Health Net 2014 Annual Report Download - page 159

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-49
A reconciliation of the statutory federal income tax rate and the effective income tax rate on income from
continuing operations is as follows for the years ended December 31:
2014 2013 2012
Statutory federal income tax rate .............................................................. 35.0% 35.0% 35.0%
State and local taxes, net of federal income tax effect.............................. (11.1) 1.5 (6.9)
Valuation allowance (release) against capital losses, net operating
losses or tax credits .............................................................................. — — (26.5)
Loss on subsidiary stock ........................................................................... (24.9) — —
Non-deductible health insurer fee............................................................. 24.8 — —
Non-deductible compensation................................................................... 4.8 3.6 17.7
Tax exempt interest income...................................................................... (2.9) (2.4) (12.7)
Sale of subsidiaries.................................................................................... — — 1.8
Interest expense......................................................................................... (1.0) (0.1) 5.3
Lobbying expense ..................................................................................... 0.6 0.4 3.4
Other, net................................................................................................... 1.8 (1.0) 1.8
Effective income tax rate .......................................................................... 27.1% 37.0% 18.9%
The effective income tax rate from continuing operations was 27.1%, 37.0% and 18.9% for the years ended
December 31, 2014, 2013 and 2012, respectively. For the year ended December 31, 2014, our effective tax rate was
impacted by the health insurer fee which became effective under the ACA. Our health insurance industry fee payment
of $141.4 million in 2014 was not deductible for federal income tax purposes and in many state jurisdictions. See Note
2, under the heading "Accounting for Certain Provisions of the ACA—Premium-based Fee on Health Insurers" for
additional information regarding the health insurance industry fee.
During the year ended December 31, 2014, we recorded a $73.7 million tax benefit, net of adjustments to our
reserve for uncertain tax benefits, as a result of a worthless stock loss. The loss was incurred with respect to the stock of
Health Net of the Northeast, Inc., the former parent company of subsidiaries sold to an affiliate of UnitedHealth Group
in 2009. The amount and character of the loss could be challenged by the taxing authorities, and as such, we increased
our reserve for uncertain tax positions by $16.4 million related to this transaction. The tax benefit from the stock loss
was primarily responsible for reducing our statutory tax rate below the statutory federal tax rate of 35% for the year
ended December 31, 2014.
In all periods presented, our effective income tax rate has not been impacted by operations in foreign
jurisdictions with varying statutory tax rates. Our health care operations are almost entirely domestic.