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The Medicare Advantage MCR in in our Western Region Operations segment was 90.6 percent for the year ended
December 31, 2013 compared with 89.3 percent for the year ended December 31, 2012. The Medicare Advantage MCR
deteriorated by 130 basis points for the year ended December 31, 2013 compared to the same period in 2012 primarily
due to lower premium yield from lower federal rates.
The Medicaid MCR was 80.4 percent for the year ended December 31, 2013 compared with 89.4 percent for the
year ended December 31, 2012. The improvement in the Medicaid MCR for the year ended December 31, 2013
compared to the same period in 2012 was primarily due to favorable California Medicaid rate adjustments primarily
related to prior periods, the impact of the reinstated Medicaid premium taxes that increased our Medicaid premium
revenues, and retrospective adjustments to premium revenues related to our state-sponsored health plans rate settlement
agreement. For additional information on the reinstated Medicaid premium taxes and state-sponsored health plans rate
settlement agreement, see Note 2 to our consolidated financial statements.
General and Administrative, Selling and Interest Expenses
Total general and administrative expense in our Western Region Operations segment was $1.1 billion for the year
ended December 31, 2013 compared with $903.1 million for the year ended December 31, 2012. The total G&A
expense ratio was 10.3 percent for the year ended December 31, 2013 compared with 8.6 percent for the year ended
December 31, 2012.
Increases in our total general and administrative expenses for the year ended December 31, 2013 were primarily
due to increases in insurance, taxes and related fees, including reinstated Medicaid premium taxes of $92.8 million. See
Note 2 to our consolidated financial statements for additional information regarding these premium taxes. Such
increases in insurance, taxes and related fees impacted the total G&A expense ratio by 140 basis points for the year
ended December 31, 2013. In addition, increases in our total general and administrative expenses for the year ended
December 31, 2013 were impacted by costs related to the implementation of the CCI, including the dual eligibles
demonstration, and the ACA, including the exchanges.
Selling expense in our Western Region Operations segment was $239.4 million for the year ended December 31,
2013 compared with $245.9 million for the year ended December 31, 2012. The selling costs ratio was 2.3 percent for
the year ended December 31, 2013 compared with 2.4 percent for the year ended December 31, 2012.
Interest expense in our Western Region Operations segment was $32.6 million for the year ended December 31,
2013 compared with $33.2 million for the year ended December 31, 2012.
Government Contracts Reportable Segment
On April 1, 2011, we began delivery of administrative services under our T-3 contract. The T-3 contract was
awarded to us on May 13, 2010, and included five one-year option periods. On March 15, 2014, the Department of
Defense exercised the last of these options, which extended the T-3 contract through March 31, 2015. On June 27, 2014,
at the Department of Defense's request, we submitted a proposal to add three additional one-year option periods to the
T-3 contract. We currently expect negotiations relating to this proposal to conclude on or prior to March 31, 2015. If the
negotiations conclude as expected, we expect the DoD to exercise the first of the three one-year options by that date. If
all three one-year option periods are ultimately exercised, the T-3 contract would conclude on March 31, 2018. The
DoD intends to re-procure managed care support services for the TRICARE program for the period beginning in 2017,
and, to that end, released a draft Request for Proposals on November 3, 2014.
Under the T-3 contract for the TRICARE North Region, we provided administrative services to approximately 2.8
million MHS eligible beneficiaries as of December 31, 2014. For a description of the T-3 contract, see "—Overview—
How We Measure Our Profitability,” and Note 2 to our consolidated financial statements under the heading
“Government Contracts” for additional information.
On August 15, 2012, our wholly owned subsidiary, MHN Government Services, Inc. entered into a new contract
to provide counseling services to military service members and their families under the MFLC program with a five-year
term that includes a 12-month base period and four 12-month option periods. MHN Government Services, Inc. is one of
three contractors selected to participate in the MFLC program under the MFLC contract. Revenues from the MFLC
contracts were $119.7 million, $104.8 million and $221.3 million for the years ended December 31, 2014, 2013 and
2012, respectively.
In September 2013, VA awarded us a contract under its new PC3 Program. The PC3 Program provides eligible
veterans coordinated, timely access to care through a comprehensive network of non-VA providers who meet VA quality
standards when a local VA medical center cannot readily provide the care. We support VA in providing care to veterans
in three of the six PC3 Program regions. These three regions, Regions 1, 2 and 4, encompass all or portions of 37 states,