| Significant Accounting Policies (Policy) | 9 Months Ended |
| Sep. 30, 2014 |
| Summary of Significant Accounting Policies [Abstract] | ' |
| Cash and Cash Equivalents | ' |
| Cash and Cash Equivalents |
| Cash equivalents include all highly liquid investments with maturity of three months or less when purchased. We had no checks outstanding, net of deposits as of September 30, 2014 and December 31, 2013. Checks outstanding, net of deposits are classified as accounts payable and other liabilities in the consolidated balance sheets and the changes are reflected in the line item net increase (decrease) in checks outstanding, net of deposits within the cash flows from financing activities in the consolidated statements of cash flows. |
| Investments | ' |
| Investments |
| Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net of income tax effects. The cost of investments sold is determined in accordance with the specific identification method and realized gains and losses are included in net investment income. We analyze all debt investments that have unrealized losses for impairment consideration and assess the intent to sell such securities. If such intent exists, impaired securities are considered other-than-temporarily impaired. Management also assesses if we may be required to sell the debt investments prior to the recovery of amortized cost, which may also trigger an impairment charge. If securities are considered other-than-temporarily impaired based on intent or ability, we assess whether the amortized costs of the securities can be recovered. If management anticipates recovering an amount less than the amortized cost of the securities, an impairment charge is calculated based on the expected discounted cash flows of the securities. Any deficit between the amortized cost and the expected cash flows is recorded through earnings as a charge. All other temporary impairment changes are recorded through other comprehensive income. During the three and nine months ended September 30, 2014 and 2013, respectively, no losses were recognized from other-than-temporary impairments. |
| Fair Value of Financial Instruments | ' |
| Fair Value of Financial Instruments |
| The estimated fair value amounts of cash equivalents, investments available-for-sale, premiums and other receivables, notes receivable and notes payable have been determined by using available market information and appropriate valuation methodologies. The carrying amounts of cash equivalents approximate fair value due to the short maturity of those instruments. Fair values for debt and equity securities are generally based upon quoted market prices. Where quoted market prices were not readily available, fair values were estimated using valuation methodologies based on available and observable market information. Such valuation methodologies include reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. The carrying value of premiums and other receivables, long-term notes receivable and nonmarketable securities approximates the fair value of such financial instruments. The fair value of notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt with the same remaining maturities. The fair value of our fixed-rate borrowings was $436.0 million and $434.5 million as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, the fair value of our variable-rate borrowings under our revolving credit facility was $100.0 million and $100.0 million, respectively. The fair value of our fixed-rate borrowings was determined using the quoted market price, which is a Level 1 input in the fair value hierarchy. The fair value of our variable-rate borrowings was estimated to equal the carrying value because the interest rates paid on these borrowings were based on prevailing market rates. Since the pricing inputs are other than quoted prices and fair value is determined using an income approach, our variable-rate borrowings are classified as a Level 2 in the fair value hierarchy. See Notes 7 and 8 for additional information regarding our financing arrangements and fair value measurements, respectively. |
| Health Plan Services Revenue Recognition | ' |
| Health Plan Services Revenue Recognition |
| Health plan services premium revenues generally include HMO, POS and PPO premiums from employer groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide care to Medicaid recipients, and revenue underd Medicare risk contracts to provide care to enrolled Medicare recipients. Revenue is recognized in the month in which the related enrollees are entitled to health care services. Premiums collected in advance of the month in which enrollees are entitled to health care services are recorded as unearned premiums. |
| Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), commercial health plans with medical loss ratios ("MLR") on fully insured products, as calculated as set forth in the ACA, that fall below certain targets are required to rebate ratable portions of their premiums annually. We classify the estimated rebates, if any, as a reduction to Health plan services premiums in our consolidated statement of operations. Estimated rebates for our commercial health plans were $0 for the three and nine months ended September 30, 2014. In addition to the rebates for the commercial health plans under the ACA, there is also a medical loss ratio corridor for the California Department of Health Care Services ("DHCS") adult Medicaid expansion members under the state Medicaid program in California ("Medi-Cal"). If our MLR for this population is below 85%, then we would have to pay DHCS a rebate. If the MLR is above 95%, then DHCS would have to pay us additional premium. As of September 30, 2014, we have accrued $45.3 million for a MLR rebate with respect to this population payable to DHCS. Accordingly, for the three months ended September 30, 2014, we reduced Medicaid premium revenue by $45.3 million, though no amounts will be paid prior to issuance of final regulations on this program. Our Medicaid contract with the state of Arizona contains profit-sharing or profit ceiling provisions. Because our Arizona Medicaid profits were in excess of the amount we are allowed to fully retain, we reduced Medicaid premium revenue by $11.9 million. In addition, certain provisions of the ACA became effective January 1, 2014, including an annual insurance industry premium-based assessment and the establishment of federally facilitated, state and federal partnership or state-based health insurance exchanges coupled with premium stabilization programs. See below in this Note 2 under the heading "Accounting for Certain Provisions of the ACA" for additional information. |
| Our Medicare Advantage contracts are with the Centers for Medicare & Medicaid Services ("CMS"). CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. This risk adjustment model results in periodic changes in our risk factor adjustment scores for certain diagnostic codes, which then result in changes to our health plan services premium revenues. Because the recorded revenue is based on our best estimate at the time, the actual payment we receive from CMS for risk adjustment reimbursement settlements may be materially different than the amounts we have initially recognized on our financial statements. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2014 decreased health plan services premium revenues by $5.5 million and increased health plan services premium revenues by $14.5 million, respectively. The change in our estimate for the risk adjustment revenue related to prior years in the three and nine months ended September 30, 2013 increased health plan services premium revenues by $1.0 million and decreased health plan services revenues by $8.5 million, respectively. |
| Our revenue from the Medi-Cal program, including seniors and persons with disabilities ("SPD") programs, and other state-sponsored health programs are subject to certain retroactive rate adjustments based on expected and actual health care costs. For the three and nine months ended September 30, 2014, retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2014 were not significant. For the three and nine months ended September 30, 2013, we recognized $32.1 million and $74.3 million, respectively, of premium revenue as a result of retroactive rate adjustments for our SPD and non-SPD members for periods prior to 2013. |
| In addition, our state-sponsored health care programs in California, including Medi-Cal, SPD programs, the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medicaid expansion under federal health care reform, are subject to retrospective premium adjustments based on certain risk sharing provisions included in our state-sponsored health plans rate settlement agreement described below. We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets. |
| On November 2, 2012, we entered into a state-sponsored health plans rate settlement agreement (the "Agreement") with the DHCS to settle historical rate disputes with respect to our participation in the Medi-Cal program, for rate years prior to the 2011–2012 rate year. As part of the Agreement, DHCS agreed, among other things, to (1) an extension of all of our Medi-Cal managed care contracts existing as of the date of the Agreement for an additional five years from their then existing expiration dates; (2) retrospective premium adjustments on all of our state-sponsored health care programs, including Medi-Cal, SPDs, our participation in the dual eligibles demonstration portion of the California Coordinated Care Initiative that began in April 2014 and Medi-Cal expansion populations (our “state-sponsored health care programs”), which are tracked in a settlement account as discussed in more detail below; and (3) compensate us should DHCS terminate any of our state-sponsored health care programs contracts early. |
| Effective January 1, 2013, the settlement account (the "Account") was established with an initial balance of zero. The balance in the Account is adjusted annually to reflect retrospective premium adjustments for each calendar year (referenced in the Agreement as a "deficit" or "surplus"). A deficit or surplus will result to the extent our actual pretax margin (as defined in the Agreement) on our state-sponsored health care programs is below or above a predetermined pretax margin target. The amount of any deficit or surplus is calculated as described in the Agreement. Cash settlement of the Account will occur on December 31, 2019, except that under certain circumstances the DHCS may extend the final settlement for up to three additional one-year periods (as may be extended, the "Term"). In addition, the DHCS will make an interim partial settlement payment to us if it terminates any of our state-sponsored health care programs contracts early. Upon expiration of the Term, if the Account is in a surplus position, then no monies are owed to either party. If the Account is in a deficit position, then DHCS shall pay the amount of the deficit to us. In no event, however, shall the amount paid by DHCS to us under the Agreement exceed $264 million or be less than an alternative minimum amount as defined in the Agreement. |
| We estimate and recognize the retrospective adjustments to premium revenue based upon experience to date under our state-sponsored health care programs contracts. The retrospective premium adjustment is recorded as an adjustment to premium revenue and other noncurrent assets. As of September 30, 2014, we had calculated a surplus of $7.5 million and reduced our receivable to zero, reflecting our cumulative estimated retrospective premium adjustment to the Account based on our actual pretax margin for the period beginning on January 1, 2013 and ending on September 30, 2014. As a surplus Account position results in no monies due to either party upon expiration of the Term, we have no receivable and no payable recorded as of September 30, 2014 in connection with the Agreement. As of December 31, 2013, we had calculated and recorded a deficit of $62.9 million, net of a valuation discount in the amount of $4.4 million, reflecting our estimated retrospective premium adjustment to the Account based on our actual pretax margin for the year ended December 31, 2013. As a result of the change in the Account balance calculated during the three and nine months ended September 30, 2014, our health plan services premium revenue was reduced by $9.6 million and $62.9 million for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, we had recorded increases in our health plan services premium revenue of $16.3 million and $51.7 million, respectively, as a result of the deficit calculated under the state settlement agreement as of September 30, 2013. |
| Health Plan Services Health Care Cost | ' |
| Health Plan Services Health Care Cost |
| The cost of health care services is recognized in the period in which services are provided and includes an estimate of the cost of services that have been incurred but not yet reported. Such costs include payments to primary care physicians, specialists, hospitals and outpatient care facilities, and the costs associated with managing the extent of such care. Our health care cost also can include from time to time remediation of certain claims as a result of periodic reviews by various regulatory agencies. |
| We estimate the amount of the provision for health care service costs incurred but not yet reported ("IBNR") in accordance with GAAP and using standard actuarial developmental methodologies based upon historical data including the period between the date services are rendered and the date claims are received and paid, denied claim activity, expected medical cost inflation, seasonality patterns and changes in membership, among other things. |
| Our IBNR best estimate also includes a provision for adverse deviation, which is an estimate for known environmental factors that are reasonably likely to affect the required level of IBNR reserves. This provision for adverse deviation is intended to capture the potential adverse development from known environmental factors such as our entry into new geographical markets, changes in our geographic or product mix, the introduction of new customer populations, variation in benefit utilization, disease outbreaks, changes in provider reimbursement, fluctuations in medical cost trend, variation in claim submission patterns and variation in claims processing speed and payment patterns, changes in technology that provide faster access to claims data or change the speed of adjudication and settlement of claims, variability in claims inventory levels, non-standard claims development, and/or exceptional situations that require judgmental adjustments in setting the reserves for claims. |
| We consistently apply our IBNR estimation methodology from period to period. Our IBNR best estimate is made on an accrual basis and adjusted in future periods as required. Any adjustments to the prior period estimates are included in the current period. As additional information becomes known to us, we adjust our assumptions accordingly to change our estimate of IBNR. Therefore, if moderately adverse conditions do not occur, evidenced by more complete claims information in the following period, then our prior period estimates will be revised downward, resulting in favorable development. However, any favorable prior period reserve development would increase current period net income only to the extent that the current period provision for adverse deviation is less than the benefit recognized from the prior period favorable development. If moderately adverse conditions occur and are more acute than we estimated, then our prior period estimates will be revised upward, resulting in unfavorable development, which would decrease current period net income. For the three months ended September 30, 2014, we had $9.7 million in net unfavorable reserve developments related to prior years. For the nine months ended September 30, 2014, we had $16.9 million in net favorable reserve developments related to prior years. The amount for the three months ended September 30, 2014 consisted of $10.4 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $0.7 million of the provision for adverse deviation held at December 31, 2013. The amount for the nine months ended September 30, 2014 consisted of $34.5 million in unfavorable prior year development primarily due to the existence of moderately adverse conditions and a release of $51.4 million of the provision for adverse deviation held at December 31, 2013. We believe that the $10.4 million and $34.5 million unfavorable developments for the three and nine months ended September 30, 2014, respectively, were primarily due to unanticipated benefit utilization in our commercial business arising from dates of service in the fourth quarter of 2013 as a result of an uncertain environment related to the ACA. As part of our best estimate for IBNR, the provision for adverse deviation recorded as of September 30, 2014 and December 31, 2013 were $77.0 million and $53.4 million, respectively. For the three and nine months ended September 30, 2013, the reserve developments related to prior years, when considered together with the provision for adverse deviation recorded as of September 30, 2013, did not have a material impact on our operating results or financial condition. |
| The majority of the IBNR reserve balance held at each quarter-end is associated with the most recent months' incurred services because these are the services for which the fewest claims have been paid. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months' incurred services. Revised estimates for prior periods are determined in each quarter based on the most recent updates of paid claims for prior periods. Estimates for service costs incurred but not yet reported are subject to the impact of changes in the regulatory environment, economic conditions, changes in claims trends, and numerous other factors. Given the inherent variability of such estimates, the actual liability could differ significantly from the amounts estimated. |
| Government Contracts | ' |
| Government Contracts |
| 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. The government is reviewing the proposal and if accepted as submitted, the modified T-3 contract would conclude on March 31, 2018. |
| Revenues and expenses associated with the T-3 contract are reported as part of government contracts revenues and government contracts expenses in the consolidated statements of operations and included in the Government Contracts reportable segment. |
| Concentrations of Credit Risk | ' |
| Concentrations of Credit Risk |
| Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investments and premiums receivable. All cash equivalents and investments are managed within established guidelines, which provide us diversity among issuers. Concentrations of credit risk with respect to premiums receivable are limited due to the large number of payers comprising our customer base. The federal government is the primary customer of our Government Contracts reportable segment with fees and premiums associated with this customer accounting for approximately 96% of our Government Contracts revenue. In addition, the federal government is a significant customer of our Western Region Operations reportable segment as a result of our contract with CMS for coverage of Medicare-eligible individuals. Furthermore, our Medicaid revenue is currently derived from our participation in Medi-Cal through our relationship with DHCS, and beginning in the fourth quarter of 2013, in Arizona through our contract with the Arizona Health Care Cost Containment System ("AHCCCS"). The DHCS is a significant customer of our Western Region Operations reportable segment. |
| Comprehensive Income | ' |
| Comprehensive Income |
| Comprehensive income includes all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income (loss), net unrealized appreciation (depreciation) after tax on investments available-for-sale and prior service cost and net loss related to our defined benefit pension plan. |
| Our accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 are as follows: |
| | | | | |
| | | | | | | | | | | | | | | | |
| Unrealized Gains (Losses) on investments available-for-sale | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Income (loss) | | | | | |
| Three Months Ended September 30: | | | (Dollars in millions) | | | | | | | |
| Balance as of July 1, 2013 | $ | (25.4 | ) | | $ | (10.2 | ) | | $ | (35.6 | ) | | | | | |
| Other comprehensive loss before reclassifications | 0.7 | | | — | | | 0.7 | | | | | | |
| | | | |
| Amounts reclassified from accumulated other comprehensive (loss) income | (0.2 | ) | | 0.4 | | | 0.2 | | | | | | |
| | | | |
| Other comprehensive (loss) income for the three months ended September 30, 2013 | 0.5 | | | 0.4 | | | 0.9 | | | | | | |
| | | | |
| Balance as of September 30, 2013 | $ | (24.9 | ) | | $ | (9.8 | ) | | $ | (34.7 | ) | | | | | |
| | | | | | | | | | |
| Balance as of July 1, 2014 | $ | 3.9 | | | $ | (4.4 | ) | | $ | (0.5 | ) | | | | | |
| | | | |
| Other comprehensive income (loss) before reclassifications | 1.3 | | | — | | | 1.3 | | | | | | |
| | | | |
| Amounts reclassified from accumulated other comprehensive (loss) income | (0.2 | ) | | 0.1 | | | (0.1 | ) | | | | | |
| | | | |
| Other comprehensive income for the three months ended September 30, 2014 | 1.1 | | | 0.1 | | | 1.2 | | | | | | |
| | | | |
| Balance as of September 30, 2014 | $ | 5 | | | $ | (4.3 | ) | | $ | 0.7 | | | | | | |
| | | | |
| Nine Months Ended September 30: | | | | | | | | | | |
| Balance as of January 1, 2013 | $ | 38 | | | $ | (11.0 | ) | | $ | 27 | | | | | | |
| | | | |
| Other comprehensive (loss) income before reclassifications | (47.8 | ) | | — | | | (47.8 | ) | | | | | |
| | | | |
| Amounts reclassified from accumulated other comprehensive income | (15.1 | ) | | 1.2 | | | (13.9 | ) | | | | | |
| | | | |
| Other comprehensive (loss) income for the nine months ended September 30, 2013 | (62.9 | ) | | 1.2 | | | (61.7 | ) | | | | | |
| | | | |
| Balance as of September 30, 2013 | $ | (24.9 | ) | | $ | (9.8 | ) | | $ | (34.7 | ) | | | | | |
| | | | | | | | | | |
| Balance as of January 1, 2014 | $ | (28.3 | ) | | $ | (4.6 | ) | | $ | (32.9 | ) | | | | | |
| Other comprehensive income (loss) before reclassifications | 35 | | | — | | | 35 | | | | | | |
| | | | |
| Amounts reclassified from accumulated other comprehensive income | (1.7 | ) | | 0.3 | | | (1.4 | ) | | | | | |
| | | | |
| Other comprehensive income for the nine months ended September 30, 2014 | 33.3 | | | 0.3 | | | 33.6 | | | | | | |
| | | | |
| Balance as of September 30, 2014 | $ | 5 | | | $ | (4.3 | ) | | $ | 0.7 | | | | | | |
| | | | |
|
| The following table shows reclassifications out of accumulated other comprehensive income and the affected line items in the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013: |
|
| | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended | Affected line item in the Consolidated Statements of Operations |
| September 30, |
| 2014 | | 2013 | | 2014 | | 2013 | |
| (Dollars in millions) | |
| Unrealized gains on investments available-for-sale | $ | 0.3 | | | $ | 0.3 | | | $ | 2.6 | | | $ | 23.3 | | Net investment income |
|
| 0.3 | | | 0.3 | | | 2.6 | | | 23.3 | | Total before tax |
|
| 0.1 | | | 0.1 | | | 0.9 | | | 8.2 | | Tax expense |
|
| 0.2 | | | 0.2 | | | 1.7 | | | 15.1 | | Net of tax |
|
| Amortization of defined benefit pension items: | | | | | | | | |
| Prior-service cost | (0.1 | ) | | (0.1 | ) | | (0.3 | ) | | (0.1 | ) | (a) |
| Actuarial gains (losses) | (0.1 | ) | | (0.6 | ) | | (0.2 | ) | | (1.9 | ) | (a) |
| (0.2 | ) | | (0.7 | ) | | (0.5 | ) | | (2.0 | ) | Total before tax |
| (0.1 | ) | | (0.3 | ) | | (0.2 | ) | | (0.8 | ) | Tax benefit |
| (0.1 | ) | | (0.4 | ) | | (0.3 | ) | | (1.2 | ) | Net of tax |
| | | | | | | | |
| Total reclassifications for the period | $ | 0.1 | | | $ | (0.2 | ) | | $ | 1.4 | | | $ | 13.9 | | Net of tax |
|
| _________ |
| | | | | | | | | | | | | | | | |
| (a) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost. | | | | | | | | | | | | | | | |
| Earnings Per Share | ' |
| Earnings Per Share |
| Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted average shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that could occur if stock options were exercised and restricted stock units ("RSUs") and performance share units ("PSUs") were vested) outstanding during the periods presented. |
| The inclusion or exclusion of common stock equivalents arising from stock options, RSUs and PSUs in the computation of diluted earnings per share is determined using the treasury stock method. For the three months ended September 30, 2014, 1,278,000 shares of common stock equivalents were excluded from the computation of loss per share due to their anti-dilutive effect. For the nine months ended September 30, 2014, 1,122,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, 1,009,000 shares and 903,000 shares of dilutive common stock equivalents were outstanding and were included in the computation of diluted earnings per share. |
| For the nine months ended September 30, 2014, an aggregate of 779,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. For the three and nine months ended September 30, 2013, respectively, an aggregate of 812,000 shares and 1,019,000 shares of common stock equivalents were considered anti-dilutive and were not included in the computation of diluted earnings per share. Stock options expire at various times through August 2018. |
| In May 2011, our Board of Directors authorized a stock repurchase program for the repurchase of up to $300 million of our outstanding common stock (our "stock repurchase program"). On March 8, 2012, our Board of Directors approved a $323.7 million increase to our stock repurchase program. As of December 31, 2013 and September 30, 2014, the remaining authorization under our stock repurchase program was $280.0 million and $211.0 million respectively. See Note 6 for more information regarding our stock repurchase program. |
| Goodwill and Other Intangible Assets | ' |
| Goodwill and Other Intangible Assets |
| We performed our annual impairment test on our goodwill and other intangible assets as of June 30, 2014 for our Western Region Operations reporting unit and also re-evaluated the useful lives of our other intangible assets. No goodwill impairment was identified. We also determined that the estimated useful lives of our other intangible assets properly reflected the current estimated useful lives. |
| The carrying amount of goodwill by reporting unit is as follows: |
| | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Western | | Total | | | | | | | | | |
| Region | | | | | | | | | |
| Operations | | | | | | | | | |
| (Dollars in millions) | | | | | | | | | |
| Balance as of December 31, 2013 | $ | 565.9 | | | $ | 565.9 | | | | | | | | | | |
| | | | | | | | |
| Goodwill allocated to sale of business (see Note 3) | (7.0 | ) | | (7.0 | ) | | | | | | | | | |
| Balance as of September 30, 2014 | $ | 558.9 | | | $ | 558.9 | | | | | | | | | | |
| | | | | | | | |
| On November 2, 2014, we signed a definitive master services agreement with Cognizant to provide certain services to us. In connection with this agreement, we have agreed to sell certain software assets and related intellectual property ("software system assets") we own to Cognizant. The transaction, including the related asset sale, is subject to the receipt of required regulatory approvals. See Note 3 for additional information regarding our agreements with Cognizant. Because the sale of these software system assets meets the definition of a sale of a business, as of September 30, 2014, we re-allocated $7 million of goodwill based on fair values of the Western Region Operations reporting unit with and without the impact of the business to be sold. Our measurement of fair values is based on a combination of the discounted total consideration expected to be received in connection with the services and asset sale agreements, income approach based on a discounted cash flow methodology, and replacement cost methodology. After the reallocation of goodwill, we performed a two-step impairment test to determine the existence of any impairment and the amount of the impairment. In the first step, we compared the fair values to the related carrying value and concluded that the carrying value of the business to be sold was impaired; however, we determined that the carrying value of the Western Region Operations reporting unit was not impaired. In the second step, we measured the impairment amount by comparing the implied value of the allocated goodwill to the carrying amount of such goodwill. Based on the results of our Step 2 test, we concluded that the implied value of the goodwill allocated to the business to be sold was zero, which resulted in an impairment charge for the total carrying value of the allocated goodwill of $7 million. See Note 8 for goodwill fair value measurement information. |
| Due to the many variables inherent in the estimation of a business’s fair value and the relative size of recorded goodwill, changes in assumptions may have a material effect on the results of our impairment test. The discounted cash flows and market participant valuations (and the resulting fair value estimates of the Western Region Operations reporting unit) are sensitive to changes in assumptions including, among others, certain valuation and market assumptions, our ability to adequately incorporate into our premium rates the future costs of premium-based assessments imposed by the ACA, and assumptions related to the achievement of certain administrative cost reductions and the profitable implementation of California's Coordinated Care Initiative, which includes the dual eligibles demonstration. Changes to any of these assumptions could cause the fair value of our Western Region Operations reporting unit to be below its carrying value. As of September 30, 2014 and June 30, 2013, the ratio of the fair value of our Western Region Operations reporting unit to its carrying value was approximately 224% and 149%, respectively. |
| The intangible assets that continue to be subject to amortization using the straight-line method over their estimated lives are as follows: |
| | | |
| | | | | | | | | | | | | | | | |
| Gross | | Accumulated | | Net | | Weighted | | | |
| Carrying | Amortization | Balance | Average Life | | | |
| Amount | | | (in years) | | | |
| (Dollars in millions) | | | | | |
| As of September 30, 2014: | | | | | | | | | | |
| Provider networks | $ | 41.5 | | | $ | (36.6 | ) | | $ | 4.9 | | | 18.9 | | | |
| | |
| Customer relationships and other | 29.5 | | | (21.9 | ) | | 7.6 | | | 11.1 | | | |
| | |
| $ | 71 | | | $ | (58.5 | ) | | $ | 12.5 | | | | | | |
| | |
| | | | | | | | | | |
| As of December 31, 2013: | | | | | | | | | | |
| Provider networks | $ | 40.5 | | | $ | (35.7 | ) | | $ | 4.8 | | | 19.4 | | | |
| | |
| Customer relationships and other | 29.5 | | | (20.5 | ) | | 9 | | | 11.1 | | | |
| | |
| $ | 70 | | | $ | (56.2 | ) | | $ | 13.8 | | | | | | |
| | |
|
| Estimated annual pretax amortization expense for other intangible assets for each of the next five years ending December 31 is as follows (dollars in millions): |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Year | Amount | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2014 | $ | 3 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2015 | 2.8 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2016 | 2.2 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2017 | 2.2 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2018 | 2.1 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Restricted Assets | ' |
| Restricted Assets |
| We and our consolidated subsidiaries are required to set aside certain funds that may only be used for certain purposes pursuant to state regulatory requirements. We have discretion as to whether we invest such funds in cash and cash equivalents or other investments. As of September 30, 2014 and December 31, 2013, the restricted cash and cash equivalents balances totaled $0.3 million and $5.3 million, respectively, and are included in other noncurrent assets. Investment securities held by trustees or agencies were $23.7 million and $23.8 million as of September 30, 2014 and December 31, 2013, respectively, and are included in investments available-for-sale. |
| Accounting for Certain Provisions of the ACA | ' |
| Accounting for Certain Provisions of the ACA |
| Premium-based Fee on Health Insurers |
| The ACA mandated significant reforms to various aspects of the U.S. health insurance industry. Among other things, the ACA imposes an annual premium-based fee on health insurers (the "health insurance industry fee") for each calendar year beginning on or after January 1, 2014 which is not deductible for federal income tax purposes and in many state jurisdictions. The healthy insurance industry fee is levied based on a ratio of an insurer's net health insurance premiums written for the previous calendar year compared to the U.S. health insurance industry total. We are required to estimate a liability for our portion of the health insurance industry fee and record it in full once qualifying insurance coverage is provided in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized ratably to expense over the calendar year that it is payable. |
| In September 2014, we paid the federal government $141.4 million for our portion of the health insurance industry fee in accordance with the ACA. We had recorded a liability for this fee in other current liabilities with an offsetting deferred cost in other current assets in our consolidated financial statements. Our general and administrative expense for the three and nine months ended September 30, 2014 includes amortization of the deferred cost of $31.9 million and $106.1 million, respectively. The balance of the remaining deferred cost asset was approximately $35.3 million as of September 30, 2014. |
| Public Health Insurance Exchanges |
| The ACA requires the establishment of state-based, state and federal partnership or federally facilitated health insurance exchanges ("exchanges") where individuals and small groups may purchase health insurance coverage under regulations established by U.S. Department of Health and Human Services ("HHS"). We currently participate in exchanges in Arizona, California and Oregon. Effective January 1, 2014, the ACA includes permanent and temporary premium stabilization provisions for transitional reinsurance, permanent risk adjustment, and temporary risk corridors (collectively referred to as the "3Rs"), which are applicable to those insurers participating inside, and in some cases outside, of the exchanges. |
| Member Related Components |
| Member Premium—We receive a monthly premium from members. The member premium, which is fixed for the entire plan year, is recognized evenly over the contract period and reported as part of health plan services premium revenue. |
| Premium Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of the monthly member premium depending on the member’s income level in relation to the Federal Poverty Level. We recognize the premium subsidy evenly over the contract period and report it as part of health plan services premium revenue. |
| Cost Sharing Subsidy—For qualifying low-income members, HHS will reimburse us, on the member’s behalf, some or all of a member’s cost sharing amounts (e.g., deductible, co-pay/coinsurance). The amount paid for the member by HHS is dependent on the member’s income level in relation to the Federal Poverty Level. We receive prospective payments on a monthly basis, and they represent a cost reimbursement that is finalized and settled after the end of the year. The cost sharing subsidy is accounted for as deposit accounting. |
| 3Rs: Reinsurance, Risk Adjustment and Risk Corridor |
| Our accounting estimates are impacted as a result of the provisions of the ACA, including the 3Rs. The substantial influx of previously uninsured individuals into the new health insurance exchanges under the ACA could make it more difficult for health insurers, including us, to establish pricing accurately, at least during the early years of the exchanges. The 3Rs are intended to mitigate some of the risks around pricing and lack of information surrounding the previously uninsured. We will experience premium adjustments to our health plan services premium revenues and health plan services expenses based on changes to our estimated amounts related to the 3Rs, which may be significant at times. Such estimated amounts may differ materially from actual amounts ultimately received or paid under the provisions, which may have a material impact on our consolidated results of operations and financial condition. |
| Reinsurance—The transitional reinsurance program requires us to make reinsurance contributions for calendar years 2014 through 2016 to a state or HHS established reinsurance entity based on a national contribution rate per covered member as determined by HHS. While all commercial medical plans, including self-funded plans, are required to fund the reinsurance entity, only fully-insured non-grandfathered plans in the individual commercial market will be eligible for recoveries if individual claims exceed a specified threshold. Accordingly, we account for transitional reinsurance contributions associated with all commercial medical health plans other than non-grandfathered individual plans as an assessment in general and administrative expenses in our consolidated statement of income. We account for contributions made by individual commercial plans which are subject to recoveries as contra-health plan services premium revenue, and we account for any recoveries as contra-health plan services expense in our consolidated statements of income with a corresponding current or long-term receivable or payable. We recorded $32.0 million and $142.6 million of reinsurance recovery as contra-health plan services expense for the three and nine months ended September 30, 2014, respectively, and the balance included in other receivables as of September 30, 2014 was $142.6 million. |
| Risk Adjustment—The risk adjustment provision applies to individual and small group business both within and outside the exchange and requires measurement of the relative health status risk of each insurer’s pool of insured enrollees in a given market. The risk adjustment provision then operates to transfer funds from insurers whose pools of insured enrollees have a lower-than-average risk scores to those insurers whose pools have greater-than-average risk scores. Our estimate for the risk adjustment incorporates our pricing and demographic assumptions, the distribution of our newly enrolled membership in terms of geography, metal tiers, and age bands, and what we believe are the market averages in terms of premium and risk scores. As part of our ongoing estimation process, we consider information as it becomes available at interim dates along with our actuarially determined expectations, and we update our estimates incorporating such information as appropriate. |
| We estimate and recognize adjustments to our health plan services premium revenue for the risk adjustment provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience. We record receivables and/or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. Our risk adjustment estimate was $17.6 million and $47.7 million for the three and nine months ended September 30, 2014, respectively, and was recorded as a reduction to health plan services premiums. The risk adjustment receivable balance included in other receivables as of September 30, 2014 was $69.9 million and the risk adjustment payable balance included in accounts payable and other liabilities as of September 30, 2014 was $117.6 million. |
| Risk Corridor—The temporary risk corridor program will be in place for three years and applies to individual and small group business operating both inside and outside of the exchanges. The risk corridor provisions limit health insurers' gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS, and sharing the risk for allowable costs with the federal government. Variances from the target exceeding certain thresholds may result in HHS making additional payments to us or require us to make payments to HHS. |
| We estimate and recognize adjustments to our health plan services premium revenue for the risk corridor provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are recognized ratably during the year and are revised each period to reflect current experience, including changes in risk adjustment and reinsurance recoverables. We record receivables or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of expected settlement. For the three and nine months ended September 30, 2014,we recorded $44.7 million and $72.0 million, respectively, of increases to risk corridor receivable as health plan services premium revenue, and the balance in other noncurrent assets as of September 30, 2014 was $72.0 million. |
| The final reconciliation and settlement with HHS of the premium and cost sharing subsidies and the amounts related to the 3Rs for the current year will be completed in the following year with HHS. |
| Section 1202 of ACA |
| Section 1202 of the ACA mandates increases in Medicaid payment rates for primary care in calendar years 2013 and 2014. The final rule has been in effect since January 1, 2013. The provisions of section 1202 impact our 1.5 million Medi-Cal members in California and 80,000 Medicaid members in Arizona. DHCS, the agency that regulates the Medi-Cal program, initially implemented a reimbursement methodology with no underwriting risk to the managed care plans ("MCPs") in 2013. Subsequently, DHCS changed the reimbursement methodology during the second quarter of 2014, and this change transferred full underwriting risk to the MCPs. |
| For the periods prior to this reimbursement methodology change, i.e., the year ended December 31, 2013 and the three months ended March 31, 2014, we accounted for the provisions of section 1202 on an administrative services only basis since it transferred no underwriting risk to the MCPs, and recorded the receipts and payments on a net basis. |
| Following the change in reimbursement methodology, we have full underwriting risk for 2013, including both utilization and unit cost risk. Accordingly, for the second quarter of 2014, with respect to our Medi-Cal business, we had: |
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| • | Reversed $7.9 million previously recorded as administrative services fees and other income in 2013 and for the three months ended March 31, 2014. | | | | | | | | | | | | | | | |
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| • | Recorded payments on a grossed-up basis by recording Medi-Cal payments received as premium revenue and estimated Medi-Cal claim payments as health care costs (incurred claims), each via retroactive adjustments to premium revenues and health care costs. See the "Three Months Ended June 30, 2014 - Full Risk" column in the table below. | | | | | | | | | | | | | | | |
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| • | Recorded retrospective premium revenue adjustments based upon the state settlement agreement (see Note 2 - "Health Plan Services Revenue Recognition" above). | | | | | | | | | | | | | | | |
| The financial statement impact of the section 1202 reimbursement methodology change is summarized in the table below. |
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| Recorded In | | | | | |
| Year Ended December 31, 2013 | | Three Months Ended March 31, 2014 | | Three Months Ended June 30, 2014 | | | | | |
| | | | | | | | | | |
| (Dollars in millions) | No Risk | | No Risk | | Full Risk | | | | | |
| Health plan services premiums | $ | 4.4 | | | $ | — | | | $ | 154.7 | | | | | | |
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| Health plan services expenses | — | | | — | | | 144 | | | | | | |
| | | | |
| General and administrative expenses | 4.4 | | | — | | | — | | | | | | |
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| Administrative services fees and other income | 6.5 | | | 1.4 | | | (7.9 | ) | | | | | |
| | | | |
| Pretax income | $ | 6.5 | | | $ | 1.4 | | | $ | 2.8 | | | | | | |
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