service delivery systems, and security systems and services, Chair of Diebold’s governance committee and a member of its compensation committee. Ms. Fitzgerald also is a director and a member of the audit committee of Cross Country Healthcare, Inc., a NASDAQ-listed healthcare staffing company.

From March 2003 to December 2008, Ms. Fitzgerald served as President and Director of TranSpend, Inc., a privately held company focusing on total spend optimization. From July 2002 through October 2002, Ms. Fitzgerald served as President and Chief Executive Officer of QP Group, a procurement solutions company. From October 1994 to June 2000, Ms. Fitzgerald served as Chair and Chief Executive Officer of Computer Task Group, Inc., an international information technology services firm. Prior to this, Ms. Fitzgerald worked at International Business Machines Corporation, a world leader in information technology, where she held a variety of positions over the course of an eighteen year career, most recently as Vice President of Professional Services. Ms. Fitzgerald also served on the Board of Directors of Kaleida Health System in Buffalo, New York from 1995 to 2002, and was Vice Chair from 2000 to 2002, and served on the Advisory Board of the University of Buffalo’s School of Management from 1993 to 2001. Ms. Fitzgerald served on the Boards of Directors of the Information Technology Services (“ITS”) Division of Information Technology Association of America (“ITAA”) and of ITAA from 1992 to 2002, and was Chair of the ITS Board from 1998 to 2002.

With her distinguished career as a senior executive in the information technology industry, Ms. Fitzgerald is a directorprovides our Board of Directors with expertise in information technology, supply chain management, procurement solutions, human resources, strategic planning, operations management, marketing and healthcare. In addition, serving on the boards of Diebold Inc., Chair of Diebold’s governance committee and a member of its compensation committee. Diebold is a public company which specializes in providing integrated self-service delivery systems and services. Ms. Fitzgerald is a director and a member of the audit committee of Cross Country Healthcare, Inc., a healthcare staffing company. MsMs. Fitzgerald is also a founding partnerdraws from extensive directorial and directorgovernance experience, which enables her to contribute valuable insight and guidance on important issues facing Health Net. Based on these reasons, our Board of TranSpend, Inc. a privately held firm focused on total spend optimization.Directors has determined that Ms. Fitzgerald should serve as one of our directors.

Mr. Foley has served as our director since April 1997.Mr. Foley served as a director of FHC from 1996 until the FHS Combination in April 1997. Mr. Foley served as Chairman, President and Chief Executive Officer of DHL Airways, Inc., an air express parcel delivery company, from September 1988 through July 1999. Prior to this, Mr. Foley worked at Hyatt Hotels Corporation for 26 years, where he held senior management positions, including Chairman and President from 1977 to 1988 and Chief Operating Officer from 1972 to 1977. From 1984 until 1988, Mr. Foley also served as Chief Executive Officer of Braniff Airlines.

With a distinguished career including more than 30 years of experience in the hotel and airline industries as well as service on the boards of several other public companies, including Continental Airlines, Del Monte Foods Company, Flextronics International Ltd., Greyhound Lines, Inc., Copart, Inc. and Glenborough Realty Trust, Inc., Mr. Foley provides our Board of Directors with demonstrated leadership skills, expertise in business and management and extensive directorial experience. Further, as one of our longest standing directors, Mr. Foley also provides continuity to the board, institutional knowledge and a deep understanding of the strategic and operational issues we face. For these reasons, our Board of Directors has concluded that Mr. Foley should serve as one of our directors.

Mr. Gellert has served as our director since February 1999 and has served as our President and Chief Executive Officer since August 1998. Mr. Gellert has been a director of Ventas, Inc., a NYSE-listed company, since August 2001. Mr. Gellert also is currently a member of the Board of Directors of America’s Health Insurance Plans, a national association representing over one thousand health insurance companies.

Previously, Mr. Gellert served as our President and Chief Operating Officer from May 1997 until August 1998. From April 1997 to May 1997, Mr. Gellert served as our Executive Vice President and Chief Operating Officer. Mr. Gellert served as President and Chief Operating Officer of HSI from June 1996 until March 1997. He served on the Board of Directors of HSI from June 1996 to April 1997. Prior to joining HSI, Mr. Gellert directed Shattuck Hammond Partners Inc.’s strategic advisory engagements in the area of integrated delivery systems development, managed care network formation and physician group practice integration. Prior to joining Shattuck Hammond Partners Inc., Mr. Gellert was an independent consultant, and from 1988 to 1991, he served as President and Chief Executive Officer of Bay Pacific Health Corporation. From 1985 to 1988, he was Senior Vice President and Chief Operating Officer for California Healthcare System.

Our Board of Directors has determined that Mr. Gellert has beenshould serve as one of our directors due to his distinguished career in the managed care industry and as a directorsenior executive, which provides our Board of Ventas, Inc.Directors with demonstrated leadership capabilities and expertise in business, management and the health care

industry. As a senior executive of our Company since August 2001.1997 and our predecessor during 1996, Mr. Gellert is currently Chairmanbrings in-depth operational knowledge and understanding of America’s Health Insurance Plans.all facets of our business. In addition, as our President and Chief Executive Officer, he serves as a valuable bridge between management and the board, ensuring that both groups act with a common purpose. Mr. Gellert’s extensive knowledge of our operations and the markets in which we compete, combined with his experience on the board of another NYSE-listed company, enables him to identify important matters for board review and deliberation.

Mr. Greaves has served as our director since April 1997 and was appointedelected Chairman of the Board of Directors in January 2004. Mr. Greaves serves as an Honorary Member of the Board of Trustees of California State University at Long Beach.

Mr. Greaves served as a director of HSI from January 1994 until the FHS Combination in April 1997. Mr. Greaves served as our Co-Chairman of the Board of Directors, Co-President and Co-Chief Executive Officer from January 1994 (upon consummation of the HSI Combination) until March 1995. Prior to January 1994, Mr. Greaves served as Chairman of the Board of Directors, President and Chief Executive Officer of H.N. Management Holdings, Inc. (a, a predecessor to Health Net)Net (“HN Management Holdings”), since its incorporation in June 1990. Prior to this, Mr. Greaves served as the President and Chief Executive Officer, from February 1982 until the incorporation of HN Management Holdings in June 1990, and additionally as Chairman, from September 1989 until the incorporation of HN Management Holdings in June 1990, of Health Maintenance Network of Southern California (the predecessor to H.N. Management Holdings). Mr. Greaves currently serves as Chairman of the Board of Directors of Health Net of California, Inc. (“HN California”), our subsidiary. Mr. Greaves also served a prior term as Chairman of the Board of Directors of HN California, and concurrently served as President and Chief Executive Officer of HN California. Prior to joining HN California, Mr. Greaves held various management roles at Blue Cross of Southern California, including Vice President of Human Resources and Assistant to the President, and held various management positions at Allstate Insurance Company from 1962 until 1968.

With a distinguished career of over forty years of management experience in key leadership roles, including as former Chief Executive Officer of our Company and its predecessors in interest, our Board of Directors has concluded that Mr. Greaves servespossesses demonstrated leadership capabilities and in-depth knowledge of our history and all aspects of our business and, therefore, he should serve as an Honorary Memberone of theour directors. His extensive management experience and knowledge and understanding of our business and operations combine to provide our Board of TrusteesDirectors with valuable guidance and input on the many strategic and operational issues we face. In addition, having served on several boards of California State University at Long Beach.directors, Mr. Greaves has considerable governance experience that he contributes to board discussions and deliberations.

Mr. Willisonhas served as our director since December 2000. Mr. Willison currently serves as President and a director of Grandpoint Capital, Inc., a bank-holding company, since January 2009. Mr. Willison served as Dean of the UCLA Anderson School of Management (the “UCLA Anderson School”) from July 1999 to January 2007, and is currently a Professor in Management of the UCLA Anderson SchoolSchool. From January 2009 until July 2010, Mr. Willison served as Chief Executive Officer of Management.Grandpoint Capital Advisors, a middle market investment bank. Mr. Willison also is a director of Move, Inc., a NASDAQ-listed company, and a trustee of SunAmerica’s Seasons and Series Trusts.

Mr. Willison served as a director of IndyMac Bancorp, Inc. from July 2005 to July 2008. From April 1996 to October 1998, Mr. Willison served as President and Chief Operating Officer of H.F. Ahmanson, Inc. (Home Savings of America). Prior thereto, Mr. Willison wasalso served as Chairman, President and Chief Executive Officer of First Interstate Bank of California from February 1991 to April 1996.

Mr. Willison’s distinguished career in key leadership roles in the financial industries and as a professor and former Dean of UCLA Anderson School of Management provides our Board of Directors with demonstrated leadership skills and expertise in business and finance. Mr. Willison’s governance experience on the boards of several publicly traded companies enables him to play a vital role in board discussions and deliberations regarding our business strategy and operations. In addition, as a director since 2000, Mr. Willison is also a directorunderstands our history, business and the complex industry in which we compete. Therefore, for these reasons our Board of Move, Inc. and is a trusteeDirectors has determined that Mr. Willison should serve as one of SunAmerica’s Seasons and Series Trusts.our directors.

Mr. Yeager has served as our director since March 2004. Mr. Yeager has served as Senior Vice President, Finance ofin numerous senior positions at Time Warner, Inc., a NYSE-listed media and entertainment company since May 1995, including as an advisor to senior management since August 1, 2009, Senior Vice President, Finance since December 2000, and since January 2009, has served as Chairman of the Time Warner’s Investment Committee aand trustee of Time Warner’s U.K. Pension Plans. Plans since 2005.

From December 2000 to January 2009, Mr. Yeager led teams responsible for global strategic sourcing, supplier diversity, and investment of employee benefits assets, and served as the chair of the Time Warner Investment Committee. From May 1995 to December 2000, Mr. Yeager was Vice President, Finance and Development for Time Warner and led teams responsible for financial and business planning, mergers and acquisitions, treasury, capital structure planning and capital markets transactions, and for managing Time Warner’s relationships with commercial and investment banks and debt-rating agencies. Prior thereto, Mr. Yeager had a 27-year career with Ford Motor Company where he held executive and management positions in the Finance Staff, the Treasurer’s Office, theand Treasury departments, Product Development Group, theand Financial Services Group,groups, Ford of Europe, and Ford Motor Credit Company. Mr. Yeager began his career at Ford in 1968 as an Operations Research Analyst.

Our Board of Directors has concluded that Mr. Yeager should serve as one of our directors due to his distinguished career working in finance, planning, treasury and capital markets and experience as a senior executive and advisor for large corporations, which provides our Board of Directors with extensive knowledge of complex financial and operational issues facing large organizations. Mr. Yeager’s expertise in dealing with accounting principles and financial reporting rules and regulations provides him with the financial acumen requisite to serve as one of our SEC “audit committee financial experts” and makes him well suited to serve on our Audit Committee. His years of business experience combined with his financial and business planning expertise play a vital role, especially in light of current market conditions, in board discussions and deliberations regarding our financial and business strategies.

EXECUTIVE OFFICERS

The following sets forth certain biographical information with respect to our executive officers, as of March 27, 2009,28, 2011, and all individuals who served as our executive officers during 2008.2010.

Mr. Gellert has served as our President and Chief Executive Officer since August 1998. Previously, Mr. Gellert served as our President and Chief Operating Officer from May 1997 until August 1998. From April 1997 to May 1997, Mr. Gellert served as our Executive Vice President and Chief Operating Officer. Mr. Gellert served as President and Chief Operating Officer. See “—Information Concerning Current Members of HSI from June 1996 until March 1997. He served on the Board of Directors of HSI from June 1996 to April 1997. Mr. Gellert has been our director since March 1999. Prior to joining HSI, Mr. Gellert directed Shattuck Hammond Partners Inc.’s strategic advisory engagements in the area of integrated delivery systems development, managed care network formation and physician group practice integration. Prior to joining Shattuck Hammond Partners Inc., Mr. Gellert was an independent consultant, and from 1988 to 1991, he served as President and Chief Executive Officer of Bay Pacific Health Corporation. From 1985 to 1988, Mr. Gellert was Senior Vice President and Chief Operating Officer for California Healthcare System. Mr. Gellert has been a director of Ventas, Inc. since August 2001. Mr. Gellert is currently Chairman of America’s Health Insurance Plans.Nominees” above.

Mr. Woys has served as our Executive Vice President, Chief Operating Officer since November 2007. Previously, Mr. Woys served as our Interim Chief Financial Officer from November 2006 until November 2007, and served as President, Government and Specialty Services from October 2005 until November 2007. Prior thereto, he served as President of Health Net Federal Services from February 2001 to October 2005. Mr. Woys served as Chief Operating Officer and President of Health Net Federal Services from November 1999 to February 2001. Mr. Woys served as Chief Operating Officer and Senior Vice President for Foundation Health Federal Services from February 1998 to November 1999. Mr. Woys served as Senior Vice President of Foundation Health Federal Services from January 1995 to February 1998. From January 1990 to January 1995, Mr. Woys served as Vice President and Chief Financial Officer of the Government Division of FHC. Mr. Woys served as Director of Corporate Finance/Tax for FHC from October 1986 to January 1990. Prior to Mr. Woys’ employment with FHC, he was employed by Price Waterhouse from 1982 to 1986 and by Arthur Andersen & Co. from 1980 to 1982.

Mr. Capezza has served as our Executive Vice President, Chief Financial Officer since November 1, 2007. Prior to joining Health Net, Mr. Capezza served as Chief Financial Officer at Harvard Pilgrim Health Care from January 2002 to October 2007. From June 2000 to December 2001, Mr. Capezza served as Senior Vice President and Chief Financial Officer at Group Health Incorporated. Prior thereto, Mr. Capezza had a long career with Reliance Insurance Group, where he served as Senior Vice President and Chief Financial Officer at Reliance Reinsurance Corp. from February 1990 to May 2000. From 1985 to 1990, Mr. Capezza served as Vice President and Chief Financial Officer at Willcox Incorporated Reinsurance Intermediaries, and from 1983 to 1985, Mr. Capezza served as Vice President and Controller at Skandia America Reinsurance Company. From 1976 to 1983, Mr. Capezza served as General Practice Manager—Insurance Industry Specialist at Coopers & Lybrand, LLP.

Ms. Bouchardhas served as our Senior Vice President, General Counsel and Secretary since December 2009, having joined Health Net as Vice President, Assistant General Counsel and Assistant Secretary in 2003. Prior to joining Health Net, Ms. Bouchard was an associate at the law firm of Latham & Watkins LLP from 1996 until 2003, during which time she specialized in capital markets transactions, mergers and acquisitions and public company representation.

Ms. Clareyhas served as our Senior Vice President, Chief Regulatory and External Relations Officer since June 2008. Previously, Ms. Clarey served as Chief Operating Officer of our Health Plan Division and Health Net of California from April 2006 through May 2008. In 2003, Ms. Clarey left us to serve as a member of the senior

leadership team for the campaign for Arnold Schwarzenegger for Governor of California, and after his election served as Governor Schwarzenegger’s Chief of Staff. Prior thereto, from March 2001 to November 2003, Ms. Clarey served as our Vice President of Government Relations. Prior to her service at Health Net, from 1998 through 2001 Ms. Clarey held senior management positions at Transamerica Corporation, and from 1991 to 1998 she served as deputy chief of staff to former California Governor Pete Wilson. Ms. ClaryClarey is currentlya member of the State Personnel Board and a director of California Public Employees’ Retirement System, State Personnel Board andthe California Foundation on the Environment and the Economy.

Mr. Lynchserved as our President, Health Plan Division from November 2007 until November 8, 2008. On November 8, 2008, Mr. Lynch announced he would retire from the Company effective February 28, 2009. From November 2008 until February 28, 2009, Mr. Lynch served as our Special Advisor, Health Plan Division. Previously, Mr. Lynch served as our President, Regional Health Plans since January 2005. Prior thereto, Mr. Lynch served as Chief Operating Officer for our Western Region since June 2004. Mr. Lynch served as President, Health Net of Oregon from August 2001 to June 2004.

Ms. Mayhew has served as our Senior Vice President of Organization Effectiveness since April 1999. Prior to joining us, Ms. Mayhew served as Senior Vice President, Organization Development of Southern New England Telecommunications Company (“SNET”), a northeast regional information, entertainment and telecommunications company based in Connecticut. Prior thereto, Ms. Mayhew served in various capacities at SNET, including Vice President, Human Resources, since 1972.

Mr. Sell has served as our President, Western Region Health Plan since December 2009, having previously served as President of Health Net of California since November 2008. Prior to assuming the role of President of Health Net of California, Mr. Sell was President and Chief Executive Officer of Managed Health Network, Inc. (“MHN”), our subsidiary that offers behavioral health, substance abuse and employee assistance programs, from December 2006 to November 2008, our Chief Sales Officer from March 2006 to December 2006, and our Vice President, Employer Services Group from January 2004 to March 2006. Mr. Sell served as a consultant with Booz Allen Hamilton prior to joining Health Net.

Mr. Sivori has served as our Health Care Services Officer since December 2009 and our President of Regional Health Plans and Health Net Pharmaceutical Services since November 2008. Previously, Mr. Sivori served as our President of Health Net Pharmaceutical Services from September 2001 to November 2008. Prior thereto, Mr. Sivori was appointed Senior Vice President and Chief Financial Officer of Integrated Pharmaceutical Services, now Health Net Pharmaceutical Services, from December 1998 until September 2001. Mr. Sivori originally joined FHC in August 1994 and held various senior management positions prior to December 1998.

Ms. Tianohas served as our President, Regional Health Plans, Health Net of the Northeast, Inc. since December 14, 2009, having previously served as our Senior Vice President, General Counsel and Secretary since February 1, 2007. Ms. Tiano served as Senior Vice President and General Counsel for WellChoice, Inc., the parent of Empire Blue Cross and Blue Shield of New York, from September 1995 to December 2005. Following WellChoice’s acquisition by WellPoint, Inc. in late 2005, Ms. Tiano served as Vice President and Deputy General Counsel for the East Region and National Accounts for WellPoint until November 1, 2006. Before WellChoice, Ms. Tiano was Vice President and General Counsel of MVP Health Plan in New York (“MVP”) from August 1992 to September 1995. Prior to MVP, Ms. Tiano was a partner in the New York office of Epstein Becker & Green.

Mr. Toughhas served as our President, Government Programs since January 16, 2010, our President of Health PlansPlan and Government Programs since November 2008, the President of Health Net Federal Services since January 2006, and theour President of our Government and Specialty Services division since February 2008. From 1978 to 1998, Mr. Tough spent 20 years at FHC, nine of which he served as President and Chief Operating Officer of our Government and Specialty Services groups. Upon leaving FHC in 1998, and prior to joining us in 2008,2006, Mr. Tough started his own firm providing health care consulting services to a variety of companies, and served as President and CEOChief Executive Officer of the California Association of Health Plans and President, Western Region, MAXIMUS Health Care Services Group, a health care services organization.

Mr. Olson served as our Senior Vice President, Corporate Communications from May 1999 until his retirement from Health Net effective June 1, 2008. Mr. Olson was previously Vice President, Investor and Public Relations for HSI, one of Health Net’s predecessor companies.

Certain Relationships and Related Party Transactions

We have adopted a written Related Party Transaction Policy (the “Policy”), which Policy has been approved by the Audit Committee of the Board of Directors (“Audit Committee”) in accordance with its charter. The Policy outlines our policies and procedures for the review, approval or ratification of certain transactions in which any of our related parties had or will have a direct or indirect material interest. For purposes of the Policy, a “related party” means any of our directors or director nominees, our executive officers, holders of more than five percent (5%) of any class of our voting securities, or any member of the immediate family of any of the

foregoing persons, hadany firm, corporation or will haveother entity in which any of the foregoing persons is employed or is a directpartner or indirect material interest.principal or in a similar position, or in which any number of the foregoing persons hold in the aggregate a 10% or greater beneficial ownership interest, or any charitable, tax exempt or non-profit organization in which any of the foregoing persons is actively involved in fundraising or otherwise serves as a director, officer, trustee, or any similar capacity. The Policy provides, among other things, for any proposed related party transaction to be submitted to the Audit Committee, or under delegated authority to the Chair of the Audit Committee (the “Chair”), for approval. The factors to be considered by the Audit Committee, or Chair, as applicable, when reviewing such related party transaction shall include, but are not limited to, the following: (i) the benefits to Health Net;Net of the transaction; (ii) the impact on a director’s independence in the event the related party is a member of the board,Board of Directors, an immediate family member of a member of the Board of Directors or an entity in which a member of the Board of Directors is a partner, shareholder, trustee, director, executive officer or executive officer;similar position; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally.

The Policy also provides that if we find that a related party transaction is ongoing that did not receive prior approval by the Audit Committee, or Chair, as applicable, then such transaction will be promptly submitted to the Audit Committee or Chair for consideration of all of the relevant facts and circumstances available, and taking into account the same factors as described above, to determine whether the transaction should be ratified, amended or terminated. If a related party transaction is completed that did not receive prior approval, the Audit Committee or Chair, as applicable, shall evaluate the transaction, taking into account the same factors as described above, to determine if rescission of the transaction is appropriate. In the case of an ongoing or completed related party transaction that did not receive prior approval in accordance with the Policy, the General Counsel shall evaluate our controls and procedures to ascertain the reason(s) the transaction was not submitted for prior approval and whether any changes to these procedures are recommended. The Chair shall report to the Audit Committee at the next Audit Committee meeting any approval, ratification, amendment or rescission of a related party transaction made by such Chair under his or her delegated authority pursuant to the Policy.

On March 28, 2007, the Audit Committee, in accordance with the Policy, pre-approved the following related party transaction:a transaction with Jonathan Mayhew, the step-son of our Senior Vice President of Organization Effectiveness,Effectiveness. Mr. Mayhew is the President and the 55%an equity owner of two limited liability companies (the “LLCs”) that, holding a fifty percent equity interest in the first LLC and a five percent equity interest in the second LLC. The LLCs entered into a contract with Health Net to provide certain disability advocacy services, professional Social Security Disability Insurance and Medicare identification and advocacy services to eligible health plan members, (the “Agreement”). In 2008,for which we paid approximately $527,600 in fees for the LLCs, for services provided pursuant toyear ended December 31, 2010. Mr. Mayhew was directly involved in negotiating the Agreement, approximately $2,000,000. During 2008contracts on behalf of the Agreement was amended several times. These amendments were brought to the attention ofLLCs.

On March 17, 2010, the Audit Committee, in accordance with the Policy.

In addition, we reimburse the expensesPolicy, approved a transaction with BlackRock, Inc., then a holder of Erika Greaves, the spouse of our Chairmanmore than five percent of the Board, relatedCompany’s outstanding common stock, as reported on a Schedule 13G filed with the SEC on January 29, 2010. BlackRock Financial Management, Inc., a subsidiary of BlackRock, Inc., provided investment management services for us in 2010, for which we paid approximately $1,405,410 in fees for that year (a portion of which consisted of fees paid for services rendered to her attendance (includingus in 2009). As reported on a Schedule 13G/A filed with the costsSEC on February 4, 2011, BlackRock, Inc. owns approximately 8.86% of travel, food and lodging) at Celebrationthe Company’s outstanding common stock. As of Children meetings and events. Mrs. Greaves serves as a volunteer for Celebration of Children, which is a company sponsored charity program. In 2008, we reimbursed Mrs. Greaves approximately $22,094 in connection with her attendance at Celebration of Children meetings and events.March 2011, BlackRock, Inc. no longer provides any investment management services to us.

CORPORATE GOVERNANCE

Corporate Governance Guidelines and Code of Conduct

Members of our Board of Directors are elected by the holders of our Common Stock and represent the interests of all stockholders. Our Board of Directors meets periodically to review significant developments affecting us and to act on matters requiring Boardits approval. Although the Board of Directors delegates manyselected matters to others, subject to its ultimate oversight, it reserves certain powers and functions to itself.

Our Board of Directors has established Corporate Governance Guidelines that it follows in matters of corporate governance. In addition, the Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, directors and officers, including our principal executive officer, principal financial officer and principal accounting officer. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics are published on our Web sitewebsite atwww.healthnet.com. We intend to disclose any future amendments to certain provisions of our Code of Business Conduct and are available in print upon written request, addressedEthics, or waivers of provisions required to be disclosed under the rules of the SEC or listing standards of the NYSE, at the same location on our Corporate Secretary.website identified above.

Board Meetings and Committees; Annual Meeting Attendance

Our Board of Directors met a total of twenty fournine times in 2008.2010. Each member of our Board of Directors was present for 75% or more of the combined total of (i) all meetings of the Board of Directors held in 20082010 (during the period he/she served as a director) and (ii) all meetings of all committees of the Board of Directors held in 20082010 on which he/she served (during the period he/she served). Our non-management directors meet in executive session without management on a regularly scheduled basis, but not less frequently than quarterly. The non-executive Chairman presides at such executive sessions, or in his absence, a non-management director designated by our non-executive Chairman. In addition, it is our policy that each of our directors attendattends the Annual Meeting. All of our current directors excluding Mr. Foley, were in attendance at the 20082010 Annual Meeting.Meeting, except for Vicki Escarra.

Director Independence

On an annual basis, with the assistance of the Governance Committee, our Board of Directors reviews the independence of all directors and affirmatively makes a determination as to the independence of each director. To assist in making this determination, the Board of Directors has adopted independence guidelines which are designed to conform to, or be more exacting than, the independence requirements set forth in the listing standards of the NYSE. The director independence guidelines are published on our Web sitewebsite atwww.healthnet.com and are available in print upon written request, addressed to our Corporate Secretary . In addition to applying these guidelines, the Board of Directors considers any and all additional relevant facts and circumstances in making an independence determination.

OurThe Board of Directors has determined that the following directors of the Company qualify as independent under both the Company’s independence guidelines and NYSE listing standards: Mary Anne Citrino, Theodore F. Craver, Jr., Vicki B. Escarra, Thomas T. Farley, Gale S. Fitzgerald, Patrick Foley, Roger F. Greaves, Bruce G. Willison and Frederick C. Yeager. Under the NYSE listing standards, no director qualifies as independent unless the Board of Directors affirmatively determines that the director has no material relationship with us,the Company, either directly or as a partner, stockholder or officer of an organization that has a relationship with us.the Company. In making such determination, the Board of Directors reviewed allconsidered the current and past relationships, if any, between Health Netthe Company and members of the Board of Directors and their immediate family members. Additionally, the Board of Directors reviewed and considered certain expense reimbursements paid by Health Net to members of the Board of Directors or their immediate family members,, includingthe following:

Net during 2010 on terms and conditions no more favorable than those customarily available to similarly situated entities that are not affiliated with directors of the Company.

Due to the amounts and nature of the payments described above and the fact that none of the foregoing directors has any direct or indirect material interest in any of these transactions or arrangements, our Board of Directors determined these directors to be either directly relatedindependent.

Committees of the Board of Directors

Our bylaws establish the following standing committees of the Board of Directors: the Audit Committee, the Governance Committee, the Compensation Committee and the Finance Committee. Our bylaws further provide that additional committees may be established by resolution adopted by a majority of the Board.Board of Directors. From time to time, the Board of Directors establishes various ad hoc committees by resolution. A majority of the Board of Directors selects the directors to serve on the committees of the Board of Directors upon recommendation of the Governance Committee.

Audit Committee.

The Audit Committee of our Board of Directors currently consists of Messrs. CraverYeager (Chairman), Farley, YeagerCraver and Ms. Fitzgerald. Each of the current members of the Audit Committee served on the Audit Committee from January 20082010 to December 2008.2010, though Mr. Yeager replaced Mr. Craver as the Chairman of the Audit Committee in May 2010. Our Board of Directors has determined that all current Audit Committee members are financially literate under the NYSE listing standards and that all current members of the Audit Committee are independent under NYSE listing standards and under the requirements of SEC Rule 10A-3. Messrs. Craver and Yeager have each been determined by the Board of Directors to be an “audit committee financial expert,” as defined by SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002. Our Audit Committee held eleven meetings in 2008.2010.

Audit Committee Responsibilities.    The Audit Committee is governed by a charter, a current copy of which is available on our Web sitewebsite atwww.healthnet.com. A copy of the charter is also available in print to stockholders upon request, addressed to our Corporate Secretary. Pursuant to the Audit Committee charter, the Audit Committee is responsible for, among other things:

Governance Committee.

The Governance Committee of our Board of Directors is currently comprised of Messrs. WillisonCraver (Chairman), Farley, and Foley and Ms. Escarra. Each of the current members of the Governance Committee served on the Governance Committee from January 20082010 to December 2008.2010, except for Mr. Craver who was appointed to the Governance Committee on May 12, 2010 and replaced Mr. Willison as a member and Chairman of the Governance Committee. Each of the current members of the Governance Committee is independent under NYSE listing standards. The Governance Committee held five meetings in 2008.2010.

Governance Committee Responsibilities.    The Governance Committee is governed by a charter, a current copy of which is available on our Web sitewebsite atwww.healthnet.com. A copy of the charter is also available in print to stockholders upon request, addressed to our Corporate Secretary. Pursuant to the Governance Committee charter, the Governance Committee is responsible for, among other things:

In addition, the Governance Committee has responsibilityis responsible for considerationreviewing director compensation and recommendationmaking recommendations to the Board of Directors the compensation of the Board of Directors.with respect to director compensation. Periodically, the Governance Committee reviews compensation survey data for compensation of peer boardboards of director compensationdirectors and determines whether any adjustments to the Board of Directors’ compensation are appropriate. If adjustments are appropriate, and if yes,the Governance Committee recommends such adjustments to the Board of Directors. The Governance Committee has from time to time directed Semler Brossy Consulting Group, LLC (“Semler Brossy”), the Governance and Compensation Committees’ compensation consultant, to provide certain services with respect to director compensation. Historically, reviews and adjustments to the Board of Directors’ compensation generally have occurred less frequently than annually.

Consideration of Director Nominees.    The Governance Committee selects director nominees, including those nominated to fill vacancies on the Board of Directors, on the basis of the nominee’s possession of such knowledge, experience, skills, expertise and diversity so as to enhance the Board’sBoard of Directors’ ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of the committees of the Board of Directors to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation, NYSE listing standards and our bylaws and other corporate governance documents. In particular, the Governance Committee considers whether a director nominee exhibits the following attributes when reviewing and evaluating candidates:

The Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all candidates.

Identifying and Evaluating Director Nominees.    The Governance Committee identifies potential director nominees from many sources. In the event that a vacancy on the Board of Directors occurs between annual meetings of stockholders, the Governance Committee is responsible for identifying, screening and recommending candidates to the Board of Directors for Board membership. The Board of Directors may maintain a vacancy or vacancies if it cannot identify suitable candidates meeting the Board’s director qualification standards. The Governance Committee asks current directors and executive officers to notify the Committee if they become aware of persons meeting the criteria described above who may be available to serve on the Board.Board of Directors. From time to time, the Governance Committee also engages third party search firms that specialize in identifying director candidates. The Governance Committee is currently working with a third party search firm to assist the Governance Committee in the process of identifying and evaluating potential new director candidates.

The Governance Committee also considers director candidates recommended by stockholders. In considering candidates submittedThe Governance Committee’s evaluation process does not vary based on whether or not a candidate is recommended by stockholders,a stockholder, although the Governance Committee will take into considerationmay, in addition to the needs of the Board of Directors and the qualifications of the candidate. The Governance Committee may alsocriteria described above, take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held. To have a director candidate considered by the Governance Committee for inclusion on the slate of nominees, a stockholder must submit the recommendation in writing and must include the following information:

The stockholder’s recommendation and information described above must be sent to our Corporate Secretary at 21650 Oxnard Street, Woodland Hills, California 91367 and received by the Corporate Secretary not less than 120 days prior to the anniversary date of our most recent annual meeting of stockholders.

Once a person has been identified by the Governance Committee as a potential candidate, the Governance Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Governance Committee determines that the candidate warrants further consideration, the Chairman of the Governance Committee or another member of the Governance Committee contacts the candidate. Generally, if the person expresses a willingness to be considered and to serve on the Board of Directors, the Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Governance Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Governance Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments. The Governance Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although, as stated above, the Board may take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.

In connection with the 20092011 Annual Meeting and in accordance with the above guidelines, the Governance Committee nominated for re-election each of the following nine nominees: Ms. Citrino, Ms. Escarra and Ms. Fitzgerald and Messrs. Craver, Farley, Foley, Gellert, Greaves, Willison and Yeager.

Compensation Committee.

The Compensation Committee currently consists of Messrs. Willison (Chairman) and Foley, Ms. Fitzgerald (Chair),Citrino and Ms. Escarra and Messrs. Foley, Willison and Yeager.Escarra. Each of the current members of the Compensation Committee served on the Compensation Committee from January 20082010 through December 2008.2010, except for Ms. Citrino who was appointed to the Compensation Committee on May 12, 2010. Mr. Willison was appointed Chairman of the Compensation Committee in May 2010, replacing Ms. Fitzgerald as Chair. Each of the current members of the Compensation Committee is intended to qualifyqualifies as a “non-employee director” within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an “outside director” for Section 162(m) purposes and independent under NYSE listing standards. Mr. Greaves, in his capacity as Chairman of the Board, regularly attends Compensation Committee meetings at the Compensation Committee’s request, but, since he is not a member of the Compensation Committee, he does not vote on any Compensation Committee actions. In 2008,2010, our Compensation Committee held ninesix meetings.

Compensation Committee Responsibilities.    The Compensation Committee is governed by a charter, a current copy of which is available on our Web sitewebsite atwww.healthnet.com. A copy of the charter is also available in print to stockholders upon request, addressed to our Corporate Secretary. Pursuant to the Compensation Committee charter, the Compensation Committee is responsible for, among other things:

As provided in its charter, the Compensation Committee has the responsibility to review at least annually the performance of the CEO,Chief Executive Officer, the second-highest paid executive officer and the Senior Officers (the “Oversight

Positions”). The Compensation Committee has the authority to approve the compensation for all Oversight Positions, except thatother than the Chief Executive Officer and the second-highest paid executive. The Board of Directors has the responsibility to determine the compensation for the CEOChief Executive Officer and second-highest paid executive. When making such determination, the Board of Directors takes into consideration the Compensation Committee’s recommendation regarding the compensation for the CEOChief Executive Officer and second-highest paid executive and may choose to ratify, modify or reject such recommendation. The annual performance review of the Oversight Positions occurs in the first quarter of the calendar year following the previous 12-month performance period, and such review cannot be delegated to anyone other than the Compensation Committee. The Compensation Committee reviews all relevant data when determining, and recommending to the Board of Directors, as the case may be, executive compensation including, but not limited to, to:

The CEOCompensation Committee also considers the Chief Executive Officer’s recommendations with respect to the other executives’ compensation. The Chief Executive Officer and his direct reports have the responsibility to review and approve all executive compensation, other than the “Oversight Positions”,Oversight Positions, on an annual basis. ThisIn conducting their annual compensation review, the Chief Executive Officer and his direct reports consider the same factors that the Compensation Committee uses for its annual review, process includes the same relevant factorsas listed above. The Compensation Committee is not responsible for considering or determining compensation for the Board of Directors, thiswhich is the responsibility of the Governance Committee and Board of Directors as discussed above in the “Governance Committee” section of this proxy.proxy statement.

The Compensation Committee is committed to staying apprised of current issues and emerging trends, and ensuring that Health Net’s executive compensation program remains aligned with best practice. To this end, the Compensation Committee has directly selected and retained the services of the consulting firm Semler Brossy Consulting Group, Inc. to assist the Compensation Committee in evaluating executive compensation matters. The aggregate fees paid to Semler Brossy for services that were not related exclusively to executive or director compensation were less than $120,000 during 2010. The Compensation Committee has the sole authority, as it deems appropriate, to retain or terminate the compensation consultant in order to assist the Compensation Committee in carrying out its responsibilities, including sole authority to approve the compensation consultant’s fees and other retention terms that relate to the compensation consultant’s work. The compensation consultant reports directly and exclusively to the Compensation Committee.Committee with respect to executive compensation matters. During 2008,2010, the Compensation Committee directed Semler Brossy to provide the following services:

For a full discussion of the services that the consulting firmSemler Brossy provides to our Compensation Committee to assist it in structuring and evaluating our executive compensation programs, plans and practices, see the “Compensation Discussion and Analysis” section of this proxy.proxy statement.

Finance Committee.

The Finance Committee of the Board of Directors currently consists of Ms. Fitzgerald (Chair) and Ms. Citrino and Messrs. Willison and Yeager. Mr. Foley (Chairman),served as Chairman and Mr. Craver Farley and Willison. Each of the current membersserved as a member of the Finance Committee serveduntil May 12, 2010, on which date Ms. Fitzgerald, Ms. Citrino and Mr. Yeager were appointed to the Finance Committee from January 2008 through December 2008.Committee. In 2008,2010, our Finance Committee held nineseven meetings.

Finance Committee Responsibilities.    The Finance Committee is governed by a charter, a current copy of which is available on our website atwww.healthnet.comThe. Pursuant to the Finance Committee charter, the Finance Committee is responsible for, among other things:

Board Risk Oversight

The Board of Directors oversees an enterprise-wide approach to risk management that is designed to support the achievement of our objectives, including strategic objectives, improvement of long-term organizational performance and enhancement of stockholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us. In setting our business strategy, the Board of Directors assesses the various risks being mitigated by management and determines what constitutes an appropriate level of risk for us. Discussions between senior management and Board members regarding risk management, control and mitigation are critical components of the Board of Directors’ risk oversight process.

While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board of Directors also have responsibility for overseeing specific areas of risk management, as set forth below. The committees periodically provide updates to the Board of Directors regarding significant risk management issues and management’s response.

Committee		Primary Risk Oversight Responsibility
Audit Committee		Overseeing financial risk, capital risk and compliance risk and internal control over financial reporting, and evaluating the effectiveness of Health Net’s Code of Business Conduct and Ethics.
Compensation Committee		Overseeing Health Net’s compensation and benefits practices and evaluating the balance between risk-taking and rewards to associates, as discussed under the heading, “Compensation Risk Assessment.”
Finance Committee		Monitoring the level of risk associated with investment policies and portfolio, strategic endeavors, use of cash and short- and long-term debt structure.
Governance Committee		Evaluating each director’s independence and the effectiveness of Health Net’s Corporate Governance Guidelines, and overseeing management’s succession planning.

In addition, as part of the effort to support the achievement of our objectives, the Board of Directors conducts an annual evaluation of its own performance, including the performance of each committee of the Board of Directors. The Board of Directors also conducts an annual evaluation of the President and Chief Executive Officer. As part of this formal evaluation process, the President and Chief Executive Officer prepares a self-evaluation, including his evaluation of the Company’s performance for the prior fiscal year. Each member of the Board of Directors then individually assesses his and the Company’s performance for the prior fiscal year, providing another forum for dialogue between senior management and Board members regarding the effectiveness of risk management and mitigation efforts.

Board Leadership Structure

Health Net has separated the roles of the Chairman of the Board and Chief Executive Officer since 1999.

After carefully considering the benefits and risks of separating the roles of the Chairman of the Board and Chief Executive Officer, the Board of Directors has determined that having an independent director serve as the Chairman of the Board is the most appropriate leadership structure for Health Net and is in the best interest of its stockholders at this time. With the exception of Mr. Gellert, our President and Chief Executive Officer, the Board of Directors is comprised entirely of independent directors. Separating the roles of the Chairman of the Board and Chief Executive Officer enables the independent directors to participate meaningfully in the leadership of the Board of Directors. The Board of Directors believes this structure provides an appropriate degree of oversight over our Chief Executive Officer and senior management. At the same time, the current Chairman of the Board is a director who has experience with our predecessor companies and therefore has deep institutional knowledge about our organization’s history and operations. For this reason, our Chairman of the Board is able to understand the unique challenges faced by management and serve as a liaison between the Board of Directors and management.

Our Corporate Governance Guidelines give the Board of Directors the flexibility to change its leadership over time, as needed, by permitting the roles of the Chairman of the Board and Chief Executive Officer to be held by the same person. The Board of Directors will continue to evaluate whether its leadership structure is appropriate as Health Net’s business evolves.

DIRECTORS’ COMPENSATION

Directors’ Compensation Table for 20082010

(9)

During 2008, Mr. GreavesFoley received an option grant of 11,60012,859 shares of our Common Stock on May 9, 2008, with an aggregate grant date fair market value of $122,058. SeeNotes to Consolidated Financial Statements, Note 8-Long-Term Equity Compensation of our 2008 Form 10-K for a discussion of the assumptions used in determining grant date fair market value.13, 2010. As of December 31, 2008,2010, Mr. GreavesFoley held 81,60099,059 options to acquire shares of our Common Stock, 62,50067,601 of which were exercisable.

(11)	Mr. Willison received an option grant of 12,859 shares of our Common Stock on May 13, 2010. As of December 31, 2010, Mr. Willison held 94,477 options to acquire shares of our Common Stock, 63,019 of which were exercisable.

Company’s directors.

Cash Retainers and Meeting Fees.    For 2008, theThe annual retainer payable to our non-employee directors during 2010 was $45,000 per year.$45,000. During 2008,2010, each non-employee director who chaired the Compensation Committee, Governance Committee andor the Finance Committee received an additional annual retainer of $10,000 per year.$10,000. The non-employee director who chaired the Audit Committee received an additional annual retainer of $15,000. Each non-employee director also received a $2,000 fee for each meeting of the Board of Directors attended, and a $1,000 fee for each committee meeting attended, other than the Audit Committee. Non-employee directors received a $2,000 fee for each Audit Committee meeting attended. In lieu of these retainer and meeting fees, Mr. Greaves received $18,833.34$18,333.34 per month for his services during 20082010 as Chairman of the Board of Directors and as a member of otherthe Health Net subsidiary boards.of California board. No fees are paid to Health Net employees for service as a director. In December 2010, the Governance Committee and the Board of Directors reviewed the meeting fees and annual retainers payable to non-employee directors and determined that no changes were necessary at that time.

OptionEquity Grants.    OurUntil December 2010, our non-employee director equity compensation program provided for non-employee directors to receive initial grants of nonqualified stock options when they join our Board of Directors and automatic annual grants of nonqualified stock options upon their re-election to our Board.Board of Directors. These grants are currentlywere made under our 2006 Long-Term Incentive Plan (the “2006 Plan”). Non-employeePlan. Upon joining our Board of Directors, non-employee directors arewere granted options to purchase 7,500a number of shares when they join our Board.with a target value equal to $130,000, based on the Black-Scholes method of option valuation. Upon re-election to the Board of Directors, the number of shares granted to non-employee directors hashad a target value equal to $130,000, based on the Black-Scholes method of option valuation. Each non-employee director grant entitles the optionee to purchase the granted number of shares of Common Stock at an exercise price equal to the fair market value of Common Stock on the date of such grant. Each grant vests as to 33 1/3% of the shares each year on the anniversary of the date of the grant, provided that the options become immediately exercisable in the event of a “change in control” of Health Net, as defined in the 2006 Plan. On May 9, 2008,13, 2010, options to purchase 11,60012,859 shares of Common Stock at an exercise price of $28.08$23.51 per share were granted to each of Messrs. Craver, Farley, Foley, Greaves, Willison, Yeager and Ms. Escarra and Ms. Fitzgerald, under the 2006 Plan. As she received an initial grant of options upon her appointment to the Board of Directors in December 2009, on May 13, 2010, Ms. Citrino received a pro-rated option grant to purchase 5,707 shares of Common Stock at an exercise price of $23.51 per share, also under the 2006 Plan.

We also maintainIn December 2010, the Governance Committee recommended to the Board of Directors, and the Board of Directors approved, a modification to our non-employee director equity compensation program. Beginning in 2011, the initial equity grants and the automatic annual equity grants to non-employee directors will be comprised of restricted stock units (“RSUs”), rather than nonqualified stock options. These grants will be made under the 2006 Plan. The target value of the initial and annual non-employee director grants will remain unchanged at $130,000 and will be calculated based on the fair value of the shares underlying the RSUs on the

date of grant. Each grant will vest as to 33 1/3% of the RSUs each year on the anniversary of the date of grant, provided that the RSUs will become immediately exercisable in the event of a “change in control” of Health Net, as defined in the 2006 Plan. Upon vesting, the non-employee director will be entitled to receive the number of shares of Common Stock underlying the vested portion of the RSU grant. Each non-employee director may elect to defer the distribution of shares underlying the vested RSUs in accordance with deferral procedures to be established by the Company.

Certain of our directors have outstanding non-qualified stock option grants that were made pursuant to our Third Amended and Restated Non-Employee Director Stock Option Plan (the “NED Plan”) pursuant to which nonqualified stock option grants to non-employee directors are outstanding. There are no longer enough shares available under the NED Plan to make annual grants to non-employee directors, and, as such, we. We no longer utilize this plan for such grants.grants to non-employee directors. The terms and conditions of the grants that were made to non-employee directors under the NED Plan are substantially the same as grants made under the 2006 Plan, except that the definition of “change in control” is different in the NED Plan.

Expenses.We generally provide for, or reimburse the reasonable expenses of (including costs of travel, food and lodging), our directors incurred in connection with attending Board of Directors, committee and stockholder meetings. We also reimburse directors for their reasonable expenses associated with attendance at other Heath Net-related business meetings and events. In addition, we invite our directors and their companions to attend the annual Health Net Board retreat, and generally reimburse the reasonable expenses of their companions’ travel, food and lodging.Health Net does not own its own aircraft and, as such, our directors generally use commercial air, rail or automobile transportation when traveling to Health Net relatedNet-related business meetings. In addition, we also provide for, or reimburse the expenses of, the Chairman of the Board’s spouse, Erika Greaves, related to her attendance (including the costs of travel, food and lodging) at Celebration of Children and Heart & Soul meetings and events. Mrs. Greaves serves as a volunteer for Celebration of Children, which is a Health Net-sponsored charity program.program and for Heart & Soul, which is Health Net’s awards program for associates. In addition, we also reimburse the expenses of ErikaMrs. Greaves when she accompanies Mr. Greaves to Health Net relatedNet-related business meetings and events.events that are unrelated to Celebration of Children or Heart & Soul.

Deferred Compensation Plan for Directors.    Each non-employee director is eligible to participate in the Health Net, Inc. Deferred Compensation Plan for Directors (the “Director DC Plan”). Participants may elect to defer all or a portion of their cash retainers, meeting fees and certain other cash remuneration earned for services performed during the year. All amounts deferred under the Director DC Plan are vested amounts. The Director DC Plan has been designed so that federal and state income tax on the monies deferred is not due until such time as the account balance is paid to a participant. Participants can elect distribution of their account balances from a given year while they are still serving on our Board or they can elect to have payments made to them in the event of their separation from service with us. Payments under the Director DC Plan can be made in a lump sum payment or as annual installments over a period of greater than two years and less than ten years. Deferred amounts are treated as having been invested in certain investment funds as elected by the participant and become the basis for determining the earnings on the participant’s deferral account. Ms. Fitzgerald and Mr. Willison have account balances under the Director DC Plan, and Ms. Fitzgerald is the only non-employee director who elected to defer compensation under the Director DC Plan during 2010.

Stock Ownership Requirements.    Our governance policy providesBoard of Directors has adopted stock ownership guidelines for non-employee directors. As of February 4, 2011, the guidelines required non-employee directors to hold 50% of all “net settled shares” received from the vesting, delivery or exercise of equity awards granted under our plans until the total value of all shares held equals or exceeds $300,000 (the “Director Ownership Threshold”). “Net settled shares” generally refers to those shares that remain after payment of (i) the exercise price of stock options or purchase price of other awards and (ii) any applicable transaction costs. As of March 28, 2011, Messrs. Foley and Greaves satisfied the Director Ownership Threshold, and the remainder of our non-employee directors are encouraged to own our Common Stock (whethercomplying with the “net settled shares” holding requirements as a result of exercising stock options or the purchase of shares) and it is expected that, within four years of joining the Board, a non-employee director will own shares of our Common Stock having a value of at least three (3) times the annual retainer paid to such director during our most recently completed fiscal year, based on the average NYSE closing price per share of our Common Stock (as adjusted for stock splits and similar changes to the Common Stock) for our most recently completed fiscal year; provided, that the following shall not countthey work toward the director’s target level of ownership: (i) shares of stock gifted to others, (ii) outstanding stock options and (iii) restricted stock grants made to non-employee directors that are not yet vested. All of our directors met these stock ownership guidelines as of December 31, 2008.Director Ownership Threshold, in compliance with the guidelines.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Health Net, Inc. is an integrateda publicly traded managed care organization that delivers managed health care services through commercialhealth plans and government sponsored managed care plans. Our business requires a talented, motivated and capable leadership team. To that end, executive compensation plays a vital role in our ability to attract, retain and motivate top talent for continued business success.

This Compensation Discussion and Analysis (“CD&A” or “ Compensation Discussion and Analysis”) section discusses the compensation programs and policies in place for our named executive officers, as well as the Compensation Committee’s role in the design and administration of these programs and policies and in making specific compensation decisions for our named executive officers. Our named executive officers for 2010 consist of the following executives:

Health Net’s overall 2010 performance, including financial results, was solid. The following are highlights of our 2010 performance:

What is the role of the Compensation Committee?

The Compensation Committee has primary authority to structure our compensation programs and establish compensation levels for our executives, including our named executive officers; however, our Board of Directors approves final compensation decisions (including any grant of equity awards) with regard to our Chief Executive Officer and our second highestsecond-highest paid executive. A detailed discussion of the Compensation Committee’s roles and responsibilities can be found under the “Corporate Governance” section of this proxy statement.

What are the objectives of our executive officer compensation programs?

Managed care is a complex industry that faces regulatory and marketplace challenges.challenges, especially in light of the sweeping changes recently enacted under the federal health care reform legislation. During the first quarter of 2010, the President signed into law both the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, which will result in significant changes to the U.S. health care system and alter the dynamics of the health care insurance industry. We have found that the pool of executives with the relevant industry experience and skills to provide effective leadership in this complex and uncertain health care

environment is limited. Therefore, our compensation program must support our goal of attracting and retaining executive talent with the knowledge and leadership capability needed for us to operate successfully. Of equal importance, our compensation program must align the interests of our executives with those of our stockholders by rewarding our executives for results that create long-term stockholder value.

The objectives of our compensation program are to:

What are the elements of named executive officer compensation and why do we provide each element?

The major compensation elements for our named executive officers are:

Our use of each of these compensation elements varies among our executive officers, as described in detail in this Compensation Discussion and Analysis. We use each element of compensation to satisfy one or more of our compensation objectives, and each element is an integral part of and supports our overall compensation program. Consistent with our performance-based philosophy, we reserve the largest potential compensation awards for performance-based programs. Our annual performance-based incentive cash award program rewards short-term financial performance, while our long-term equity compensation program rewards sustained performance and financial growth and alignswhile aligning the interests of our senior management with those of our stockholders. Our annual performance-based incentive cash award program rewards short-term financial performance. Each of these elements helps us to attract and retain qualified and capable executive officers. The specific purposes of each element are identified in the descriptions that follow.follow in this CD&A.

Executive Compensation Changes in 2010

Based on the objectives of our compensation program, the Company has implemented the following changes:

ownership, starting in 2010, the Company’s long-term incentive grants for named executive officers transitioned from a combination of performance shares and restricted stock units to a combination of stock options and restricted stock units. The Compensation Committee believes that long-term performance measures are difficult to predict in our industry’s uncertain environment, but wants executives to remain focused on the activities that will increase shareholder value. Therefore, stock options replaced performance shares in 2010. More information is provided below under the section “Long-Term Equity Compensation”.

Base Salary.

Base salaries provide our named executive officers with a degree of financial certainty and stability, compensating them for performing their core job duties and recognizing individual achievements and contributions. In 2008, it was determined that noneThe base salary for each of theour named executive officers would receive ais set forth in each of their respective employment agreements and is subject to adjustment by the Compensation Committee or Board of Directors (depending on the executive’s level). Further discussion regarding 2010 base salary increase because they were already inis presented below under the desired range of salaries, based on the market median for their positions (the market median is discussed further below undersections, “How do we determine the amount for each element of executive officer compensation?”). In addition, 2008 performance did not support pay adjustments. Mr. Gellert’s base compensation and “Analysis of $1,200,000 was above the market median of $1,077,000 and only slightly below the market 75^th percentile of $1,279,000. Mr. Woys received a 10% increase to his base salary in November 2007 in conjunction with his promotion to Executive Vice President, Chief Operating Officer. His base salary of $700,000 was slightly above the market median of $666,000 for his position. Mr. Capezza was hired in November 2007, and his base salary of $550,000 was slightly above the market median of $531,000 for his position. Mr. Lynch received a 9% increase to his base salary in December 2007 in conjunction with his promotion to President, Health Plan Division. His base salary of $600,000 was near the market 75^th percentile of $614,000. Ms. Tiano was hired in February 2007 with a base salary of $500,000. In February, 2008, her base salary was between the market median and 75^th percentile, $483,000 and $539,000, respectively.Compensation During Fiscal 2010”.

Annual Performance-Based Incentive Cash Awards.

Annual performance-based incentive cash awards help to motivate our named executive officers to meet or exceed our Company-wide and business unit short-term performance objectives. TheEach named executive officer’s employment agreement provides for participation in our Executive Officer Incentive Plan (the “EOIP”) and a corresponding target bonus amount, expressed as a percentage of base salary, subject to a maximum bonus amount equal to 200% of target. In determining the target bonus amount for each named executive officer, our Compensation Committee considers the market data provided by its independent compensation consultant, Semler Brossy, as described in the section, “How do we determine the amount for each element of executive officer compensation?”

The EOIP is only funded if we attain a pre-established performance threshold. For 2008,2010, we used earnings per shareCombined Western Region and Government Contracts PTI as our performance threshold. For 2009, our performance threshold for funding of the EOIP will be based on pre-tax income, which is generally defined as total revenue less payments to providers, sales, and general and administrative expenses.EOIP. This changemeasure creates emphasis on operational performance, which is critical for our 2009 plan, because improved operational performance leads to increased long-term value for our stockholders while enabling our economicfinancial growth and performance development. In addition, awardsAwards to participants in the EOIP are also tied to specific pre-established Company-wide and business unit performance objectives. EOIP awards in 2008 were also tied to specific pre-established individual performance objectives, which further contribute to successful Company and business unit results.as well as individual

performance. Under the EOIP, assessment of performance is based both onwhat is achieved andhow it is achieved, soachieved. This structure helps to ensure that business goals are accomplished in a manner that strengthensis consistent with Health Net’s climate, as reflected in our annual associate climate survey, as well as achieves our business objectives.values. A description of the material terms of the EOIP can be found below in the section entitled

“Analysis “Analysis of Compensation During Fiscal 2008—2010—Annual Performance-Based Incentive Cash Awards,” as well as Proposal 2 to amend and restate the EOIP. BecauseAwards”. In 2010, the Company did not meet our financial performance thresholds in 2008,achieved the pre-established threshold PTI measure. As such, the EOIP was not funded and no bonuses were paid to our named executive officers, as discussed in detail below under “Annual Performance-based“Analysis of Compensation During Fiscal 2010—Annual Performance-Based Incentive Cash Awards.”

Long-Term Equity Compensation.

OurIn recent years, our annual long-term incentive awards arehave generally been provided in the form of restricted stock units and performance shares. Due to the uncertainties of the economy and health care reform, we faced challenges in establishing attainable long-term performance targets. For out-of-cycleexample, none of the performance share awards that we granted in 2007 and 2008 were earned because the related Company performance measures were not attained. In February 2010, the Compensation Committee determined that stock options with service-based vesting would replace performance share grants (i.e.,to our executives. The Compensation Committee believes that long-term performance measures are difficult to predict in our industry’s uncertain environment and therefore determined that stock options are a better vehicle. The use of stock options with service-based vesting maintains our executives’ focus on activities that support value creation, while recognizing that the strategy and drivers of value may continue to change and evolve as the health care environment evolves. The Compensation Committee also determined to grant restricted stock units with time-based vesting to our executives because they believe that restricted stock units support retention objectives and motivate executives to increase value to our stockholders.

For 2010, the Compensation Committee approved long-term incentive grants that are not annual grants, such as new hire or promotion grants), we occasionally issue equity grantsto our named executive officers with 75% of the value in the form of stock options. Our Chief Executive Officer has been delegatedoptions and 25% of the authority to grantvalue in restricted stock units. The stock options vest in certain instances; however, any grants to the named executive officers must be approved by the Compensation Committee. Further, any grants to the Chief Executive Officertheir entirety (i.e., “cliff” vesting) after three years, and the second highest paid officer must be recommended by the Compensation Committee and approved by the Board of Directors.restricted stock units vest 25% per year over four years.

Each year, the Compensation Committee approves our equity grant guidelines for equity awards to all eligible participants Company-wide, including the named executive officers, based on the participants’ salary grade levels in the organization. The guidelines provide a range of shares for participants at each salary grade level to providedeliver competitive equity value to the eligible recipient population and ensure that we maintain our targeted rate of share usage, or our burn rate, as approved by the Compensation Committee. Our 2008For 2010, we managed to a burn rate was 2% and our 2009cap approved by the Compensation Committee. We measure burn rate is expected to be 2.5% of our outstanding Common Stock measured in stock option equivalents. Our 2008 burn rate considersequivalents assuming a conversion factor of two option equivalents for every full value share granted. Beginning March 6, 2009, our 2009 burn rate considers a conversion factor of 1.75 option equivalents for every full value share granted. Our targeted rate of share usage controls the rate of dilution for stockholders, is competitive with industry practice and provides a reasonable amount of value sharing with executives.

Our historical dilution and rate of usage over the past five years, as shown in the table below, illustrates our ability to maintain our rate of usage at or near 2% of our outstanding Common Stock in recent years.

Stockholder Dilution From Stock Grants: Historic Rates of Usage at Health Net