Health Net 2011 Annual Report Download - page 77

(b) The G&A expense ratio is computed as G&A expenses divided by the sum of health plan services premiums
and administrative services fees and other income.
(c) The selling costs ratio is computed as selling expenses divided by health plan services premiums revenue.
(d) PMPM is calculated based on commercial at-risk member months and excludes ASO member months.
(e) MCR is calculated as commercial, Medicare Advantage, Medicare PDP (stand-alone), total Medicare, or
Medicaid health care cost divided by commercial, Medicare Advantage, Medicare PDP (stand-alone), total
Medicare or Medicaid premiums, as applicable.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues
Total revenues in the Western Region Operations in the year ended December 31, 2011 increased 4.2
percent to $10.4 billion compared to the same period in 2010 primarily due to increases in premiums revenues.
Health plan services premiums revenues in the Western Region Operations increased 4.4 percent to $10.4 billion
for the year ended December 31, 2011 compared to the same period in 2010.
Investment income in the Western Region Operations increased to $74.1 million for the year ended
December 31, 2011 from $70.3 million for the same period in 2010 due to an increase in realized gains.
Health Plan Services Expenses
Health plan services expenses in the Western Region Operations were $9.0 billion for the year ended
December 31, 2011 compared to $8.6 billion for the year ended December 31, 2010.
Commercial Premium Yield and Health Care Cost Trends
In the Western Region Operations, commercial premium yields PMPM increased by 5.1 percent to
approximately $358 for the year ended December 31, 2011 compared to an increase of 7.9 percent to
approximately $341 in the same period of 2010. This percentage change decrease in the 2011 premium yield
compared to that in 2010 is due to geographic and product mix including higher percentage of members enrolled
in tailored network as discussed above in the “Western Region Operations Segment Membership” section.
Commercial health care costs PMPM in the Western Region Operations increased by 4.0 percent to
approximately $305 in the year ended December 31, 2011 compared to an increase of 7.1 percent to
approximately $294 in the year ended December 31, 2010. The commercial health care cost trends for physician,
hospital and pharmacy were 4.1 percent, 3.1 percent and 9.5 percent, respectively, in 2011. The increase in the
2011 health care cost trend is driven by higher unit cost; particularly, pharmacy cost trend in 2011, which is
primarily driven by price increases on branded medications in advance of upcoming generic conversions of
certain drugs. The commercial health care cost trends for physician, hospital and pharmacy in 2010 was 7.6
percent, 6.0 percent and 11.1 percent, respectively. These decreasing health care cost trends seen in 2011 as
compared to the trends seen in 2010 are primarily due to a higher percentage of members enrolled in our tailored
network products and lower utilization trends.
Medical Care Ratios
The health plan services MCR in the Western Region Operations was 86.4 percent for the year ended
December 31, 2011 compared with 86.6 percent for the year ended December 31, 2010.
The Western Region Operations commercial MCR was 85.3 percent for the year ended December 31, 2011,
compared with 86.1 percent for the year ended December 31, 2010. This is due to an increase in commercial
premium yields outpacing the health care cost increase.
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