Purpose

The purpose of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Health Net, Inc. (“Health Net” or the “Company”) is to (a) assist the Board’s oversight of (i) the integrity of Health Net’s financial statements, (ii) Health Net’s compliance with legal and regulatory requirements, (iii) Health Net’s independent auditors’ qualifications and independence, and (iv) the performance of Health Net’s independent auditors and Health Net’s internal audit function and (b) prepare the reports required to be prepared by the Committee pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for inclusion in Health Net’s annual proxy statement. To satisfy the National Association of Insurance Commissioner’s (“NAIC”) Annual Financial Reporting Model Regulation, the Committee also serves as the Audit Committee for each of Health Net’s directly and indirectly owned subsidiaries that are insurance companies or health plans reporting under NAIC regulations.

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Membership

The Committee shall consist of three or more members, all of whom shall be appointed by the Board after the Board's review of the recommendations of Health Net's Governance Committee of the Board (the "Governance Committee") with respect thereto.

Each member of the Committee (a) must be financially literate, as such qualification is interpreted by the Board in its business judgment or must become financially literate within a reasonable period of time after his or her appointment to the Committee, (b) must be independent of Health Net management and Health Net's independent auditors, in accordance with the standards that may be applicable to the Committee from time to time, including, but not limited to, the standards set forth in the New York Stock Exchange ("NYSE") Listed Company Manual and any additional requirements that the Board deems appropriate, and (c) must otherwise be qualified to serve on the Committee pursuant to such standards. At least one member of the Committee must be determined by the Board, in the exercise of its business judgment, to be an "audit committee financial expert" within the definition adopted by the SEC, or the Company shall disclose in its periodic reports required pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") the reasons why at least one member of the Committee is not an "audit committee financial expert."

No director may serve as a member of the Committee if such director serves on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such director to effectively serve on the Committee. Any such determination must be disclosed in Health Net's annual proxy statement.

Each member of the Committee shall be appointed to a one-year term, and may be re-appointed annually thereafter as deemed appropriate by the Board, after the Board's review of the recommendations of the Governance Committee with respect thereto, so long as such member continues to meet the membership requirements. Any vacancy on the Committee shall be filled by majority vote of the Board. No member of the Committee shall be removed except by majority vote of the Board. On an annual basis, one member of the Committee shall be designated as the Chairman of the Committee by the Board after the Board's review of the recommendations of the Governance Committee with respect thereto. If the Chairman of the Committee is not present at a meeting, the Committee may designate an acting Chairman for such meeting. Any other applicable provisions relating to the term and qualification of members of a committee of the Board under the Company's bylaws shall also govern the Committee.

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Meetings

The Committee shall meet as often as may be deemed necessary or appropriate in their respective judgments, but not less frequently than once every fiscal quarter, either in person or telephonically, and at such times and places as they shall determine. The presence of a majority of the existing members of the Committee at each meeting shall constitute a quorum. A majority of members, but not less than two, present and voting shall approve issues requiring a vote. Additionally, as necessary, the Committee may request that members of Health Net management, the Health Net corporate internal auditor and representatives of the independent auditor be present at Committee meetings. The Committee should meet separately on a periodic basis with Health Net's (a) management, (b) person or persons responsible for internal audit and (c) independent auditors, in each case to discuss any matters that the Committee or any of the above persons or firms believe warrant Committee attention. Following each of its meetings, the Committee shall deliver a report on the meeting to the Board, including a description of all actions taken by the Committee at the meeting. The Committee shall keep written minutes of its meetings, which minutes shall be maintained with the books and records of the Company. When appropriate, action may be taken by written consent in lieu of a meeting of the Committee. Any other applicable provisions relating to meetings and procedures for committees of the Board under the Company's bylaws shall also govern the Committee.

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Duties and Responsibilities

In carrying out its duties and responsibilities, the Committee's policies and procedures should remain flexible, so that it may be in a position to best address, react or respond to changing circumstances or conditions. The following duties and responsibilities are within the authority of the Committee and the Committee shall, consistent with and subject to applicable law and rules and regulations promulgated by the SEC, NYSE, or any other applicable regulatory authority:

Selection, Evaluation and Oversight of the Independent Auditors

1. Be directly responsible for the appointment, compensation, retention, termination and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for Health Net, and each such registered public accounting firm must report directly to the Committee (the registered public accounting firm engaged for the purpose of preparing or issuing an audit report for inclusion in Health Net's Annual Report on Form 10-K is referred to herein as the "independent auditors");
2. Review and, in its sole discretion, approve in advance Health Net's independent auditors' annual engagement letter, including the proposed fees contained therein, as well as all audit and, as provided in the Exchange Act and the SEC rules and regulations promulgated thereunder, all permitted non-audit engagements and relationships between Health Net and such independent auditors (which approval should be made after receiving input from Health Net's management, if desired). Approval of audit and permitted non-audit services will be made by the Committee or by one or more members of the Committee as shall be designated by the Committee or the Chairman of the Committee, and the person(s) granting such approval shall report such approval to the Committee at the next scheduled meeting;
3. Review the performance of Health Net's independent auditors, including the lead partner of the independent auditors;
4. Obtain at least annually from Health Net's independent auditors and review a report describing:

1. the independent auditors' internal quality-control procedures;
2. any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditors, or by any inquiry or investigation by any governmental or professional authority, within the preceding five years, respecting one or more independent audits carried out by the independent auditors, and any steps taken to deal with any such issues; and
3. (c) all relationships between the independent auditors and its related entities and Health Net and its related entities, respectively (including a description of each category of services provided by the independent auditors, including its related entities, to Health Net and its related entities, respectively and a list of the fees billed for each such category), consistent with independence rules adopted by the SEC;
5. Evaluate the independence of Health Net's independent auditors.
6. Present to the Board its conclusions with respect to the matters referenced in the preceding paragraphs (3), (4) and (5).
7. Establish clear hiring policies by Health Net for employees or former employees of Health Net’s independent auditors to ensure that hiring practices are compatible with maintaining the independence of the independent auditors.

Oversight of Annual Audit and Quarterly Reviews

8. Review and discuss with the independent auditors their annual audit plan, including the timing and scope of audit activities, and monitor such plan's progress and results during the year; the Committee's review and discussion should explore the independent auditors' consideration and evaluation of factors relevant to determining the scope of audit activities, including:
1. specific risk characteristics of Health Net;
2. external reporting requirements;
3. the materiality of various segments of Health Net's combined activities;
4. the quality of internal accounting, administrative and compliance controls;
5. the extent of the internal auditor's involvement in the audit examination; and
6. other areas to be covered during the audit engagement;
9. Review with management and Health Net's independent auditors information which is required to be reported by the independent auditor under applicable SEC rules and regulations;
10. Meet to review and discuss with management and Health Net's independent auditors Health Net's annual audited financial statements and quarterly financial statements, including Health Net's specific disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and any major issues related thereto, the review of which should include a determination by the Committee that Health Net's financial statements constitute a full and meaningful report to Health Net's stockholders and creditors;
11. Review with management and Health Net's independent auditors the following:

1. significant transactions not a normal part of Health Net's operations;
2. significant adjustments proposed or passed on by the independent auditors;
3. the process used by management in formulating particularly sensitive accounting estimates and the independent auditors' conclusions regarding reasonableness of those estimates;
4. significant issues concerning litigation, contingencies, claims or assessments and all material accounting issues that require disclosure in the financial statements;
5. major issues regarding accounting principles and financial statements presentations, including any significant changes in Health Net's selection or application of accounting principles;
6. any analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative generally accepted accounting principles methods on Health Net's financial statements;
7. the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of Health Net; and
8. the type and presentation of information to be included in Health Net's earnings press releases (especially the use of "pro forma" or "adjusted""pro forma" or "adjusted" information not prepared in compliance with generally accepted accounting principles), as well as financial information and earnings guidance provided by Health Net to analysts and rating agencies (which review may be done generally (i.e., discussion of the types of information to be disclosed and type of presentations to be made), and the Committee need not discuss in advance each earnings release or each instance in which Health Net may provide earnings guidance);
12. Review and resolve all disagreements between Health Net's independent auditors and management regarding financial reporting; and
13. Review on a regular basis with Health Net's independent auditors any problems or difficulties encountered by the independent auditors in the course of any audit work, including management's response with respect thereto, any restrictions on the scope of the independent auditor's activities or on access to requested information, and any significant disagreements with management.

Oversight of the Financial Reporting Process and Internal Controls

14. Review:
1. the adequacy and effectiveness of Health Net's accounting and internal control policies and procedures on a regular basis, including the responsibilities, budget and staffing of Health Net's internal audit function, through inquiry and discussions with Health Net's independent auditors and management;
2. the yearly report prepared by management, and attested to by Health Net's independent auditors, assessing the effectiveness of Health Net's internal control over financial reporting and stating management's responsibility for establishing and maintaining adequate internal control over financial reporting prior to its inclusion in Health Net's Annual Report on Form 10-K;
3. the Committee's level of involvement and interaction with Health Net's internal audit function, including the Committee's line of authority and role in appointing and compensating employees in the internal audit function;
4. the services provided by Health Net's internal audit function, which review should consider (i) results of prior period corporate internal audit activities and any related follow-up actions, (ii) the status of ongoing internal audit projects and activities, (iii) the relationship between Health Net's internal audit department and the independent auditors and (iv) management's actions with respect to appointment, promotion and/or termination of Health Net's lead internal auditor; and
5. the controls that management has established to protect the integrity of the quarterly reporting process, including the adequacy of management controls over expense reimbursement of the President and Chief Executive Officer and the Chief Operating Officer.
15. Discuss guidelines and policies governing the process by which senior management of Health Net and the relevant departments of Health Net, including the internal auditing department, assess and manage Health Net's exposure to risk, as well as Health Net's major financial risk exposures and the steps management has taken to monitor and control such exposures;
16. Review with management the progress and results of all internal audit projects, and, when deemed necessary or appropriate by the Committee, assign, or direct the President and Chief Executive Officer or Chief Financial Officer to assign, additional internal audit projects to Health Net's internal auditing department;
17. Review with management Health Net's administrative, operational and accounting internal controls, including any special audit steps adopted in light of the discovery of material control deficiencies;
18. Receive periodic reports from Health Net's independent auditors, management and Health Net's internal auditing department to assess the impact on Health Net of significant accounting or financial reporting developments that may have a bearing on Health Net;
19. Review with management and the independent auditors instances where management has obtained "second opinions" on the independent audit or on accounting and financial reporting policies from other certified public accountants or other financial accounting advisors that must be reported under applicable disclosure rules;
20. Discuss with the independent auditors the quality of Health Net's financial and accounting personnel and any recommendations that the independent auditors may have (which discussion may cover, among other topics, improving internal financial controls, controls over accounting and financial compliance, the selection of accounting principles and management reporting systems);
21. Review and monitor compliance with governmental laws, regulations and undertakings;

Miscellaneous

22. Meet periodically with the general counsel, and outside counsel when appropriate, to review legal and regulatory matters, including (a) any matters that may have a material impact on the financial statements of Health Net and (b) any matters involving potential or ongoing material violations of law or breaches of fiduciary duty by Health Net or any of its directors, officers, employees or agents or breaches of fiduciary duty to Health Net;
23. Prepare the report required by the rules of the SEC to be included in Health Net's annual proxy statement;
24. Review Health Net's policies relating to the ethical handling of conflicts of interest and review past or proposed transactions between Health Net and members of management as well as policies and procedures with respect to officers' expense accounts and perquisites, including the use of corporate assets. The Committee shall consider the results of any review of these policies and procedures by Health Net's independent auditors;
25. Establish, implement and apply policies and procedues for the review, approval or ratification of transactions required to be reported under Item 404(a) of Regulations S-K;
26. (a) Obtain reports regarding the performance of Health Net's program to monitor compliance with Health Net's Code of Business Conduct, (b) make all necessary inquiries of management, Health Net's internal audit function and the independent auditors concerning established standards of conduct and performance, and deviations therefrom (which inquiries in respect of management other than the President and Chief Executive Officer shall be made through the President and Chief Executive Officer, and which inquiries in respect of the President and Chief Executive Officer shall be made through the Board), (c) review reports on final actions taken under the Code of Business Conduct and on types and categories of pending matters under the Code of Business Conduct and (d) meet periodically with Health Net's Compliance Officer to discuss compliance with the Code of Business Conduct;
27. Establish procedures for (a) the receipt, retention and treatment of complaints received by Health Net regarding accounting, internal accounting controls or auditing matters, and (b) the confidential, anonymous submission by employees of Health Net of concerns regarding questionable accounting or auditing matters;
28. Establish procedures for the receipt, retention and treatment of reports of evidence of a material violation made by attorneys appearing and practicing before the SEC in the representation of Health Net or any of its subsidiaries, or reports made by Health Net's Chief Executive Officer or general counsel in relation thereto;
29. As requested by the Board from time to time, review with management significant financial matters affecting Health Net, whether or not related to a review of the quarterly or annual financial statements (which reviews may include, among other things, discussion of such matters as Health Net's interim operating results versus planned results, management's plan regarding Health Net's business combination strategies, regulatory audit results or Health Net's capital financing alternatives);
30. Review the audit results of audits conducted by governmental and regulatory agencies (e.g., Internal Revenue Service, Centers for Medicare & Medicaid Services, Department of Managed Health Care and various State Department(s) of Insurance) and external auditors engaged for specific purposes;
31. Report regularly to the Board on its activities, as appropriate. In connection therewith, the Committee should review with the Board any issues that arise with respect to the quality or integrity of Health Net's financial statements, Health Net's compliance with legal or regulatory requirements, the performance and independence of Health Net's independent auditors, or the performance of the internal audit function; and
32. Perform such additional activities, and consider such other matters, within the scope of its responsibilities, as the Committee or the Board deems necessary or appropriate.

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Evaluation of the Committee and its Charter

The Committee shall, on an annual basis and in coordination with the Governance Committee, evaluate its performance under the requirements of this charter. The performance evaluation shall be conducted in such a manner as the Committee deems appropriate and shall address all matters that the Committee considers relevant to its performance, including a review and assessment of the adequacy of this charter in addressing the matters that are or should be within its scope.

The Committee shall deliver to the Board a report, which may be oral, setting forth the results of its evaluation, including any recommended amendments to this charter.

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Investigations and Studies; Outside Advisors

The Committee may conduct or authorize investigations into or studies of matters within the Committee's scope of responsibilities, and may retain, at the Company's expense, such independent expert advice to the extent the Committee determines it to be appropriate, including retaining, with or without Board approval, independent counsel, accountants, consultants or others, to assist the Committee in fulfilling its duties and responsibilities, the cost of such independent expert advisors to be borne by Health Net.

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Resources and Authority; Publication of Charter

The Committee shall be given the resources and authority necessary to carry out its duties and responsibilities as set forth in this charter. The Company must provide for appropriate funding, as determined by the Committee in its capacity as a committee of the Board, for payment of (a) compensation to the independent auditor, (b) compensation to any advisers employed by the Company as set forth in the preceding paragraph and (c) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

While the Committee has the duties and responsibilities set forth in this charter, the Committee is not responsible for preparing or certifying the financial statements, for planning or conducting the audit or for determining whether Health Net's financial statements are complete and accurate and are in accordance with generally accepted accounting principles.

In fulfilling their responsibilities hereunder, it is recognized that members of the Committee are not full-time employees of Health Net, it is not the duty or responsibility of the Committee or its members to conduct "field work" or other types of auditing or accounting reviews or procedures or to set auditor independence standards, and each member of the Committee shall be entitled to rely on (a) the integrity of those persons and organizations within and outside Health Net from which it receives information and (b) the accuracy of the financial and other information provided to the Committee, in either instance absent actual knowledge to the contrary.

Nothing contained in this charter is intended to create, or should be construed as creating, any responsibility or liability of the members of the Committee, except to the extent otherwise provided under the applicable laws of the State of Delaware which shall continue to set the legal standard for the conduct of the members of the Committee.