Health Net 2005 Annual Report Download - page 58

Amortization and depreciation expense decreased by $10.6 million for the year ended December 31, 2005 as
compared to the same period in 2004 primarily due to the sale of assets in the sale-leaseback transaction we
consummated in June 2005. See “Investing Activities” for further information on the sale-leaseback transaction.
Interest expense increased by $11.5 million, or 34.7%, for the year ended December 31, 2005 as compared
to the same period in 2004. A $4.5 million increase in interest expense resulted primarily from a 150 basis point
increase in the interest rate on our Senior Notes due to the downgrade of our senior unsecured debt rating
effective September 2004, and a $6.8 million increase in interest expense resulted from higher variable interest
rate we paid on the swap contract settlements. See “Item 7A. Quantitative and Qualitative Disclosures about
Market Risk” for further information on our Swap Contracts. See “—Financing Activities” for further
information on the downgrade of our senior unsecured debt rating.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
G&A 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—Year Ended December 31, 2004 Compared to Year Ended December 31, 2003” above. Our administrative
ratio decreased to 9.7% for the year ended December 31, 2004 from 10.6% for the same period in 2003.
The selling costs ratio 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 favorable impact of $7.1 million in settlements on our interest rate
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.
Government Contracts Segment Membership
2005 2004 2003
(Membership in thousands)
Membership under North Region TRICARE contracts ................. 2,962 2,929 —
Membership under legacy TRICARE contracts ....................... — — 1,491
In 2004, we completed the transition from our old TRICARE contracts to our new TRICARE contract for
the North Region. Under our TRICARE contract for the North Region, we provide health care services to
approximately 3.0 million and 2.9 million eligible beneficiaries in the Military Health System (MHS) as of
December 31, 2005 and 2004, respectively. Included in the 3.0 million MHS-eligible beneficiaries as of
December 31, 2005 were 1.8 million TRICARE eligibles for whom we provide health care and administrative
services and 1.2 million other MHS-eligible beneficiaries for whom we provide administrative services only. As
of December 31, 2005, there were approximately 1.4 million TRICARE eligibles enrolled in TRICARE Prime
under our North Region contract. As of December 31, 2004 there were approximately 1.4 million TRICARE
eligibles enrolled in TRICARE Prime under our North Region contract and no TRICARE eligibles enrolled
under our old TRICARE contracts.
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