News Release
Contact:
Juan José Orellana
Investor Relations
Molina Healthcare, Inc.
562-435-3666, ext. 111143
MOLINA HEALTHCARE REPORTS
THIRD QUARTER RESULTS
Long Beach, California (November 7, 2006) — Molina Healthcare, Inc. (NYSE: MOH) today announced its financial results for the third quarter and nine months ended September 30, 2006.
Net income for the quarter ended September 30, 2006, increased 80% to $12.3 million, or $0.44 per diluted share, compared with $6.8 million, or $0.24 per diluted share, for the quarter ended September 30, 2005. Net income for the nine months ended September 30, 2006, increased 100% to $34.1 million, or $1.21 per diluted share, compared with $16.9 million, or $0.60 per diluted share, for the same period in 2005.
Commenting on the results, J. Mario Molina, M.D., president and chief executive officer of Molina Healthcare, Inc., said, “Our results for the third quarter reflect our continued focus on the medical management initiatives we undertook in order to control medical costs without sacrificing the quality of health care provided to our members. Our Michigan, New Mexico, and Washington health plans delivered strong financial performance in the quarter, while our California health plan continues to face challenges such as higher unit costs and limited premium rates.”
Guidance
The Company is maintaining the fiscal year 2006 guidance it had issued on August 1, 2006, for earnings per diluted share in the range of $1.60 - $1.65.
Financial Results - Comparison of Quarters Ended September 30, 2006 and 2005
Premium revenue for the third quarter of 2006 was $512.1 million, an increase of $86.2 million, or 20.2%, over premium revenue for the third quarter of 2005 of $425.9 million. The acquisition of CAPE Health Plan in Michigan (May 15, 2006) and start-up operations in Indiana and Ohio were the primary drivers of the increase in premium revenue. Membership growth was partially offset by declines in membership in California and Michigan (excluding the CAPE acquisition).
-MORE-
MOH Announces Third Quarter Results
Page 2
November 7, 2006
Medical care costs as a percentage of premium revenue (the medical care ratio) decreased to 84.1% in the third quarter of 2006 from 86.1% in the third quarter of 2005. Sequentially, the Company’s overall medical care ratio increased from 83.7% in the second quarter of 2006. The year-over-year improvement in the Company’s medical care ratio was the result of improved medical care ratios in Michigan, New Mexico, and Washington, partially offset by higher medical care ratios in California and Indiana and the start-up of the Company’s Ohio health plan.
A reduction in medical care costs was the primary driver of the stronger financial performance in the Company’s Michigan, New Mexico, and Washington health plans. All three of these health plans reported lower medical care ratios in both the quarter and the nine months ended September 30, 2006, when compared with the comparable periods in 2005. The Company believes that the improvement at these health plans is principally the result of recontracting efforts and improved monitoring and management of medical utilization.
The Company believes that the decline in the California health plan’s profitability is the result of limited premium increases compounded by higher hospital costs. Utilization of medical services does not appear to be a significant contributor to difficulties in the California market. The Company has taken a number of actions to improve performance in California, including the addition of new senior staff and the renegotiation of certain provider contracts. The Company is also exploring ways to increase premium rates from the state.
The medical care ratios in Ohio and Indiana were substantially higher than that experienced historically by the Company as a whole. The Company believes that the higher medical care ratios in Ohio and Indiana are due to following factors:
· | The transition of members from fee-for-service to a managed care environment requires that both members and providers be educated in the appropriate practices of managed care, such as relying on primary care physicians rather than on emergency rooms. Such broad-based educational efforts require time for assimilation before they can result in changed patterns of behavior and treatment. |
· | The transition of members into managed care may result in the identification of previously unmet health care needs, which can create a temporary spike in health care costs. |
· | The Company’s Indiana plan, and to a lesser degree its Ohio plan, has experienced higher than average pharmacy costs. |
Membership at the Company’s Ohio health plan has grown dramatically since September 30, 2006, increasing to approximately 77,000 members at November 1, 2006. The Company anticipates substantial additional growth in Ohio during 2007.
-MORE-
MOH Announces Third Quarter Results
Page 3
November 7, 2006
As previously disclosed, the Medicaid contract of the Company’s Indiana health plan will expire on December 31, 2006. The Indiana plan has appealed the state’s decision not to renew the contract. The Company does not believe the discontinuation of this contract, in the event the appeal is unsuccessful, will have a material impact on its cash flows or results of operations.
The Company’s days in claims payable were 54 days at both September 30, 2006 and June 30, 2006. The Company’s days in claims payable at September 30, 2005, were 52 days.
Salary, general and administrative expenses were $60.5 million for the third quarter of 2006, representing 11.7% of total revenue, as compared with $47.0 million, or 11.0% of total revenue, for the third quarter of 2005.
Core G&A (defined as SG&A expenses less premium taxes) increased to 8.6% of total revenue in the third quarter of 2006 compared with 7.4% in the third quarter of 2005. The increase in Core G&A was due to investments in infrastructure to support the Company’s medical care cost control initiatives and also its information technology initiatives, its expansion into Ohio and Texas, and the launch of its Medicare Advantage Special Needs Plans. The Company’s adoption of SFAS No. 123R, Share-Based Payment, effective January 1, 2006, reduced earnings per diluted share by approximately $0.02 in the third quarter of 2006.
Depreciation and amortization expense increased by $1.5 million compared with the third quarter of 2005. Depreciation expense increased by $0.8 million in the third quarter of 2006 due to investments in infrastructure. Amortization expense increased by $0.7 million in the third quarter of 2006 due to the CAPE acquisition in Michigan.
Investment income during the quarter totaled $5.4 million as compared with $2.7 million in the third quarter of 2005, an increase of $2.7 million as a result of higher invested balances and higher rates of return.
Income taxes were recognized in the third quarter of 2006 based upon an effective tax rate of 37.7% as compared with an effective tax rate of 33.9% in the third quarter of 2005. The effective tax rate for the third quarter of 2005 was less than the 38.0% effective rate anticipated by the Company due to an increase in that portion of the Company’s net income earned by subsidiaries that are not subject to state income tax, coupled with larger than anticipated economic development credits in California.
Financial Results - Comparison of Nine Months Ended September 30, 2006 and 2005
Premium revenue for the nine months ended September 30, 2006, was $1,441.2 million, an increase of $221.2 million, or 18.1%, over premium revenue for the nine months ended September 30, 2005, of $1,220.0 million. Acquisitions in California (June 1, 2005) and Michigan (May 15, 2006) and the start-ups in Indiana and Ohio were the primary drivers of the increase in premium revenue. Membership growth was partially offset by declines in membership in California and Michigan (excluding acquisitions).
-MORE-
MOH Announces Third Quarter Results
Page 4
November 7, 2006
The medical care ratio decreased to 84.4% in the nine months ended September 30, 2006, from 87.6% in the same nine-month period in 2005, principally due to the factors discussed above.
Salary, general and administrative expenses were $168.0 million for the nine months ended September 30, 2006, representing 11.5% of total revenue, as compared with $117.6 million, or 9.6% of total revenue, for the nine months ended September 30, 2005.
Core G&A increased to 8.5% of total revenue for the nine months ended September 30, 2006, compared with 6.7% in the same nine-month period of 2005. The increase in Core G&A was due to the infrastructure improvements and product and market expansions discussed above. The Company’s adoption of SFAS No. 123R, Share-Based Payment, effective January 1, 2006, reduced earnings per diluted share by approximately $0.06 for the nine months ended September 30, 2006.
Depreciation and amortization expense increased by $4.4 million for the nine months ended September 30, 2006, compared with the same period of 2005. Depreciation expense increased by $2.9 million in 2006 due to investments in infrastructure, principally at the Company’s corporate offices. Amortization expense increased by $1.5 million in 2006 due to acquisitions in California and Michigan.
Investment income for the nine months ended September 30, 2006, was $14.3 million as compared with $6.8 million for the same period in 2005, an increase of $7.5 million as a result of higher invested balances and higher rates of return.
Income taxes were recognized for the nine months ended September 30, 2006, based upon an effective tax rate of 37.7% as compared with an effective tax rate of 36.4% for the nine months ended September 30, 2005.
Cash Flow
Cash provided by operating activities for the nine months ended September 30, 2006, was $67.2 million. Net income and the timing of payments for medical claims and benefits payable were the primary sources of cash provided by operating activities. Partially offsetting these increases was an increase in receivables at the Company’s Utah plan. Cash provided by operating activities for the same period in 2005 was $61.0 million.
At September 30, 2006, the Company was not in compliance with a covenant in its credit agreement with Bank of America regarding its fixed charge coverage ratio. Effective as of November 6, 2006, the Company has entered into a second amendment and waiver with respect to the credit agreement pursuant to which the Company’s non-compliance with the covenant at September 30, 2006, has been waived, and the required ratio under the covenant has been amended on a going-forward basis. At September 30, 2006, the Company owed $15.0 million under its $180 million credit facility.
-MORE-
MOH Announces Third Quarter Results
Page 5
November 7, 2006
At September 30, 2006, the Company had, on a consolidated basis, cash and investments of approximately $428.7 million, and the ultimate parent had cash and investments of approximately $28.3 million.
Membership
The following table details the Company’s ending membership by health plan at September 30, 2006, June 30, 2006, and September 30, 2005:
Sept. 30, | June 30, | Sept. 30, | ||||||||
2006 | 2006 | 2005 | ||||||||
California | 302,000 | 307,000 | 333,000 | |||||||
Indiana | 54,000 | 37,000 | 21,000 | |||||||
Michigan | 227,000 | 232,000 | 145,000 | |||||||
New Mexico | 62,000 | 59,000 | 62,000 | |||||||
Ohio | 33,000 | 30,000 | N/A(1) | |||||||
Texas | 3,000 | N/A(2) | N/A(2) | |||||||
Utah | 54,000 | 57,000 | 56,000 | |||||||
Washington | 280,000 | 286,000 | 287,000 | |||||||
Total | 1,015,000 | 1,008,000 | 904,000 |
(1) The Company’s Ohio plan commenced operations in December 2005.
(2) The Company’s Texas plan commenced operations in September 2006.
The following table details member months (defined as the aggregation of each month’s ending membership for the period) by health plan for the periods indicated:
Quarter Ended | Nine Months Ended | |||||||||||||||
Sept. 30, | June 30, | Sept. 30, | Sept. 30, | Sept. 30, | ||||||||||||
2006 | 2006 | 2005 | 2006 | 2005 | ||||||||||||
California | 911,000 | 927,000 | 1,006,000 | 2,785,000 | 2,598,000 | |||||||||||
Indiana | 150,000 | 99,000 | 59,000 | 328,000 | 79,000 | |||||||||||
Michigan | 681,000 | 565,000 | 441,000 | 1,677,000 | 1,375,000 | |||||||||||
New Mexico | 181,000 | 176,000 | 183,000 | 535,000 | 553,000 | |||||||||||
Ohio | 95,000 | 86,000 | N/A(1) | 229,000 | N/A(1) | |||||||||||
Texas | 3,000 | N/A(2) | N/A(2) | 3,000 | N/A(2) | |||||||||||
Utah | 167,000 | 179,000 | 164,000 | 527,000 | 492,000 | |||||||||||
Washington | 846,000 | 858,000 | 856,000 | 2,572,000 | 2,521,000 | |||||||||||
Total | 3,034,000 | 2,890,000 | 2,709,000 | 8,656,000 | 7,618,000 |
(1) The Company’s Ohio plan commenced operations in December 2005.
(2) The Company’s Texas plan commenced operations in September 2006.
-MORE-
MOH Announces Third Quarter Results
Page 6
November 7, 2006
Conference Call
The live broadcast of Molina Healthcare’s earnings conference call will begin at 5:00 p.m. Eastern Time, November 7, 2006. The telephone number for this interactive conference call is 212-346-6560. A 30-day online replay will be available beginning approximately one hour following the conclusion of the live broadcast. A link to the call can be found on the Company’s website at www.molinahealthcare.com or at www.earnings.com.
Molina Healthcare, Inc. is a multi-state managed care organization that arranges for the delivery of healthcare services to persons eligible for Medicaid and other government-sponsored programs for low-income families and individuals. Molina Healthcare, Inc. currently operates health plans in California, Indiana, Michigan, New Mexico, Ohio, Texas, Utah, and Washington. More information about Molina Healthcare, Inc. can be obtained at www.molinahealthcare.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This press release contains “forward-looking statements” identified by words such as “will,” “expects,” “believes,” “anticipates,” “plans,” “projects,” “estimates,” “intends,” and similar words and expressions. In addition, any statements that refer to earnings guidance, expectations, projections, or their underlying assumptions, or other characterizations of future events or circumstances, are forward-looking statements. All of the Company’s forward-looking statements are based on current expectations and assumptions that are subject to numerous known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially. Such factors include, without limitation, risks related to: the continuation of the improvement in the Company’s medical care cost trends; the Company’s ability to accurately identify medical care cost issues and to address them through its medical care cost control initiatives; the Company’s ability to accurately estimate incurred but not reported medical costs; high dollar claims related to catastrophic illness; slower growth in enrollment than projected in the Company’s Ohio health plan, its failure to be re-selected as a provider for Ohio’s Central or Southwest regions or to enter into new Medicaid ABD contracts, or its inability to reduce its medical care ratio within a reasonable period; potential reductions in funding for Medicaid and other government-sponsored healthcare programs; costs associated with the non-renewal of the Medicaid contract of the Company’s Indiana health plan; the successful renewal and continuation of the government contracts of the Company’s health plans; the favorable resolution of pending litigation or arbitration; the adequacy of contractual rates and premiums paid to the Company’s health plans and the implementation of appropriate rate increases; the ability to enter into more favorable hospital or provider contracts; the Company’s ability to successfully integrate its completed acquisitions; the availability of adequate financing to fund and/or capitalize the Company’s acquisitions and start-up activities; membership eligibility processes and methodologies, including citizenship recertification, and the successful maintenance of member enrollment levels; unexpected changes in member utilization patterns, healthcare practices, or healthcare technologies; changes in federal or state laws or regulations or in their interpretation; failure to maintain effective and efficient information systems and claims processing technology; epidemics; and other risks and uncertainties as detailed in the Company’s reports and filings with the Securities and Exchange Commission and available on its website at www.sec.gov. All forward-looking statements in this release represent the Company’s judgment as of November 7, 2006. The Company disclaims any obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
-MORE-
MOH Announces Third Quarter Results
Page 7
November 7, 2006
MOLINA HEALTHCARE, INC. | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
(Dollars in thousands, except for per share data) | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
Revenue: | |||||||||||||
Premium revenue | $ | 512,080 | $ | 425,943 | $ | 1,441,197 | $ | 1,220,045 | |||||
Investment income | 5,385 | 2,668 | 14,278 | 6,792 | |||||||||
Total revenue | 517,465 | 428,611 | 1,455,475 | 1,226,837 | |||||||||
Expenses: | |||||||||||||
Medical care costs: | |||||||||||||
Medical services | 95,961 | 70,677 | 256,839 | 201,948 | |||||||||
Hospital and specialty services | 284,728 | 255,120 | 815,287 | 740,668 | |||||||||
Pharmacy | 50,181 | 40,815 | 143,706 | 126,600 | |||||||||
Total medical care costs | 430,870 | 366,612 | 1,215,832 | 1,069,216 | |||||||||
Salary, general and administrative expenses | 60,504 | 47,005 | 168,025 | 117,611 | |||||||||
Loss contract charge (1) | — | — | — | 939 | |||||||||
Depreciation and amortization | 5,633 | 4,113 | 15,265 | 10,869 | |||||||||
Total expenses | 497,007 | 417,730 | 1,399,122 | 1,198,635 | |||||||||
Operating income | 20,458 | 10,881 | 56,353 | 28,202 | |||||||||
Other expense: | |||||||||||||
Interest expense | (645 | ) | (581 | ) | (1,636 | ) | (1,288 | ) | |||||
Other, net (2) | — | — | — | (400 | ) | ||||||||
Total other expense | (645 | ) | (581 | ) | (1,636 | ) | (1,688 | ) | |||||
Income before income taxes | 19,813 | 10,300 | 54,717 | 26,514 | |||||||||
Income tax expense | 7,472 | 3,489 | 20,634 | 9,650 | |||||||||
Net income | $ | 12,341 | $ | 6,811 | $ | 34,083 | $ | 16,864 | |||||
Net income per share: | |||||||||||||
Basic | $ | 0.44 | $ | 0.25 | $ | 1.22 | $ | 0.61 | |||||
Diluted | $ | 0.44 | $ | 0.24 | $ | 1.21 | $ | 0.60 | |||||
Weighted average number of common shares and potential dilutive common shares outstanding | 28,346,000 | 28,067,000 | 28,253,000 | 28,010,000 | |||||||||
Operating Statistics: | |||||||||||||
Medical care ratio (3) | 84.1 | % | 86.1 | % | 84.4 | % | 87.6 | % | |||||
Salary, general and administrative expense ratio (4), excluding premium taxes | 8.6 | % | 7.4 | % | 8.5 | % | 6.7 | % | |||||
Premium taxes included in salary, general and administrative expenses | 3.1 | % | 3.6 | % | 3.0 | % | 2.9 | % | |||||
Total salary, general and administrative expense ratio | 11.7 | % | 11.0 | % | 11.5 | % | 9.6 | % | |||||
Members (5) | 1,015,000 | 904,000 | |||||||||||
Days in claims payable | 54 | 52 |
(1) Represents a charge related to a transition services agreement entered into in connection with the transfer of certain commercial members to another health plan in August 2004.
(2) Represents a charge of $0.4 million related to the write-off of costs associated with a registration statement filed during the second quarter of 2005.
(3) Medical care ratio represents medical care costs as a percentage of premium revenue.
(4) Salary, general and administrative expense ratio represents such expenses as a percentage of total revenue.
(5) Number of members at end of period.
-MORE-
MOH Announces Third Quarter Results
Page 8
November 7, 2006
MOLINA HEALTHCARE, INC. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Dollars in thousands, except per share data) | |||||||
Sept. 30, | Dec. 31, | ||||||
2006 | 2005 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 337,084 | $ | 249,203 | |||
Investments | 91,659 | 103,437 | |||||
Receivables | 84,540 | 70,532 | |||||
Income tax receivable | 6,037 | 3,014 | |||||
Deferred income taxes | 2,073 | 2,339 | |||||
Prepaid expenses and other current assets | 8,564 | 10,321 | |||||
Total current assets | 529,957 | 438,846 | |||||
Property and equipment, net | 37,158 | 31,794 | |||||
Goodwill and intangible assets, net | 146,953 | 124,914 | |||||
Restricted investments | 19,980 | 18,242 | |||||
Receivable for ceded life and annuity contracts | 34,987 | 38,113 | |||||
Other assets | 8,539 | 8,018 | |||||
Total assets | $ | 777,574 | $ | 659,927 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Medical claims and benefits payable | $ | 256,927 | $ | 217,354 | |||
Deferred revenue | 12,472 | 803 | |||||
Accounts payable and accrued liabilities | 40,297 | 31,457 | |||||
Total current liabilities | 309,696 | 249,614 | |||||
Long-term debt | 15,000 | — | |||||
Deferred income taxes | 6,705 | 4,796 | |||||
Liability for ceded life and annuity contracts | 34,987 | 38,113 | |||||
Other long-term liabilities | 4,596 | 4,554 | |||||
Total liabilities | 370,984 | 297,077 | |||||
Stockholders’ equity: | |||||||
Common stock, $0.001 par value; 80,000,000 shares authorized; issued and outstanding: 28,070,646 shares at September 30, 2006, and 27,792,360 shares at December 31, 2005 | 28 | 28 | |||||
Preferred stock, $0.001 par value; 20,000,000 shares authorized, no shares issued and outstanding | — | — | |||||
Additional paid-in capital | 172,112 | 162,693 | |||||
Accumulated other comprehensive loss | (391 | ) | (629 | ) | |||
Retained earnings | 255,231 | 221,148 | |||||
Treasury stock (1,201,174 shares, at cost) | (20,390 | ) | (20,390 | ) | |||
Total stockholders’ equity | 406,590 | 362,850 | |||||
Total liabilities and stockholders’ equity | $ | 777,574 | $ | 659,927 |
-MORE-
MOH Announces Third Quarter Results
Page 9
November 7, 2006
MOLINA HEALTHCARE, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Dollars in thousands) | |||||||
(Unaudited) | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
2006 | 2005 | ||||||
Operating activities: | |||||||
Net income | $ | 34,083 | $ | 16,864 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 15,265 | 10,869 | |||||
Amortization of capitalized credit facility fees | 646 | 519 | |||||
Deferred income taxes | (2,510 | ) | (645 | ) | |||
Stock-based compensation | 4,331 | 875 | |||||
Changes in operating assets and liabilities: | |||||||
Receivables | (13,099 | ) | 1,885 | ||||
Prepaid expenses and other current assets | 2,068 | (1,361 | ) | ||||
Medical claims and benefits payable | 17,036 | 39,104 | |||||
Accounts payable and accrued liabilities | 7,411 | 6,385 | |||||
Income taxes | 1,955 | (13,499 | ) | ||||
Net cash provided by operating activities | 67,186 | 60,996 | |||||
Investing activities: | |||||||
Purchases of equipment | (13,285 | ) | (9,808 | ) | |||
Purchases of investments | (103,702 | ) | (55,273 | ) | |||
Sales and maturities of investments | 115,866 | 33,720 | |||||
Net cash acquired (paid) in purchase transactions | 5,820 | (32,288 | ) | ||||
Increase in restricted cash | (738 | ) | (539 | ) | |||
Increase in other long-term liabilities | 42 | 496 | |||||
Increase in other assets | (1,218 | ) | (4,843 | ) | |||
Net cash provided by (used in) investing activities | 2,785 | (68,535 | ) | ||||
Financing activities: | |||||||
Borrowing under credit facility | 20,000 | 3,100 | |||||
Principal payments on credit facility, capital lease obligations and mortgage note | (5,000 | ) | (3,227 | ) | |||
Tax benefit from exercise of employee stock options recorded as additional paid-in capital | 1,094 | 1,674 | |||||
Proceeds from exercise of stock options and employee stock purchases | 1,816 | 1,414 | |||||
Net cash provided by financing activities | 17,910 | 2,961 | |||||
Net increase (decrease) in cash and cash equivalents | 87,881 | (4,578 | ) | ||||
Cash and cash equivalents at beginning of period | 249,203 | 228,071 | |||||
Cash and cash equivalents at end of period | $ | 337,084 | $ | 223,493 |
-MORE-
MOH Announces Third Quarter Results
Page 10
November 7, 2006
MOLINA HEALTHCARE, INC. | |||||||
CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE | |||||||
(Dollars in thousands) | |||||||
(Unaudited) | |||||||
The following table shows the components of the change in medical claims and benefits payable for the nine months ended September 30, 2006 and 2005: | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
2006 | 2005 | ||||||
Balances at beginning of period | $ | 217,354 | $ | 160,210 | |||
Medical claims and benefits payable from business acquired during the period | 22,536 | - | |||||
Components of medical care costs related to: | |||||||
Current year | 1,254,174 | 1,071,500 | |||||
Prior years | (38,342 | ) | (2,284 | ) | |||
Total medical care costs | 1,215,832 | 1,069,216 | |||||
Payments for medical care costs related to: | |||||||
Current year | 1,017,923 | 880,713 | |||||
Prior years | 180,872 | 149,399 | |||||
Total paid | 1,198,795 | 1,030,112 | |||||
Balances at end of period | $ | 256,927 | $ | 199,314 |
The Company’s claims liability includes an allowance for adverse claims development based on historical experience and other factors including, but not limited to, variation in claims payment patterns, changes in utilization and cost trends, known outbreaks of disease and large claims. The Company’s reserving methodology is consistently applied across all periods presented. Accordingly, any benefit recognized in medical care costs resulting from favorable development of an estimated liability at the start of the period (captured as a component of “medical care costs related to prior years”) may be offset by the addition of an allowance for adverse claims development when estimating the liability at the end of the period (captured as a component of “medical care costs related to current year”).
-END-