Exhibit 10.16

[Health Net Letterhead]

May 22, 2002

Mr. Jeff Folick
13601 Belle Rive
Santa Ana, CA 92705

Dear Jeff:

        On behalf of Health Net, Inc. (the "Company"), we would like to make you
an offer of employment as Executive Vice President, Regional Health Plans &
Specialty Companies. The terms and conditions of your employment by the Company,
which employment would commence on May 24, 2002, are as set forth in this letter
agreement (this "Agreement"):

        1.    Salary and Duties.    

        A.    Salary.    You will be paid an annual base salary of $500,000,
less applicable withholdings (payable on a bi-weekly basis) ("Base Salary"),
which covers all hours worked. Generally, your Base Salary will be reviewed
annually, but the Company reserves the right to change your compensation from
time-to-time. Pursuant to the By-laws of the Company, any adjustment to your
compensation must be made with the approval of the Compensation and Stock Option
Committee (the "Committee") of the Company's Board of Directors (or, in the
event that you constitute one of the top two (2) highest paid executive officers
of the Company, with the ratification of the Company's Board of Directors).

        B.    Duties.    Your duties and responsibilities will be for general
operating oversight of the Company's Northeast, Arizona, Pharmacy and MHN
divisions, as well as enterprise-wide responsibility for the Healthcare Delivery
Policy, Pricing and Underwriting areas, but the Company reserves the right to
assign you other duties as needed and to change your duties from time to time,
based on your skills and the needs of the Company. You will report directly to
Jay Gellert, President and Chief Executive Officer of the Company, but your
reporting relationship may be changed from time to time at the discretion of the
Company. Your title will be Executive Vice President, Regional Health Plans &
Specialty Companies, but may be changed at the discretion of the Company to a
title that reflects another senior executive position.

        2.    Adjustments and Changes in Employment Status.    You understand
that the Company reserves the right to make personnel decisions regarding your
employment, including but not limited to decisions regarding any promotion,
salary adjustment, transfer or disciplinary action, up to and including
termination, consistent with the needs of the business. Generally, performance
and compensation are reviewed on an annual basis.

        3.    Protection of Proprietary and Confidential Information.    You
agree that your employment creates a relationship of confidence and trust with
the Company with respect to Proprietary and Confidential Information (as defined
below) of the Company learned by you during your employment.

        A.    You agree not to directly or indirectly use or disclose any of the
Proprietary and Confidential Information (as defined below) of the Company or
any of its affiliates at any time except in connection with the services you
provide to such entities. "Proprietary and Confidential Information" shall mean
trade secrets, confidential knowledge, data or any other proprietary or
confidential information of the Company or any of its affiliates, or of any
customers, members, employees or directors of any of such entities, but shall
not include any information which (i) was publicly known and made generally
available in the public domain prior to the time of disclosure to you by the
Company or (ii) becomes publicly known and made generally available after

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disclosure to you by the Company. By way of illustration but not limitation,
"Proprietary and Confidential Information" includes: (i) trade secrets,
documents, memoranda, reports, files, correspondence, lists and other written
and graphic records affecting or relating to any such entity's business;
(ii) confidential marketing information including without limitation marketing
strategies, customer and client names and requirements, services, prices,
margins and costs; (iii) confidential financial information; (iv) personnel
information (including without limitation employee compensation); and (v) other
confidential business information.

        B.    You further agree that at all times during your employment and
thereafter, you will keep in confidence and trust all Proprietary and
Confidential Information, and that you will not use or disclose any Proprietary
and Confidential Information or anything related to such information without the
written consent of the Company, except as may be necessary in the ordinary
course of performing your duties to the Company.

        C.    All property, including, but not limited to, Proprietary and
Confidential Information, documents, data, records, apparatus, equipment and
other physical property, whether or not pertaining to Proprietary and
Confidential Information, provided to you by the Company or any of its
affiliates or produced by you or others in connection with your providing
services to the Company or any of its affiliates shall be and remain the sole
property of the Company or its affiliates (as the case may be) and shall be
returned promptly to such appropriate entity as and when requested by such
entity. You shall return and deliver all such property upon termination of your
employment, and you may not take any such property or any reproduction of such
property upon such termination.

        D.    You recognize that the Company and its affiliates have received
and in the future will receive information from third parties which is private,
proprietary or confidential information subject to a duty on such entity's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. You agree that during your employment, and thereafter,
you owe such entities and such third parties a duty to hold all such private,
proprietary or confidential information received from third parties in the
strictest confidence and not to disclose it, except as necessary in carrying out
your work for such entities consistent with such entities' agreements with such
third parties, and not to use it for the benefit of anyone other than for such
entities or such third parties consistent with such entities' agreements with
such third parties.

        E.    Your obligations under this Section 3 shall continue after the
termination of your employment, and any breach of this Section 3 shall be a
material breach of this Agreement.

        4.    Representation and Warranty of Employee.    You represent and
warrant to the Company that the performance of your duties, and the entering
into of this Agreement, has not and will not violate any agreements with or
trade secrets of any other person or entity. In addition, you represent and
warrant to the Company that you have not shared or disclosed, and will not share
or disclose to the Company, any proprietary or confidential information of your
previous employers or any other third party.

        5.    Drug Screening and Background Check.    Your employment is
contingent upon your successful completion of the Company's drug screening and
background check process.

        6.    Employee Benefits.    

        A.    Employee Benefit Programs.    You may be eligible for various
employee benefit programs if you meet the applicable participation requirements.
These benefit programs include paid time off ("PTO"), holidays, group medical,
dental, vision, term life, and short and long term disability insurance and
participation in the Company's 401(k) plan and tuition reimbursement plan. It is
agreed that you will be eligible for an annual PTO accrual of 24 days
(representing 7.38 hours per bi-weekly pay period) through 120 months of
service, and an annual PTO accrual of 26 days (representing 8.00 hours per
bi-weekly pay period) thereafter. You will also be eligible to

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participate in any employee benefit programs added at any future time that are
generally applicable to senior executives of the Company and that have been
approved by the Committee, provided that you meet the applicable participation
requirements; provided, however, that this provision does not extend to any
individually negotiated or tailored benefits, plans or programs covering a
particular employee or employees. Although the Company may sponsor a benefit or
plan or program for some employees, it is not required to do so for all
employees and may exclude certain employees now or in the future from one or
more benefits, plans or programs. The Company or its subsidiaries or affiliates
may modify, terminate or amend any benefit or plan in its discretion,
retroactively or prospectively, subject only to applicable law.

        B.    Required Insurance.    You will be covered by workers'
compensation insurance and state disability insurance, as required by state law.

        C.    Automobile Allowance.    The Company will provide you with an
automobile allowance of $1,000 per month, subject to normal payroll deductions.

        D.    Financial Counseling Allowance.    You will be reimbursed up to
the amount of $5,000 per year for documented costs incurred for your personal
financial counseling services.

        E.    Incentive Bonus.    You will also be eligible to participate in
the Health Net, Inc. Executive Incentive Plan (also known as the Management
Incentive Plan ("MIP")) in accordance with the terms of the MIP, which provides
you with a target opportunity to earn up to 70% of your Base Salary as an annual
bonus, prorated from your date of hire for the first year, as additional
compensation, according to the terms of the actual MIP documents. The bonus
payment will range from 0% to 200% of target depending upon the actual results
achieved, and specific, individually tailored measures will be established by
the Company that must be achieved by you in order for you to be eligible to
receive bonus payments for a given plan year. It is understood that the
Committee and the Company will award bonus amounts, if any, as it deems
appropriate consistent with the guidelines of the MIP. You acknowledge that in
the event you are one of the top five (5) highest paid executive officers of the
Company for a given year under applicable federal securities laws, your bonus
for that year, if any, will be subject to the Company's Performance Based 162(m)
Plan in lieu of the MIP.

        F.    Relocation Benefits.    You will be provided relocation benefits
which will be covered under the applicable Relocation Benefit Guidelines of the
Company currently in effect. All relocation expenses not deductible under IRS
regulations, except the miscellaneous spending allowance, will be "grossed up"
for income tax purposes at the Supplemental Federal Tax rate and applicable
State Tax liability.

        G.    Expenses.    Subject to and in accordance with the Company's
written guidelines and procedures for business and travel expenses, as may be
modified by the Company from time to time, you will receive reimbursement for
all business travel and other out-of-pocket expenses reasonably incurred by you
in the performance of your duties pursuant to this Agreement.

        7.    Stock Options.    Upon your acceptance of this offer of
employment, and with a grant date effective as of the first date of your
employment hereunder, you will be granted non-qualified stock options to
purchase an aggregate of 500,000 shares of the Class A Common Stock (the "Common
Stock") of the Company (the "Stock Options"). All Stock Options granted to you
will be granted under the applicable Company Stock Option Plan (the "Stock
Option Plan"), and will be subject to the terms of the Company's form of option
agreement as adopted by the Company's Compensation and Stock Option Committee
(the "Stock Option Agreement"). These Stock Options will expire ten (10) years
from the grant date (subject to earlier termination as provided in the Stock
Option Agreement or the Stock Option Plan), will be subject to the vesting
schedule set forth below and will have an exercise price equal to the closing
sales price of the Common Stock on your first day of employment. In the

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event of any inconsistency with this Agreement, the terms of the Stock Option
Agreement and the Stock Option Plan shall control. Any future recommendation for
additional options made by the Company's management will be made consistent with
your performance and generally comparable to your peers at the time option
recommendations are presented to the Stock Option Committee. It is further
agreed that this initial grant to you will be considered a "mega-grant" and you
will therefore not be eligible to receive additional option grants until 2003.

        Your Stock Options will vest as follows:

        (1)  300,000 of the Stock Options will vest in four (4) equal annual
installments, beginning on the first anniversary of the grant date.

        (2)  The remaining 200,000 of the Stock Options will vest in the
following amounts at the earlier of (i) the occurrence of the following
performance requirements which accelerate the vesting date (subject to a
requirement that the shares acquired upon exercise of such portion of the Stock
Options must be held for one (1) year after the acceleration date) or (ii) the
following vesting dates:

•100,000 will vest at earlier of (a) the date the closing sales price of the
Common Stock on the New York Stock Exchange for 20 consecutive trading days is
equal to or greater than $38 or (b) 5 years after the grant date;

•100,000 will vest at earlier of (a) the date the closing sales price of the
Common Stock on the New York Stock Exchange for 20 consecutive trading days is
equal to or greater than $45 or (b) 5 years after the grant date.

As set forth in the applicable Stock Option Plan and in the Stock Option
Agreement used by the Company, vesting of your Stock Options may be accelerated
upon the consummation of certain "Change in Control" transactions (as defined in
such documents) subject to the terms and conditions of such documents. Please
note that the definition of "Change in Control" contained in these documents is
different in various respects from the definition set forth in Section 9 of this
Agreement.

        8.    Term of Employment.    Your employment with the Company is
"at-will," which means that either you or the Company may terminate the
employment relationship at any time, with or without notice and with or without
Cause (as defined below). Upon termination of your employment for any reason, in
addition to any other payments that may be payable to you hereunder, you (or
your beneficiaries or estate) will be paid (in each case to the extent not
theretofore paid) within thirty (30) days following your date of termination (or
such shorter period that may be required by applicable law): your Base Salary
through the date of termination, any compensation previously deferred by you
(together with any interest and earnings therein), accrued but unused PTO,
reimbursable expenses incurred by you prior to the termination date and any
other compensatory plan, arrangement or program payment to which you may be
entitled.

        9.    Severance Pay.    

        (a)  If your employment is terminated by the Company without Cause (as
defined below) at any time that is not within two (2) years after a Change in
Control (as defined below) of Health Net, Inc., you will be entitled to receive,
provided you sign a Waiver and Release of Claims substantially in the form
attached hereto as Exhibit A, which is incorporated into this Agreement by
reference, (i) a lump sum cash payment equal to twenty-four (24) months of your
Base Salary in effect immediately prior to the date of your termination and (ii)
the continuation of your medical, dental and vision benefits for you and your
dependents for six (6) months following the effective date of your termination
and (iii) after expiration of such six (6) month benefits continuation period,
the premium payments for continuation, under COBRA, of your medical, dental and
vision benefits (as maintained for your benefit immediately prior to the date of
your termination) for you and your dependents for a period of eighteen (18)
months, provided you properly elect to continue those benefits under COBRA. The
lump sum payment referred to above will be paid within thirty (30) days
following your termination of employment.

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        (b)  If at any time within two (2) years after a Change in Control (as
defined below) of Health Net, Inc. your employment is terminated by the Company
without Cause or you terminate your employment for Good Reason (as defined
below) (by giving the Company at least fourteen (14) days prior written notice
of the effective date of termination), then you will be entitled to receive,
provided you sign a Waiver and Release of Claims substantially in the form
attached hereto as Exhibit A, which is incorporated into this Agreement by
reference, (i) a lump sum payment equal to thirty-six (36) months of your Base
Salary in effect immediately prior to the date of your termination and (ii) the
continuation of your medical, dental and vision benefits for you and your
dependents for eighteen (18) months following the effective date of your
termination and (iii) after expiration of such eighteen (18) months of benefits
continuation period, the premium payments for continuation, under COBRA, of your
medical, dental and vision benefits (maintained for your benefit immediately
prior to the date of your termination) for you and your dependents for a period
of eighteen (18) months, provided you properly elect to continue those benefits
under COBRA; provided, however, that in the event the Company requests, in
writing, prior to such voluntary termination by you for Good Reason that you
continue in the employ of the Company for up to an additional three months, you
must continue to remain so employed by the Company during such requested
extension in order to receive such severance benefits.

        (c)  In the event that your employment is voluntarily terminated by you
at any time (except for Good Reason within two years after a Change in Control
of Health Net, Inc.), then you shall not be eligible to receive any payments set
forth in this Section 9.

        (d)  For purposes of this Agreement, the term Cause shall include,
without limitation, (i) an act of dishonesty causing harm to the Company or any
of its affiliates, (ii) the knowing, unauthorized use or disclosure of
proprietary or confidential information relating to the business of the Company
or any of its affiliates, (iii) abuse of alcohol or use of illegal drugs,
(iv) conviction of or a plea of nolo contendere to a felony or a misdemeanor
involving moral turpitude, (v) willful refusal to perform or gross neglect of
the duties assigned to you, (vi) the willful breach of any law that, directly or
indirectly, affects the Company or any of its affiliates, (vii) a material
breach by you following a Change in Control of those duties and responsibilities
of yours that do not differ in any material respect from your duties and
responsibilities during the 90-day period immediately prior to such Change in
Control (other than as a result of incapacity due to physical or mental illness)
which is demonstrably willful and deliberate on your part, which is committed in
bad faith or without reasonable belief that such breach is in the best interests
of the Company or any of its affiliates and which is not remedied in a
reasonable period of time after receipt of written notice from the Company
specifying such breach, or (viii) breach of your obligations hereunder (or under
any Company policy) to protect the proprietary and confidential information of
the Company or any of its affiliates.

        (e)  For purposes of this Agreement Change in Control is defined as any
of the following which occurs subsequent to the effective date of your
employment:

        (i)    Any person (as such term is defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), corporation
or other entity (other than Health Net, Inc. or any of its subsidiaries, or any
employee benefit plan sponsored by Health Net, Inc. or any of its subsidiaries)
is or becomes the beneficial owner (as such term is defined in Rule 13d-3 under
the Exchange Act) of securities of Health Net, Inc. representing twenty percent
(20%) or more of the combined voting power of the outstanding securities of
Health Net, Inc. which ordinarily (and apart from rights accruing under special
circumstances) have the right to vote in the election of directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
Health Net, Inc.'s securities) (the "Securities");

        (ii)  As a result of a tender offer, merger, sale of assets or other
major transaction, the persons who are directors of Health Net, Inc. immediately
prior to such transaction cease to

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constitute a majority of the Board of Directors of Health Net, Inc. (or any
successor corporations) immediately after such transaction;

        (iii)  Health Net, Inc. is merged or consolidated with any other person,
firm, corporation or other entity and, as a result, the shareholders of Health
Net, Inc., as determined immediately before such transaction, own less than
eighty percent (80%) of the outstanding Securities of the surviving or resulting
entity immediately after such transaction;

        (iv)  A tender offer or exchange offer is made and consummated for the
ownership of twenty percent (20%) or more of the outstanding Securities of
Health Net, Inc.;

        (v)  Health Net, Inc. transfers substantially all of its assets to
another person, firm, corporation or other entity that is not a wholly-owned
subsidiary of Health Net, Inc.; or

        (vi)  Health Net, Inc. enters into a management agreement with another
person, firm, corporation or other entity that is not a wholly-owned subsidiary
of Health Net, Inc. and such management agreement extends hiring and firing
authority over you to an individual or organization other than Health Net, Inc.

        (f)    For purposes of this Agreement the term Good Reason means any of
the following which occurs subsequent to the effective date of a Change of
Control:

        (i)    A demotion or a substantial reduction in the scope of your
position, duties, responsibilities or status with the Company, or any removal of
you from or any failure to reelect you to any of the positions (or functional
equivalent of such positions) referred to in the introductory paragraphs hereof,
except in connection with the termination of your employment for Disability (as
defined below), normal retirement or Cause or by you voluntarily other than for
Good Reason;

        (ii)  A reduction by the Company in your Base Salary or a material
reduction in the benefits or perquisites available to you as in effect
immediately prior to any such reduction;

        (iii)  A relocation of you to a work location more than fifty (50) miles
from your work location immediately prior to such proposed relocation; provided
that such proposed relocation results in a materially greater commute for you
based on your residence immediately prior to such relocation; or

        (iv)  The failure of the Company to obtain an assumption agreement from
any successor contemplated under Section 15 of this Agreement.

        (g)  Any lump sum payment that may be due to you under Section 9 of this
Agreement will be paid within thirty (30) days following your termination of
employment.

        10.    Termination by the Company for Cause.    The Company may
terminate your employment for Cause at any time with or without notice. In the
event of such termination, you will not be eligible to receive any of the
payments set forth in Section 9 above.

        11.    Termination due to Death or Disability.    In the event that your
employment is terminated at any time due to death or Disability, you (or your
beneficiaries or estate) shall be entitled to (a) continuation of all medical
and dental insurance for a period of twelve (12) months from the date of
termination and (b) a lump sum payment equal to twelve (12) months of your Base
Salary in effect immediately prior to the date of your termination to be paid
within thirty (30) days following your termination of employment, provided in
the event of a termination due to Disability, you sign the Waiver and Release of
Claims which is incorporated into this Agreement by reference as Exhibit A. For
purposes of this Agreement, a termination for "Disability" shall mean a
termination of your employment due to your absence from your duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
your incapacity due to physical or mental illness.

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        12.    Withholding.    All payments required to be made by the Company
hereunder to you or your estate or beneficiaries shall be subject to the
withholding of such amounts relating to taxes as the Company may reasonably
determine should be withheld pursuant to any applicable law or regulation.

        13.    Potential Tax Consequences for "Parachute" Payments.    

        13.1 Notwithstanding any other provisions of this Agreement, in the
event that (i) any payment or distribution by the Company to or for your benefit
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the Company,
any person whose actions result in a Change in Control or any person affiliated
with the Company or such person) (all such payments and distributions, including
the severance payments and benefits provided for in Section 9 hereof (the
"Severance Payments"), being hereinafter called "Total Payments") would be
subject (in whole or part) to the excise tax imposed under section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any interest or
penalties are incurred by you with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax") and (ii) there are any excess parachute
payments (within the meaning of section 280G(b) of the Code), in the aggregate,
in respect of such Total Payments in excess of $50,000, then the Company shall
pay to you an additional cash payment (the "Tax Gross-up") so that after receipt
of such Tax Gross-up, the payment of any additional federal, state and local
income taxes on such Tax Gross-up amount and the payment of any Excise Taxes,
you shall receive such net amount of Total Payments equal to the amount that you
would have received if no Excise Tax was due; provided however that you shall
cooperate in good faith with the Company to minimize the amount of the Excise
Tax that may become payable by taking any such action or making any such
election as may be reasonably requested by the Company in respect of the Total
Payments due to you.

        13.2 Subject to the provisions of Section 13.3, all determinations
required to be made under this Section 15, including whether and when a Tax
Gross-Up is required and the amount of such Tax Gross-Up and the assumptions to
be utilized in arriving at such determination, shall be made by the public
accounting firm that, immediately prior to the Change in Control, was the
Company's independent auditor (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and you within fifteen (15)
business days of the receipt of notice from you that you have received Total
Payments, or such earlier time as is requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any Tax
Gross-Up, as determined pursuant to this Section 13, shall be paid by the
Company to you within five (5) days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by you, then the Accounting Firm shall furnish to you a written opinion that
failure to report the Excise Tax on your applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company. As a
result of any uncertainty in the application of section 4999 of the Code at the
time of the determination by the Accounting Firm hereunder, it is possible that
Tax Gross-Up which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 13.3 and you thereafter are required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to you
or for your benefit.

        13.3 You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Tax Gross-Up. Such notification shall be given as soon as
practicable but no later than ten (10) business days after you are informed in
writing of such claim and shall apprise the Company of the nature of such claim

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and the date on which such claim is requested to be paid. You shall not pay such
claim prior to the expiration of the 30-day period following the date on which
you give such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company
notifies you in writing prior to the expiration of such period that it desires
to contest such claim, you shall:

        (1)  give the Company any information reasonably requested by the
Company relating to such claim,

        (2)  take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,

        (3)  cooperate with the Company in good faith in order effectively to
contest such claim, and

        (4)  permit the Company to participate in any proceedings relating to
such claim;

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provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold you harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this
Section 13.3, the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
you to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and you agree to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided further,
that if the Company directs you to pay such claim as sue for a refund, the
Company shall advance the amount of such payment to you on an interest-free
basis and shall indemnify and hold you harmless, on an after-tax basis, from any
Exise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided further, that any extension of the statute
of limitations relating to payment of taxes for your taxable year with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Tax Gross-Up would be payable
hereunder and you shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.

        13.4    If, after your receipt of an amount advanced by the Company
pursuant to Section 13.3, you become entitled to receive, and receive, any
refund with respect to such claim, you shall (subject to the Company's complying
with the requirements of Section 13.3) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after your receipt of an amount advanced by the Company
pursuant to Section 13.3, a determination is made that you shall not be entitled
to any refund with respect to such claim and the Company does not notify you in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Tax Gross-Up required to be
paid.

        13.5    At the time that payments are made under this Agreement, the
Company shall provide you with a written statement setting forth the manner in
which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from tax counsel, the Auditor or other advisors or consultants (and any
such opinions or advice which are in writing shall be attached to the
statement).

        14.    Restrictive Covenants.    

        (a)  You hereby agree that, during (i) the six-month period following a
termination of your employment with the Company that entitles you to receive
severance benefits under this Agreement or a written agreement with or policy of
the Company or (ii) the twelve-month period following a termination of your
employment with the Company that does not entitle you to receive such severance
benefits (the period referred to in either clause (i) or (ii), the "Restricted
Period"), you shall not undertake any employment or activity (including, but not
limited to, consulting services) with a Competitor (as defined below) in any
geographic area in which the Company or any of its affiliates operates (the
"Market Area"), where the loyal and complete fulfillment of the duties of the
competitive employment or activity would call upon you to reveal, to make
judgments on or otherwise use or disclose any confidential business information
or trade secrets of the business of the Company or any of its affiliates to
which you had access during your employment with the Company. If you take a
position as a vice president (or higher position) or as a director of a
Competitor it will be presumed for purposes of this Agreement that the loyal and
complete fulfillment of your duties would require

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you to use such information and you would therefore be deemed to be in breach of
this provision. For purposes of this Section, "Competitor" shall refer to any
health maintenance organization or insurance company that provides managed
health care or related services similar to those provided by the Company or any
of its affiliates.

        (b)  In addition, you agree that, during the applicable Restricted
Period following termination of your employment with the Company, you shall not,
directly or indirectly, (A) solicit, interfere with, hire, offer to hire or
induce any person, who is or was an employee of the Company or any of its
affiliates at the time of such solicitation, interference, hiring, offering to
hire or inducement, to discontinue his/her relationship with the Company or any
of its affiliates or to accept employment by, or enter into a business
relationship with, you or any other entity or person or (B) solicit, interfere
with or otherwise contact any customer or client of the Company or any of its
affiliates.

        (c)  It is hereby further agreed that if any court of competent
jurisdiction shall determine that the restrictions imposed in this Section are
unreasonable (including, but not limited to, the definition of Market Area or
Competitor or the time period during which this provision is applicable), the
parties hereto hereby agree to any restrictions that such court would find to be
reasonable under the circumstances.

        (d)  You also acknowledge that the services to be rendered by you to the
Company are of a special and unique character, which gives this Agreement a
peculiar value to the Company or any of its affiliates, the loss of which may
not be reasonably or adequately compensated for by damages in an action at law,
and that a material breach or threatened breach by you of any of the provisions
contained in this Section will cause the Company or any of its affiliates
irreparable injury. You therefore agree that the Company may be entitled, in
addition to the remedies set forth above in this Section and any other right or
remedy, to a temporary, preliminary and permanent injunction, without the
necessity of proving the inadequacy of monetary damages or the posting of any
bond or security, enjoining or restraining you from any such violation or
threatened violations.

        15.    Successors; Binding Agreement.    

        (a)  This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.

        (b)  The Company agrees that concurrently with any merger, consolidation
or transfer of assets referred to in paragraph (a) of this Section, it will
cause any successor or transferee unconditionally to assume, by written
instrument delivered to you (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall entitle you to
compensation and other benefits from the Company in the same amount and on the
same terms as you would be entitled hereunder if your employment were terminated
without Cause. For purposes of implementing the foregoing, the date on which any
such merger, consolidation or transfer becomes effective shall be deemed the
date of termination.

        (c)  This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you shall die while any amounts
would be payable to you hereunder had you continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to such person or persons appointed in writing by you to receive
such amounts or, if no person is so appointed, to your estate.

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        16.    Severability.    If any term of this Agreement is held to be
invalid, void or unenforceable, the remainder of this Agreement shall remain in
full force and effect and shall in no way be affected and the parties shall use
their best efforts to find an alternative way to achieve the same result.

        17.    Integrated Agreement.    This Agreement supersedes any prior
agreements, representations or promises of any kind, whether written, oral,
express or implied between the parties hereto with respect to the subject
matters herein. It constitutes the full, complete and exclusive agreement
between you and the Company with respect to the subject matters herein. This
agreement cannot be changed unless in writing, signed by you and the President
of Health Net, Inc., and approved by the Board of Directors of the Company (or
the Committee, if permitted by the By-laws of the Company).

        18.    Waiver.    No waiver of any default hereunder shall operate as a
waiver of any subsequent default. Failure by either party to enforce any of the
terms or conditions of this Agreement, for any length of time or from time to
time shall not be deemed to waive or decrease the rights of such party to insist
thereafter upon strict performance by the other party.

        19.    Notices.    All notices and communications required or permitted
hereunder shall be in writing and shall be deemed given (a) if delivered
personally, (b) one (1) day after being sent by Federal Express or a similar
commercial overnight service or (c) three (3) days after being mailed by
registered or certified mail, return receipt requested, prepaid and addressed to
the following addresses, or at such other addresses as the parties may designate
by written notice in the manner aforesaid:

If to the Company:   Health Net, Inc.
Attn: Karin Mayhew
Senior Vice President, Organization Effectiveness
21650 Oxnard Street, 22nd Floor
Woodland Hills, CA 91367
If to the Employee:
 
Mr. Jeff Folick
13601 Belle Rive
Santa Ana, CA 92705

        20.    Governing Law.    The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which other provisions shall remain in
full force and effect.

        21.    Survival and Enforcement.    Sections 3 and 14 of this Agreement
and any rights and remedies arising out of this Agreement shall survive and
continue in full force and effect in accordance with the respective terms
thereof, notwithstanding any termination of this Agreement or your employment.
The parties agree that the Company would be damaged irreparably in the event any
provision of Sections 3 or 14 of this Agreement were not performed in accordance
with its terms or were otherwise breached and that money damages would be an
inadequate remedy for any such nonperformance or breach. Therefore, the Company
or its successors or assigns shall be entitled in addition to other rights and
remedies existing in their favor, to an injunction or injunctions to prevent any
breach or threatened breach of any of such provisions and to enforce such
provisions specifically (without posting a bond or other security).

        22.    Acknowledgement.    You acknowledge that you have had the
opportunity to discuss this matter with and obtain advice from your attorney,
have had sufficient time to and have carefully read and fully understood all of
the provisions of this Agreement, and you are knowingly and voluntarily entering
into this Agreement. You further acknowledge that you are obligated to become
familiar with and comply at all times with all Company policies.

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        We look forward to your joining our organization. In order to confirm
your agreement with and acceptance of these terms, please sign one copy of this
letter and return it to me. The other copy is for your records. If there is any
matter in this letter that you wish to discuss further, please do not hesitate
to contact to me.

Sincerely,

/s/  KARIN D. MAYHEW      

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Karin D. Mayhew
Senior Vice President, Organization Effectiveness
 
 
I agree to the terms of employment set forth in this letter.
/s/  JEFF FOLICK      

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Jeff Folick
 
 
Date: May 27, 2002
 
 

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EXHIBIT A

FORM OF WAIVER AND RELEASE OF CLAIMS

        This WAIVER AND RELEASE OF CLAIMS (this "Release") is made and entered
into by and between Health Net, Inc. and it affiliates and subsidiaries
(hereinafter referred to as the "Company" and Jeff Folick (hereinafter referred
to as "Employee").

        WHEREAS, the Company and Employee are parties to an Employment Letter
Agreement dated as of                         , 2002 (the "Severance Payment
Agreement"), and are entering into this Release pursuant to Section    of the
Severance Payment Agreement as a condition to Employee's receipt of a severance
payment thereunder (capitalized terms used but not defined herein shall have the
meanings set forth in the Severance Payment Agreement).

        NOW, THEREFORE, the Company and Employee agree as follows:

1.Employee's employment with the Company will terminate on
                        . Upon termination of employment, Employee will not
represent to anyone that he or she is an employee of the Company and will not
say or do anything purporting to bind the Company.

2.Employee's termination of employment with the Company shall be considered a
[describe type of termination] under Section    of the Severance Payment
Agreement, and Employee is therefore eligible to receive [describe payments and
other benefits to be received].

3.In partial consideration of the Company providing Employee those benefits and
payments set forth above, and as required by and in the Severance Payment
Agreement as a condition to receive such payments and benefits, Employee freely
and voluntarily enters into this Release and by signing this Release Employee,
on his/her own behalf and on behalf of his or her heirs, beneficiaries,
successors, representatives, trustees, administrators and assigns, hereby waives
and releases the Company, and each of its past, present and future officers,
directors, shareholders, employees, consultants, accountants, attorneys, agents,
managers, insurers, sureties, parent and sister corporations, divisions,
subsidiary corporations and entities, partners, joint venturers, affiliates,
beneficiaries, successors, representatives and assigns, from any and all claims,
demands, damages, debts, liabilities, controversies, obligations, actions or
causes of action of any nature whatsoever, whether based on tort, statute,
contract, indemnity, rescission or any other theory or recovery, including but
not limited to claims arising under federal, state or local laws prohibiting
discrimination in employment, including Title VII of the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1866, as amended, claims of disability
discrimination under the Americans with Disabilities Act, the Age Discrimination
in Employment Act, as amended ("ADEA"), the Worker Adjustment and Retraining
Notification Act ("WARN"), the California Fair Employment and Housing Act, the
California Labor Code and the California Constitution (all as amended) or claims
growing out of any legal restrictions on the Company's right to terminate its
employees and whether for compensatory, punitive, equitable or other relief,
whether known, unknown, suspected or unsuspected, against the Company, including
without limitation claims which may have arisen or may in the future arise in
connection with any event which occurred on or before the date of Employee's
execution of this Release. The provisions in this paragraph are not intended to
prohibit Employee from filing a claim for unemployment insurance.

4.Employee expressly waives any right or claim of right to assert hereafter that
any claim, demand, obligation and/or cause of action has, through ignorance,
oversight or error, been omitted from the terms of this Release. Employee makes
this waiver with full knowledge of his/her rights and with specific intent to
release both his/her known and unknown claims, and therefore specifically waives

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the provisions of Section 1542 of the Civil Code of California or other similar
provisions of any other applicable law, which reads as follows:

"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor."

Employee understands and acknowledges the significance and consequence of this
Release and of such specific waiver of Section 1542, and expressly agrees that
this Agreement shall be given full force and effect according to each and all of
its express terms and provisions, including those relating to unknown and
unsuspected claims, demands, obligations and causes of action herein above
specified.

5.Employee shall not initiate or cause to be initiated against the Company any
compliance review, suit, action, investigation or proceeding of any kind, or
voluntarily participate in same, individually or as a representative, witness or
member of a class, under contract, law or regulation, federal, state or local,
pertaining to any matter related to his/her employment with the Company, unless
Employee first cooperates in making his/her allegations known to the Company for
the Company to take corrective action at a time and place designated by the
Company. In addition, Employee shall, without further compensation, cooperate
with and assist the Company in the investigation of, preparation for or defense
of any actual or threatened third party claim, investigation or proceeding
involving the Company or its predecessors or affiliates and arising from or
relating to, in whole or in part, Employee's employment with the Company or its
predecessors or affiliates for which the Company requests Employee's assistance,
which cooperation and assistance shall include, but not be limited to, providing
testimony and assisting in information and document gathering efforts. In this
connection, it is agreed that the Company will use its reasonable best efforts
to assure that any request for such cooperation will not unduly interfere with
Employee's other material business and personal obligations and commitments.

6.Employee agrees he or she will return to the Company immediately upon
termination any building key(s), security pass or other access or identification
cards and any Company property that was in his or her possession, including but
not limited to any documents, credit cards, computer equipment, mobile phones or
data files. Employee agrees to clear all expense accounts and pay all amounts
owed on any corporate credit card(s) which the Company previously issued to
Employee.

7.Employee shall not, without the Company's written consent by an authorized
representative, at any time prior or subsequent to the execution of this
Release, disclose, use, remove or copy any confidential, trade secret or
proprietary information he/she acquired during the course of his/her employment
by the Company, including without limitation, any technical, actuarial,
economic, financial, procurement, provider, customer, underwriting, contractual,
managerial, marketing or other information of any type that has economic value
in the business in which the Company is engaged, but not including any
previously published information or other information generally in the public
domain.

8.In addition to any other part or term of this Release or the Severance Payment
Agreement, Employee agrees that he or she will not, (a) for a period of one
(1) year from the date of this Agreement, irrespective of the reason for the
termination, either directly or indirectly, on his or her own behalf or on
behalf of any other person: 1) make known to any person, firm, corporation or
other entity of any type, the names and addresses of any of the Company's
customers, enrollees or providers or any other information pertaining to them;
or 2) disrupt, solicit or influence or attempt to solicit, disrupt or influence
any of the Company's customers, employees, providers, vendors, agents or
independent contractors with whom the Employee became acquainted during the
course of employment or service for the purpose of terminating such a person's
or entity's relationship with the Company or causing such a person or entity to
associate with a competitor of

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the Company, and (b) for the six month period following the Termination Date,
undertake any employment or activity prohibited by Section 10 of the Severance
Payment Agreement. The prohibitions of this paragraph are not intended to deny
employment opportunities within the Employee's field of employment but are
limited only to those prohibitions necessary to protect the Company from unfair
competition.

9.Any developments or discoveries by Employee during the course of his or her
employment with the Company through the date of execution of this Release
resulting in patents, lists of customers, trade secrets, specialized know-how or
other intellectual property useful in the then current business of the Company
shall be for the sole benefit of the Company.

10.Nothing contained herein shall be construed as an admission of any wrongful
act, including but not limited to violation of any contract, express or implied,
or any federal, state or local employment laws or regulations, and nothing
contained herein shall be used for any purpose except in proceedings related to
the enforcement of this Release or the Severance Payment Agreement.

11.If any part or term of this Release is held invalid or unenforceable, such
invalidity or unenforceability shall not affect in any way the validity or
enforceability of any other part or term of this Release.

12.The Employee acknowledges that he/she has had an opportunity to consult and
be represented by counsel of his/her own choosing in the review of this Release,
and that he/she has been advised by the Company to do so, that the Employee is
fully aware of this Release and of its legal effect, that the preceding
paragraphs recite the sole consideration for this Release, and that Employee
enters into this Release freely, without coercion, and based on the Employee's
own judgment and not in reliance upon any representation or promise made by the
other party, other than those contained herein. There may be no modification of
the terms of this Release except in writing signed by the parties hereto.

13.This Release shall be construed and governed by the laws of the State of
Delaware.

        EMPLOYEE ACKNOWLEDGES BY SIGNING BELOW that (i) Employee has not relied
upon any representations, written or oral, not set forth in this Release;
(ii) at the time Employee was given this Release Employee was informed in
writing by the Company that (a) Employee had at least 45 days in which to
consider whether Employee would sign the Release and (b) Employee should consult
with an attorney before signing the Release; and (iii) Employee had an
opportunity to consult with an attorney and either had such consultations or has
freely decided to sign this Release without consulting an attorney. Employee
also acknowledges that at the time Employee was given this Release, Employee was
given written notice of the eligibility criteria for the employment termination
program and the time limits applicable to the program, the job titles and ages
(or dates of birth) of all individuals eligible for the program and the ages of
the individuals in the same job classification or organizational unit who are
not eligible for the program.

        Employee further acknowledges that he or she may revoke acceptance of
this Release by delivering a letter of revocation within seven (7) days after
the date set forth below addressed to: Health Net, Inc. Corporate Legal
Department, 21650 Oxnard Street, Woodland Hills, California 91367.

        Finally, Employee acknowledges that he or she understands that this
Release will not become effective until the eighth (8th) day following his or
her signing this Release and that if Employee does not revoke his or her
acceptance of the terms of this Release within the seven (7) day period
following the date on which Employee signs this Release, this Release will be
binding and enforceable.

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        IN WITNESS WHEREOF, the parties hereto have executed this Release as of
the dates set forth below.

Employee   Health Net, Inc. By: [EXHIBIT COPY]

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Name:   By: [EXHIBIT COPY]

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Name:
Title:
Date:
[TO BE INSERTED

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Date:
[TO BE INSERTED]

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