Health Net 2006 Annual Report Download - page 58

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Health Plan Services Segment Results
The following table summarizes the operating results for the Health Plan Services segment for the last three
fiscal years:
Year Ended December 31,
2006 2005 2004
(Dollars in millions, except PMPM data)
Health plan services segment:
Health plan services premiums ...................... $10,364.7 $ 9,506.9 $ 9,517.5
Health plan services expenses ...................... (8,600.4) (8,013.0) (8,413.6)
Gross margin .................................... 1,764.3 1,493.9 1,103.9
Net investment income ............................ 111.0 72.8 58.2
Administrative services fees and other income ......... 56.6 53.4 48.8
G&A .......................................... (1,165.3) (956.8) (888.5)
Selling ......................................... (245.3) (221.6) (240.1)
Amortization and depreciation ...................... (25.6) (33.7) (44.3)
Interest ........................................ (51.2) (44.6) (33.1)
Pretax income ................................... $ 444.5 $ 363.4 $ 4.9
MCR .......................................... 83.0% 84.3% 88.4%
Health plan services premiums PMPM ............... $ 243.70 $ 235.80 $ 216.34
Health plan services costs PMPM ................... $ 202.22 $ 198.75 $ 191.24
Administrative ratio .............................. 11.4% 10.3% 9.7%
Selling costs ratio ................................ 2.4% 2.3% 2.5%
Health Plan Services Premiums
Total Health Plan Services premiums increased by $857.8 million, or 9%, for the year ended December 31,
2006 as compared to the same period in 2005, and decreased by $10.6 million, or 0.1%, for the year ended
December 31, 2005 as compared to the same period in 2004 as shown in the following table:
Year Ended December 31,
2006 2005 2004
(Dollars in millions)
Commercial premium revenue ........................... $ 6,903.5 $6,797.3 $6,942.0
Medicare Risk premium revenue ......................... 2,304.4 1,574.1 1,483.2
Medicaid premium revenue .............................. 1,156.8 1,135.5 1,092.3
Total Health plan services premiums .................. $10,364.7 $9,506.9 $9,517.5
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Commercial premium revenues increased by $106.2 million, or 2%, for the year ended December 31, 2006
as compared to the same period in 2005 primarily due to our ongoing pricing discipline and the Universal Care
Acquisition. The commercial premium PMPM increased by an average of 8% in the year ended December 31,
2006 compared to the same period in 2005. The Universal Care Acquisition added approximately $122 million of
premium revenues for the year ended December 31, 2006.
Medicare Risk premiums increased by $730.3 million, or 46%, for the year ended December 31, 2006 as
compared to the same period in 2005, primarily due to the premiums paid to us by CMS for the members
participating in the new Medicare Part D prescription drug program effective January 1, 2006 and favorable
Medicare risk factor adjustments in our Arizona, California, Connecticut, Oregon and New York plans totaling
$92.0 million in the year ended December 31, 2006 (see “—Health Plan Services Costs” for detail regarding the
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