Health Net 2005 Annual Report Download - page 55

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Commercial premium revenues, including ASO, decreased by $140.7 million, or 2.0%, for the year ended
December 31, 2005 as compared to the same period in 2004 due to membership losses in large and small groups.
The decline in commercial premium revenues related to membership decline was partially offset by an increase
in premium rates attributable to our implementation of higher rates in our large and small group markets in all of
our health plans to account for higher health care costs. The increase in the commercial premium PMPM was
10.9% for the year ended December 31, 2005 over the same period in 2004.
Medicare Risk premiums increased by $90.9 million, or 6.1%, for the year ended December 31, 2005 as
compared to the same period in 2004. The increase in Medicare Risk premiums was primarily attributable to rate
increases seen in all states due to increases in the per-member rates paid to us by CMS as a result of demographic
and risk factor adjustments and favorable Medicare rate adjustments from 2003 and 2004 in our Arizona,
California, Connecticut and New York plans totaling $17.2 million, which were recognized in the three months
ended September 30, 2005 (see “—Health Plan Services Costs” for detail regarding the increase in capitation
expense related to the 2003 and 2004 Medicare rate adjustment). The increase in the Medicare revenue yield
PMPM was 5.4% for the year ended December 31, 2005 over the same period in 2004.
Medicaid premiums increased by $43.1 million, or 4.0%, for the year ended December 31, 2005 as
compared to the same period in 2004. The increase in the Medicaid premium PMPM was 3.4% for the year
ended December 31, 2005 over the same period in 2004, primarily due to rate increases for the Healthy Families
and Access for Infants and Mothers (AIM) programs. These programs account for approximately 12% of total
Medicaid membership.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Commercial premiums increased by $430.9 million, or 6.6%, for the year ended December 31, 2004
compared to the same period in 2003. Of this increase, 8.4% is attributable to our implementation of higher rates
(including renewal rates) in our large and small group markets in all of our health plans to account for higher
health care costs, partially offset by membership losses as discussed earlier with an impact of (1.8)%.
Medicare Risk premiums increased by $102.6 million, or 7.4%, for the year ended December 31, 2004
compared to the same period in 2003. Rate increases, which were seen in all states due to increases in the
per-member rates paid to us by CMS as a result of the adoption of the MMA in December 2003, increased
premiums by 8.7%. This was partially offset by membership losses in all states except Oregon with an impact of
(1.3)%.
Medicaid premiums decreased by $66.5 million, or 5.7%, for the year ended December 31, 2004 compared
to the same period in 2003, primarily due to membership losses in all states, with an impact of (4.6)% and rate
decreases with an impact of (1.1)%.
Health Plan Services Costs
Health Plan Services costs decreased by $400.6 million, or 4.8%, for the year ended December 31, 2005 as
compared to the same period in 2004, and increased by $896.8 million, or 12.0%, for the year ended
December 31, 2004 as compared to the same period in 2003 as shown in the following table:
Year Ended December 31,
2005 2004 2003
(Dollars in millions)
Commercial health care costs ............................. $5,671.5 $6,156.6 $5,328.3
Medicare Risk health care costs ........................... 1,407.2 1,359.2 1,232.9
Medicaid health care costs ............................... 934.3 897.8 955.6
Total Health Plan Services health care costs .............. $8,013.0 $8,413.6 $7,516.8
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