Membership at the Texas health plan nearly doubled year over year, while also growing significantly in Ohio and Washington. Growth in the Company’s aged, blind or disabled, or ABD, membership led to higher premium revenue PMPM in 2012. ABD membership, as a percent of total membership, has increased approximately 37% year over year. Premium revenue PMPM also increased in the third quarter of 2012 as a result of the inclusion of revenue from the pharmacy benefit for the Ohio health plan effective October 1, 2011, and as a result of the inclusion of revenue from the inpatient facility and pharmacy benefits across all of the Texas health plan’s membership effective March 1, 2012.
Medical Care Costs
Medical care costs increased in the third quarter of 2012 primarily due to the same shifts in member mix and the benefit expansions that led to increased premium revenue. Medical care costs as a percentage of premium revenue (the medical care ratio) also increased in the third quarter of 2012 when compared with the third quarter of 2011 because increases in premium rates have not kept pace with increases in medical costs.
Individual Health Plan AnalysisThe Texas health plan’s financial performance improved dramatically in the third quarter from the second quarter of 2012. The medical care ratio of the Texas health plan was 90% in the third quarter of 2012 compared with 109% in the second quarter of 2012 and 94% in the third quarter of 2011. The medical care ratio for the Texas health plan’s ABD membership declined to 94% in the third quarter of 2012 from 119% in the second quarter. The Company received a blended rate increase in Texas of approximately 4%, or $4.5 million per month, effective September 1, 2012. The loss before taxes at the Texas health plan was approximately $5 million for the third quarter of 2012, compared with approximately $68 million for the second quarter of 2012 (which included a premium deficiency reserve charge of $10 million). The Company has previously discussed at length the steps it is taking to bring the Texas health plan to profitability. The Company confirms its previously disclosed expectation that the Texas health plan will be operating at financial break even on a go forward basis by December of 2012.
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