Health Net 2007 Annual Report Download - page 63

amount, $22.5 million, $3.9 million and $0.8 million were for the 2007, 2006, and 2003 payment years,
respectively (see “—Health Plan Services Premiums” for detail regarding the increase in premium revenue
related to the Medicare rate adjustment). Medicare MCR, including Medicare Advantage and Part D, increased
by 210 basis points for the year ended December 31, 2007.
Medicaid health care costs increased by $51.4 million, or 5%, for the year ended December 31, 2007 as
compared to the same period in 2006. The increase in the Medicaid health care cost PMPM was 8% for the year
ended December 31, 2007 over the same period in 2006. These increases were primarily driven by higher
hospital and pharmacy costs. Medicaid MCR increased by 220 basis points at December 31, 2007 compared to
December 31, 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Commercial health care costs increased by $72.4 million, or 1%, for the year ended December 31, 2006 as
compared to the same period in 2005, partially due to the addition of 49,000 commercial members from the
Universal Care Acquisition. The increase in the commercial health care cost trend on a PMPM basis was 7% for
the year ended December 31, 2006 over the same period in 2005. Physician and hospital costs rose about 6% and
9% from higher paid claims, respectively, and pharmacy costs rose about 4% due to higher utilization on a
PMPM basis for the year ended December 31, 2006 over the same period in 2005. Commercial bed days
remained unchanged from 2005. Commercial MCR declined slightly for the year ended December 31, 2006 as
compared to the same period in 2005 due to continued pricing discipline and moderating health care cost trends.
Medicare Risk health care costs increased by $513.2 million, or 36%, for the year ended December 31, 2006
as compared to the same period in 2005. Medicare Risk health care costs increased as a result of an increase in
pharmacy costs due to Medicare Part D coverage, an increase in membership and increased capitation expense
from Medicare risk factor adjustments totaling $29.1 million, which was recognized in the year ended
December 31, 2006. Of this amount, $14.9 million, $13.2 million and $1.0 million were for the 2006, 2005, and
2004 payment years, respectively (see “—Health Plan Services Premiums” for detail regarding the increase in
premium revenue related to the Medicare rate adjustment). Medicare Risk MCR decreased in the year ended
December 31, 2006 due to an increase in revenue driven by Medicare Part D business and net revenue from
Medicare risk factor adjustments, as well as a focused contracting effort late in 2005 in California and Arizona.
Medicaid health care costs increased by $1.8 million, or 0.2%, for the year ended December 31, 2006 as
compared to the same period in 2005 due primarily to an increase in enrollment. The decrease in the Medicaid
health care cost PMPM was 1% for the year ended December 31, 2006 over the same period in 2005. The
Medicaid MCR decreased for the year ended December 31, 2006 when compared to the same period in 2005,
primarily driven by lower physician costs.
Administrative Services Fees and Other Income
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Administrative services fees and other income decreased by $5.5 million, or 10%, for the year ended
December 31, 2007 as compared to the same period in 2006. The decrease was primarily due to loss of ASO
membership in our Connecticut health plan.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Administrative services fees and other income increased by $3.2 million, or 6%, for the year ended
December 31, 2006 as compared to the same period in 2005. The increase was primarily due to incentive
payments for certain medical cost discounts and administrative fees received in arrears.
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