STEPHEN D. LYNCH AMENDED & RESTATED EMPLOYMENT AGREEMENT

EXHIBIT 10.6

STEPHEN D. LYNCH

AMENDED & RESTATED EMPLOYMENT AGREEMENT

This AMENDED & RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of December 11, 2007 (the “Effective Date”), and amended and restated as of December 3, 2008, by and between Health Net, Inc., a Delaware corporation (the “Company”), with its principal place of business located at 21650 Oxnard Street, Woodland Hills, California 91367, and Stephen D. Lynch (“Executive”).

RECITALS

WHEREAS, the Company and Executive are party to an Amended & Restated Employment Agreement dated as of December 11, 2007 (the “Prior Agreement”); and

WHEREAS, the Company and Executive desire to amend and restate the Prior Agreement to satisfy the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the Treasury Regulations and Internal Revenue Service guidance thereunder.

NOW, THEREFORE, in consideration of the following covenants, conditions and promises contained herein, and other good and valuable consideration, the Company and Executive hereby agree as follows:

1. DUTIES AND SALARY .

(a) Duties . Executive’s title is President, Health Plan Division, but may be changed at the discretion of the Company to a title that reflects a similarly situated senior executive position. Executive shall report directly to Jay Gellert, President and Chief Executive Officer of the Company, but Executive’s reporting relationship may be changed from time to time at the discretion of the Company. Executive’s duties and responsibilities are to provide executive leadership for the restructure of the Company’s health plans (the “Restructuring”), including identification of market leaders, infrastructure processes and procedures, establishing integration points with the Company’s new shared services organization and achievement of market plans , but the Company reserves the right to assign Executive other duties as needed and to change Executive’s duties from time to time on reasonable notice, based on Executive’s skills and the needs of the Company.

(b) Salary . Executive will be paid a base salary at the annual rate of $600,000, which salary will be paid on a pro-rated bi-weekly basis, less applicable withholdings (“Base Salary”), covering all hours worked. Generally, Executive’s Base Salary will be reviewed annually, but the Company reserves the right to change Executive’s compensation from time-to-time. Executive will not be eligible for an annual merit increase in 2008. Pursuant to the charter of the Compensation Committee of the Company’s Board of Directors (the “Committee”), any adjustment to Executive’s compensation must be made with the approval of the Committee and, in the event that Executive constitutes one of the top two (2) highest paid executive officers of the Company, with the ratification of the Company’s Board of Directors.

(c) Disclosure of Personal Compensation Information . As an “executive officer” of the Company (as such term is defined in the rules and regulations of the Securities and Exchange Commission (“SEC”)), information regarding Executive’s employment arrangements with the Company, including, among other things, the terms of this Agreement and any stock option agreement, restricted stock agreement, restricted stock unit agreement, performance share agreement and/or severance agreement Executive enters into with the Company from time to time (collectively, “Personal Compensation Information”), may be disclosed in filings with the SEC, the New York Stock Exchange (“NYSE”) and/or other regulatory organizations upon the occurrence of certain triggering events. Such triggering events include, but are not limited to, the execution of this Agreement and any amendments thereto, changes in Executive’s Base Salary, any annual incentive payment (whether in the form of cash or equity) awarded to Executive (in the past or after the date hereof), and the establishment of performance goals under the Company’s incentive plans. Executive’s execution of this Agreement will serve as Executive’s acknowledgement that Executive’s Personal Compensation Information may be publicly disclosed from time to time in filings with the SEC, NYSE or otherwise as required by applicable law.

2. ADJUSTMENTS AND CHANGES IN EMPLOYMENT STATUS . Executive understands that the Company reserves the right to make personnel decisions regarding Executive’s employment, including, but not limited to, decisions regarding any promotion, salary adjustment, transfer or disciplinary action, up to and including Termination (as defined below), consistent with the needs of the business of the Company.

For purposes of this Agreement, the capitalized terms “Termination” and “Terminate,” shall mean Executive’s Separation from Service (as defined below) from the Company. A “Separation from Service” shall have the meaning ascribed to such term in Treasury Regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), from time to time and other publications of the Internal Revenue Service published in the Internal Revenue Bulletin from time to time.

3. PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION . Executive agrees that Executive’s 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 Executive during Executive’s employment.

(a) Executive agrees not to directly or indirectly use or disclose any of the Proprietary and Confidential Information of the Company or any of its affiliates at any time except in connection with the services Executive provides 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 that (i) was publicly known and made generally available in the public domain prior to the time of disclosure to Executive by the Company or (ii) becomes publicly known and made generally available after disclosure to Executive by the Company other than as a result of a

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disclosure by Executive in violation of this Agreement. 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) Executive further agrees that at all times during Executive’s employment and thereafter, Executive will keep in confidence and trust all Proprietary and Confidential Information, and that Executive 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 Executive’s duties to the Company.

(c) All Company 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 Executive by the Company or any of its affiliates or produced by Executive or others in connection with Executive’s 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. Executive shall return and deliver all such property upon termination of Executive’s employment, and Executive may not take any such property or any reproduction of such property upon such termination.

(d) Executive recognizes 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. Executive agrees that during Executive’s employment, and thereafter, Executive owes 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 Executive’s 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) Executive’s obligations under this Section 3 shall continue after the Termination of Executive’s employment and any breach of this Section 3 shall be a material breach of this Agreement.

4. PHYSICAL EXAM .

Executive shall be required, on an annual basis, to undergo a physical examination and to send evidence that Executive has undergone such exam (but in no case the results of such exam) to the Senior Vice President of Organizational Effectiveness. The Company shall reimburse Executive for any out-of-pocket expenses relating to the physical examination that are not otherwise covered by Executive’s health insurance plan.

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5. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE .

(a) No Violation; No Conflicts . Executive represents and warrants to the Company that the entering into of this Agreement and Executive’s performance of Executive’s duties hereunder, will not violate any agreements with, or trade secrets of, any other person or entity. Executive further represents and warrants that Executive does not have any relationship or commitment to any other person or entity that might be in conflict with Executive’s obligations to the Company under this Agreement, including but not limited to outside employment, sales broker relationships, investments or business activities. Executive understands and agrees that while employed by the Company Executive is expected to refrain from engaging in any outside activities that might be in conflict with the business interests of the Company. In addition, Executive represents and warrants to the Company that Executive has not shared with or disclosed to, and will not share with or disclose to, the Company any proprietary or confidential information of Executive’s previous employers or any other third party.

(b) Legal Proceedings . Executive represents and warrants to the Company that Executive has not been arrested, indicted, convicted or otherwise involved in any criminal or civil action or legal matter that could affect Executive’s ability to perform Executive’s duties hereunder or that may have a negative impact on the Company, its reputation or its operations. Executive agrees, to the extent permitted by applicable law, to notify the Company’s Senior Vice President of Organizational Effectiveness immediately in the event that Executive becomes party to any criminal or civil action or other legal matter in the future that could have an affect on the foregoing representation.

6. Executive Benefits .

(a) Employee Benefit Programs . Executive shall be eligible to participate in the Company’s various employee benefit programs and plans in place from time to time as long as Executive remains employed by the Company and Executive meets the applicable participation requirements. These benefit programs and plans 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, tuition reimbursement plan and deferred compensation plan. 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 . Executive will be covered by workers’ compensation insurance and state disability insurance, as required by state law.

(c) Financial Counseling Allowance . Executive will be entitled to be reimbursed up to the amount of $5,000 per year for documented costs incurred for personal financial counseling services provided to Executive, including tax preparation, as long as Executive remains employed by the Company.

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(d) Incentive Bonus . Executive will be eligible to participate in the Health Net, Inc. Executive Incentive Plan (“EIP”) in accordance with the terms of the EIP, which provides Executive with a target opportunity to earn each plan year up to 80% of Executive’s Base Salary as additional compensation according to the terms of the EIP. 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 Executive in order for Executive 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 EIP. Executive will not be eligible for an incentive bonus under the EIP for 2008 and, in lieu thereof, will be entitled to receive a special performance bonus on the terms set forth in Section 6(E) below.

(e) Special Performance Bonus . Executive will be eligible to receive a special performance bonus in the amount of $1,800,000 (the “Performance Bonus”) if the Company’s Chief Executive Officer, in consultation with the Company’s Board of Directors, determines that Executive has successfully completed the Restructuring by February 28, 2009 (the “Target Completion Date”). The determination by the Chief Executive Officer shall occur within ten (10) days of the Target Completion Date (the “Determination Date”). The Performance Bonus shall be paid to Executive within thirty (30) days of the Determination Date as set forth below:

(i) $500,000 of the Performance Bonus shall be paid to Executive if the Chief Executive Officer, in consultation with the Company’s Board of Directors determines, on the Determination Date, that the Company’s Health Plan Division has achieved the 2008 market plans for each of the Company’s commercial health plan regions;

(ii) $1,300,000 of the Performance Bonus shall be paid to Executive if the Chief Executive Officer, in consultation with the Company’s Board of Directors, determines, on the Determination Date, that Executive has met his 2008 performance goals.

In the event Executive voluntarily Terminates his employment with the Company before the Target Completion Date, Executive shall no longer be eligible to receive the Performance Bonus and shall not be entitled to participate in the EIP.

In the event the Company Terminates Executive before the Target Completion Date for any reason other than Cause (as defined below), Executive shall be paid the entire amount of the Performance Bonus within thirty (30) days of such Termination.

In the event that a Change in Control (as defined below) occurs before the Target Completion Date, Executive shall be paid the entire amount of the Performance Bonus within thirty (30) days of consummation of the Change in Control.

Upon completion of the Restructuring, regardless of whether all or any portion of the Performance Bonus was paid, Executive shall be eligible to participate in the EIP for the duration of his employment with the Company as set forth in Section 6(D) above.

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(f) Expenses . Subject to and in accordance with the Company’s written policies for business and travel expenses, Executive will receive reimbursement for all business travel and other out-of-pocket expenses reasonably incurred by Executive in the performance of Executive’s duties pursuant to this Agreement.

7. Equity Grants .

(a) Future Equity Grants . Any future equity grants made to Executive will be granted under one of the Company’s Long-Term Incentive Plans, and will be subject to the terms of such plan and of the agreement executed in connection with such grant. Any future equity grants to Executive will be made at the discretion of the Committee.

(b) Company Stock Ownership Requirement . In accordance with the Executive Officer Stock Ownership Policy adopted by the Board of Directors of the Company (the “Executive Stock Ownership Policy”), Executive is required to own shares of Common Stock of the Company having a value of three times (3x) Executive’s Base Salary in effect from time to time pursuant to this Agreement (the “Stock Ownership Requirement”). The number of shares of Common Stock Executive is required to own will be calculated based on the average NYSE closing price per share of the Company’s Common Stock (as adjusted for stock splits and similar changes to the Common Stock) for the most recently completed fiscal year of the Company.

Using Executive’s current salary of $600,000 and a stock price of $45.34, which is the average closing price per share of the Company’s Common Stock as of December 31, 2006, Executive’s current stock ownership requirement is 39,700 shares (“Target Amount”). The Target Amount is subject to change from time to time based on (1) changes in the average closing sales price of the Company’s Common Stock on an annual basis and (2) any changes in Executive’s Base Salary made pursuant to and in accordance with Section 1(B) of this Agreement. Any shares of Company Common Stock that Executive owns, and any restricted stock units, shares of restricted stock or performance shares of the Company that Executive owns and have vested count toward the Target Amount. Stock options, unvested restricted stock units, unvested shares of restricted stock, unvested performance shares and shares of Common Stock gifted to others do not count toward the Target Amount. Under the Executive Stock Ownership Policy, Executive will have until four years from the Effective Date to comply with the Stock Ownership Requirement.

The Committee expects that Executive will make reasonable progress toward Executive’s Stock Ownership Requirement. Executive will be notified on an annual basis of any changes in Executive’s Target Amount.

8. Term of Employment . Executive’s employment with the Company is at the mutual consent of Executive and the Company. Nothing in this Agreement is intended to guarantee Executive’s continuing employment with the Company or employment for any specific length of time. Accordingly, either Executive or the Company may terminate the employment relationship at any time, with or without advance notice and with or without “Cause” (as defined below). Upon Termination of Executive’s employment for any reason, in addition to any other payments that may be payable to Executive hereunder, Executive (or

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Executive’s beneficiaries or estate) shall be paid (in each case to the extent not theretofore paid) within thirty (30) days following Executive’s date of Termination (or such shorter period that may be required by applicable law): (a) Executive’s annual Base Salary through such date, (b) accrued but unused PTO, (c) reimbursable expenses incurred by Executive prior to the Termination date and (d) amounts under any other compensatory plan, arrangement or program payment to which Executive may then be entitled. This Agreement constitutes a final and fully binding integrated agreement with respect to the at-will nature of the employment relationship.

9. Termination of Employment/Severance Pay .

(a) Termination Without Cause Not Following Change in Control . If Executive’s employment is Terminated by the Company without “Cause” (as defined in Section 9(D) below) at any time that is not within two (2) years after a “Change in Control” (as defined below) of Health Net, Inc., Executive will be entitled to receive, within thirty (30) days following the Termination of Executive’s employment, provided that Executive signs, prior to the expiration of such (30) day period, a Separation Agreement, 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 twelve (12) months of Executive’s Base Salary in effect immediately prior to the date of Executive’s Termination, and (ii) the continuation of Executive’s medical, dental and vision benefits (as maintained for Executive’s benefit immediately prior to the date of Executive’s Termination) (the “Benefits”) for Executive and Executive’s dependents for a period of twelve (12) months following the effective date of Executive’s Termination, and (iii) the continuation, under COBRA, of Executive’s Benefits for Executive and Executive’s dependents for a period of twelve (12) months, with premium payments paid by the Company on Executive’s behalf, provided , that Executive properly elects to continue those benefits under COBRA.

For purposes of this Agreement, “ Change in Control ” is defined as any of the following which occurs subsequent to the effective date of Executive’s 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 constitute a majority of the Board of Directors of Health Net, Inc. (or any successor corporations) immediately after such transaction;

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(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 Executive to an individual or organization other than Health Net, Inc.

(b) Termination Without Cause or For Good Reason Following Change in Control . If at any time within two (2) years after a Change in Control of Health Net, Inc. Executive’s employment is Terminated by the Company without Cause or Executive Terminates Executive’s 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 Executive will be entitled to receive, within thirty (30) days following the Termination of Executive’s employment, provided that Executive signs, prior to the expiration of such thirty (30) day period, a Separation Agreement, 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 twenty-four (24) months of Executive’s Base Salary in effect immediately prior to the date of Executive’s Termination, and (ii) the continuation of Executive’s Benefits for six (6) months following Executive’s date of Termination, and (iii) and after expiration of such six (6) months Benefits continuation period, the continuation, under COBRA, of Benefits for Executive and Executive’s dependents for a period of eighteen (18) months following the effective date of Executive’s Termination with premium payments made by the Company on Executive’s behalf, provided , that Executive properly elects to continue those benefits under COBRA, and provided , further , that in the event the Company requests, in writing, prior to such voluntary Termination by Executive for Good Reason that Executive continue in the employ of the Company for a period of time up to 90 days following such Change in Control, then Executive shall forfeit such severance allowance if Executive voluntarily leaves the employ of the Company prior to the expiration of such period of time.

For purposes of this Agreement, the term “ Good Reason ” means any of the following which occurs, without Executive’s consent, within two (2) years following the effective date of a Change in Control as defined above:

(i) A substantial reduction in the scope of Executive’s duties, responsibilities or status with the Company, except in connection with the Termination of Executive’s employment for Disability (as defined below), normal retirement or Cause or by Executive voluntarily other than for Good Reason;

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(ii) A material reduction by the Company in Executive’s base compensation ( i.e., Base Salary plus annual target bonus) as in effect immediately prior to any such reduction;

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

(iv) The failure of the Company to obtain an assumption agreement from any successor contemplated under Section 13 of this Agreement;

provided , however , that Executive must provide notice to the Company of the existence of the condition described in Section 9(B)(i) or (ii) within ninety (90) days of the initial existence of the condition, upon the notice of which the Company has thirty (30) days during which it may remedy the condition, in accordance with Treasury Regulation Section 1.409A-1(n)(2)(ii).

(c) Voluntary Termination . Notwithstanding anything to the contrary in this Agreement, whether express or implied, Executive may at any time Terminate Executive’s employment for any reason by giving the Company fourteen (14) days prior written notice of the