Anthem Blue Cross 2001 Annual Report Download - page 48

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Goodwill and Other Intangible Assets: Goodwill represents the excess of cost of acquisition over the fair value of net
assets acquired. Other intangible assets represent the values assigned to licenses, non-compete and other agreements.
Goodwill and other intangible assets are amortized using the straight-line method over periods ranging from two to
20 years. Accumulated amortization of goodwill and other intangible assets at December 31, 2001 and 2000 was
$90.8 and $58.4, respectively. The carrying value of goodwill and other intangible assets is reviewed annually to
determine if the facts and circumstances indicate that they may be impaired. The carrying value of these assets is
reduced to its fair value if this review, which includes comparison of asset carrying amounts to expected cash flows,
indicates that such amounts will not be recoverable.
In July 2001, the Financial Accounting Standards Board issued FAS 141, Business Combinations, and FAS 142,
Goodwill and Other Intangible Assets. FAS 141 requires business combinations completed after June 30, 2001 to be
accounted for using the purchase method of accounting. It also specifies the types of acquired intangible assets that
are required to be recognized and reported separately from goodwill. Under FAS 142, goodwill and certain other
intangible assets (with indefinite lives) will not be amortized but will be tested for impairment at least annually. The
Company plans to adopt FAS 142 on January 1, 2002 and does not expect any impairment of goodwill upon
adoption. If the Company had adopted FAS 142 on January 1, 2001, income before income taxes and minority
interest and net income for the year ended December 31, 2001, would have increased by $17.5 and $15.2, respectively.
Policy Liabilities: Liabilities for unpaid claims include estimated provisions for both reported and unreported claims
incurred on an undiscounted basis. The liabilities are adjusted regularly based on historical experience and include
estimates of trends in claim severity and frequency and other factors, which could vary as the claims are ultimately
settled. Although it is not possible to measure the degree of variability inherent in such estimates, management
believes these liabilities are adequate.
The life future policy benefit liabilities represent primarily group term benefits determined using standard industry
mortality tables with interest rates ranging from 3.0% to 5.5%.
Premium deficiency losses are recognized when it is probable that expected claims and loss adjustment expenses will
exceed future premiums on existing health and other insurance contracts without consideration of investment income.
For purposes of premium deficiency losses, contracts are deemed to be either short or long duration and are grouped
in a manner consistent with the Company’s method of acquiring, servicing and measuring the profitability of such
contracts.
Retirement Benefits: Retirement benefits represent outstanding obligations for retiree health, life and dental benefits
and any unfunded liability related to defined benefit pension plans.
Comprehensive Income: Comprehensive income includes net income, the change in unrealized gains (losses) on
investments and the change in the additional minimum pension liability.
Revenue Recognition: Gross premiums for fully insured contracts are prorated over the term of the contracts, with the
unearned premium representing the unexpired term of policies. For insurance contracts with retrospective rated
premiums, the estimated ultimate premium is recognized as revenue over the period of the contract. Actual experience
is reviewed once the policy period is completed and adjustments are recorded when determined. Premium rates for
certain lines of business are subject to approval by the Department of Insurance of each respective state.
Administrative fees include revenue from certain group contracts that provide for the group to be at risk for all, or
with supplemental insurance arrangements, a portion of their claims experience. The Company charges self-funded
groups an administrative fee which is based on the number of members in a group or the group’s claim experience.
Under the Company’s self-funded arrangements, amounts due are recognized based on incurred claims paid plus
administrative and other fees. In addition, administrative fees include amounts received for the administration of
Medicare or certain other government programs. Administrative fees are recognized in accordance with the terms of
the contractual relationship between the Company and the customer. Such fees are based on a percentage of the claim
amounts processed or a combination of a fixed fee per claim plus a percentage of the claim amounts processed. All
benefit payments under these programs are excluded from benefit expense.
Other revenue principally includes amounts from the sales of prescription drugs and revenues are recognized as
prescription drug orders are delivered or shipped.
Federal Income Taxes: Anthem files a consolidated return with its subsidiaries that qualify as defined by the Internal
Revenue Code.