Health Net 2007 Annual Report Download - page 65

The selling costs ratio increased to 2.4% for the year ended December 31, 2006 from 2.3% when compared
to the same period in 2005. The increase was primarily due to higher sales incentives for our small group and
individual membership.
Amortization and depreciation expense decreased by $8.1 million for the year ended December 31, 2006 as
compared to the same period in 2005 primarily due to the sale of assets in the sale-leaseback transaction
completed in June 2005. See Note 12 to our consolidated financial statements for further information on this sale-
leaseback transaction.
Interest expense increased by $6.6 million, or 15%, for the year ended December 31, 2006 as compared to
the same period in 2005. The increase was primarily due to interest on the term and bridge loans we entered into
in June 2006 and an increase in the variable rate interest we paid on the swap contracts that hedged against
interest rate risk associated with our senior notes, offset in part by a decrease in interest on the senior notes,
which were redeemed on August 14, 2006. See “—Debt Refinancing” below.
Government Contracts Segment Membership
2007 2006 2005
(Membership in thousands)
Membership under North Region TRICARE contract .................. 2,895 2,930 2,962
Under our TRICARE contract for the North Region, we provide health care services to approximately
2.9 million eligible beneficiaries in MHS as of December 31, 2007. Included in the 2.9 million MHS-eligible
beneficiaries as of December 31, 2007 were 1.8 million TRICARE eligibles for whom we provide health care
and administrative services and 1.1 million other MHS-eligible beneficiaries for whom we provide administrative
services only. As of December 31, 2007 and 2006, there were approximately 1.4 million TRICARE eligibles
enrolled in TRICARE Prime under our North Region contract.
In addition to the 2.9 million eligible beneficiaries that we service under the TRICARE contract for the
North Region, we administer contracts with the U.S. Department of Veterans Affairs to manage community
based outpatient clinics in 9 states covering approximately 26,000 enrollees.
Government Contracts Segment Results
The following table summarizes the operating results for Government Contracts for the last three fiscal
years:
Year Ended December 31,
2007 2006 2005
(Dollars in millions)
Government contracts segment:
Revenues .................................................... $2,501.7 $2,376.0 $2,307.5
Costs ....................................................... 2,307.6 2,234.5 2,211.3
Pretax income ................................................ $ 194.1 $ 141.5 $ 96.2
Government Contracts Ratio ..................................... 92.2% 94.0% 95.8%
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Government contracts revenues increased by $125.7 million, or 5%, for the year ended December 31, 2007
as compared to the same period in 2006. Government contracts costs increased by $73.1 million or 3% for the
year ended December 31, 2007 as compared to the same period in 2006. The increase was primarily due to an
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