Health Net 2000 Annual Report Download - page 24

22 HEALTH NET 2000 Annual Report
contracts the Company holds with the TRICARE pro-
grams for dependents of active-duty military personnel
and retirees and their dependents.
Government Contracts/Specialty Services segment
revenues increased $118.6 million or 8% for the year
ended December 31, 1999 compared to the same period
in 1998.The increase in Government Contracts/Specialty
Services segment revenues was primarily due to increases
in TRICARE revenues and continued growth in the
Company’s behavioral health network.
investment and other income
Investment and other income increased $15.3 million or
18% for the year ended December 31, 2000 compared to
the same period in 1999.The increase was primarily due
to an increase in the average yield rate combined with
higher investable assets.
Investment and other income decreased $6.5 million
or 7% for the year ended December 31, 1999 compared to
the same period in 1998.The decrease was primarily due
to divestiture of non-core plans during 1999.
health plan services mcr
Health Plan Services MCR increased to 84.9% for the
year ended December 31, 2000 compared to 84.6% for
the same period in 1999.This increase was primarily due
to the following:
• An increase in the pharmacy costs for the majority of
the health plans, and
• Higher fee-for-service medical costs from increased uti-
lization of physician and hospital services.
The Health Plans Services MCR decreased to 84.6%
for the year ended December 31, 1999 from 85.5% for
the same period in 1998 primarily due to an increased
focus on medical management.
Government Contracts/Specialty
Services MCR
The Government Contracts/Specialty Services MCR
increased to 66.6% for the year ended December 31,
2000 as compared to 65.6% for the same period in 1999.
This increase was primarily due to the following:
• Continued movement of health care services from mili-
tary treatment facilities to civilian facilities which
resulted in higher costs than originally specified in the
contract, and
• Managed Health Network, the Company’s behavioral
health care subsidiary, increased benefit payments due to
parity provisions instituted by certain states during the
year ended December 31, 2000.These provisions require
behavioral health service providers to offer the same level
of services to all current health plan members.
The Government Contracts/Specialty Services
MCR increased to 65.6% for the year ended December
31, 1999 as compared to 65.5% for the same period in
1998.This increase for 1999 was primarily due to the
movement of health care services from military treatment
facilities to civilian facilities which resulted in higher
costs than originally specified in the contract.
selling, general and administrative costs
The administrative expense ratio (SG&A and deprecia-
tion as a percentage of Health Plan Services revenues
and Government Contracts/Specialty Services revenues)
decreased to 15.2% for the year ended December 31,
2000 from 16.0% for the same period in 1999.This
decrease was primarily attributable to:
• The Company’s ongoing efforts to control its SG&A
expenses,
• Improved efficiencies associated with consolidating cer-
tain administrative processing functions in the Western
and Eastern Divisions, and
• Continued fixed cost savings from the 1999 disposition
of certain non-core plans.
The administrative expense ratio decreased to 16.0%
for the year ended December 31, 1999 from 17.5% for
the same period in 1998.This decrease was primarily
attributable to the Company’s efforts to control its SG&A
expenses and savings associated with consolidating certain
health plans.
amortization and depreciation
Amortization and depreciation expense decreased by
$6.1 million or 5% for the year ended December 31,
2000 from the same period in 1999.This decrease was
primarily due to reductions of $7.6 million in goodwill
and $17.5 million in properties and equipment as a
result of divestitures of certain operations.
Amortization and depreciation expense decreased by
$16.1 million or 13% for the year ended December 31,
1999 compared to the same period in 1998.This decrease
was primarily due to a $61.2 million write-down of fixed
assets in the fourth quarter of 1998 and impairment
charges for goodwill in 1998 that amounted to $30.0 mil-
lion. See “Asset Impairment, Merger, Restructuring and
Other Costs”below and Note 15 to the consolidated
financial statements.
interest expense
Interest expense increased by $4.1 million or 5% for the
year ended December 31, 2000 from the same period in
1999.This increase in interest expense reflects the higher
average borrowing rate of 7.6% in 2000 compared to
7.2% in 1999.This increase in the average borrowing rate
was partially offset by a reduction in the average revolv-
ing credit facility balance.
Interest expense decreased by $8.4 million or 9%
for the year ended December 31, 1999 from the same
period in 1998.This decrease was due to a net decline
in the revolving credit borrowings primarily as a result of
cash proceeds from divestitures.
asset impairment, merger,
restructuring and other costs
This section should be read in conjunction with Notes
14 and 15, and the tables contained therein, to the con-
solidated financial statements.