Health Net 2013 Annual Report Download - page 73
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71
certain compensation treated as non-deductible under the ACA.
In 2014, we expect our effective income tax rate will be significantly higher than the 35% statutory federal tax rate
and could exceed 50%, excluding unusual charges or benefits, due largely to the impact of the health insurer fee as
discussed in "Item 1A. Risk Factors—Federal health care reform legislation has had and will continue to have an adverse
impact on the costs of operating our business and could materially adversely affect our business, cash flows, financial
condition and results of operations" above.
Discontinued Operations
For the year ended December 31, 2012, we recorded tax expense of $18.0 million net against the gain on sale of
discontinued operation. See Note 3 to our consolidated financial statements for additional information regarding the sale of
our Medicare PDP business. An effective tax rate was only applicable to the year ended December 31, 2012 because that is
the only period for which a gain on sale of discontinued operation was recorded. The effective tax rate differs from the
federal statutory rate of 35% due primarily to the impact of nondeductible goodwill impairment and a reduction in the
valuation allowance against deferred tax assets, which resulted from the utilization of capital loss carryforwards against the
gain on the sale of our Medicare PDP business.
Also in connection with the sale of our Medicare PDP business, we classified the operating results of our Medicare
PDP business as discontinued operation, and accordingly, reclassified our results of operations for the year ended
December 31, 2011. We recorded tax benefits of $10.3 million against losses from discontinued operation for the year
ended December 31, 2012. We recorded tax expense of $6.2 million net against the income from discontinued operation for
the year ended December 31, 2011. The effective income tax rates related to income or loss from discontinued operation
remained relatively constant throughout 2011 and 2012 at slightly above the federal statutory tax rate of 35% due to state
income taxes. The effective income tax rate on the gain on sale of discontinued operation varies from the statutory federal
rate of 35% for the year ended December 31, 2012 due to state income taxes and the release of a valuation allowance
against deferred tax assets for capital loss carryforwards, which were utilized upon the gain on sale of the Medicare PDP
business.