Health Net 2004 Annual Report Download - page 52

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2003 Compared to 2002
Government Contracts costs increased by $336.6 million, or 23.2%, for the year ended December 31, 2003 compared to the
same period in 2002, primarily due to the increase in health care cost estimates of $196.8 million resulting from the call-up of
reservists in support of the nation’s heightened military activity and $119.4 million from higher change order and bid price
adjustments.
Our Government Contracts cost ratio decreased to 95.9% for the year ended December 31, 2003 from 96.9% for the same period
in 2002.
General, Administrative and Other Costs
The changes in general and administrative (“G&A”), selling, amortization and depreciation and interest expense for the year
ended December 31, 2004 compared to the same period in 2003 and for the year ended December 31, 2003 compared to the same
period in 2002 are as follows:
2004 Compared to 2003
Change
2004 over 2003
Change
2003 over 2002
2004
2003
Dollars
%
2002
Dollars
%
(Dollars in millions)
General and administrative
$888.5
$912.5
$(24.0)
(2.6)%
$856.1
$56.4
6.6 %
Selling
$240.1
$233.5
$6.6
2.8 %
$197.7
$35.8
18.1 %
Amortization and Depreciation
$44.3
$58.7
$(14.4)(24.5)% $68.9
$(10.2)
(14.8)%
Interest expense
$33.1
$39.1
$ (6.0)
(15.3)%
$40.2
$ (1.1)
(2.7)%
General and administrative costs for the year ended December 31, 2004 decreased by $24.0 million, or 2.6%, compared to the
same period in 2003. This decrease is primarily due to the divestiture of our employer services group division in October 2003, which
had approximately $40 million in general and administrative expenses, partially offset by $10.6 million in legal costs associated with
the provider settlements discussed in “Health Plan Services Cost—2004 Compared to 2003” above. Our administrative ratio (G&A
and depreciation expense as a percentage of Health Plan Services premiums and other income) decreased to 9.7% for the year ended
December 31, 2004 from 10.6% for the same period in 2003.
The selling costs ratio (selling costs as a percentage of Health Plan Services premiums) decreased to 2.5% for the year ended
December 31, 2004 from 2.6% for the same period in 2003, primarily due to lower broker commissions as a result of the decline in
small group and individual enrollment in 2004.
Amortization and depreciation expense for the year ended December 31, 2004 decreased by $14.4 million, or 24.5%, compared
to the same period in 2003 due to asset retirements and assets becoming fully depreciated. Amortization expense remained relatively
flat from 2004 to 2003 at approximately $2.8 million.
Interest expense for the year ended December 31, 2004 decreased by $6.0 million, or 15.3%, compared to the same period in
2003 primarily due to the current favorable impact of $7.1 million in settlements on our interest rate swap contracts (“Swap
Contracts”) for our Senior Notes, partially offset by an increase in our interest expense of $1.9 million as a result of the downgrade of
our senior unsecured debt rating. See Note 6 to our consolidated financial statements for further information on our Swap Contracts
and information on the downgrade of our senior unsecured debt rating.
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