Health Net 2006 Annual Report Download - page 147

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the total reportable segments’ measures of profit to the Company’s consolidated income
from continuing operations before income taxes and cumulative effect of a change in accounting principle for the
years ended December 31, 2006, 2005 and 2004 is as follows:
2006 2005 2004
(Dollars in millions)
Total reportable segment pretax income ..................................... $586.0 $459.6 $ 99.2
Debt refinancing charge ................................................. (70.1) — —
Litigation, severance and related benefit costs and asset impairments ............. (37.1) (83.3) (32.9)
Net gain on sale of businesses and properties ................................. — — 1.1
Income from continuing operations before income taxes ........................ $478.8 $376.3 $ 67.4
Note 16—Reserves for Claims and Other Settlements
Reserves for claims and other settlements include reserves for claims (incurred but not reported (IBNR)
claims and received but unprocessed claims), and other liabilities including capitation payable, shared risk
settlements, provider disputes, provider incentives and other reserves for our Health Plan Services reporting
segment. The table below provides a reconciliation of changes in reserve for claims for the years ended
December 31, 2006, 2005 and 2004.
Health Plan Services
Year Ended December 31,
2006 2005 2004
(Dollars in millions)
Reserve for claims (a), beginning of period ............................. $ 768.7 $ 794.6 $ 777.1
Incurred claims related to:
Current year .............................................. 5,222.0 5,130.4 5,048.3
Prior years (c) ............................................ (77.3) (114.5) 8.7
Total incurred (b) ............................................. 5,144.7 5,015.9 5,057.0
Paid claims related to:
Current year .............................................. 4,485.7 4,401.3 4,286.9
Prior years ............................................... 673.5 640.5 752.6
Total paid (b) ................................................. 5,159.2 5,041.8 5,039.5
Reserve for claims (a), end of period .................................. 754.2 768.7 794.6
Add:
Claims payable ................................................... 195.6 126.7 127.1
Reserve for provider disputes (d) ..................................... 8.3 50.5 161.3
Other (e) ........................................................ 90.7 94.3 86.3
Reserves for claims and other settlements, end of period ................... $1,048.8 $1,040.2 $1,169.3
(a) Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss
adjustment expenses.
(b) Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are
not included.
(c) This line represents the change in reserves attributable to the difference between the original estimate of
incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been
no changes in the approach used to determine the key actuarial assumptions, which are the completion factor
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