The medical care ratio at the California health plan increased to 96% in the third quarter of 2012 from 89% in the third quarter of 2011. The higher medical care ratio was primarily the result of a shift in member mix to include more ABD members. The medical care ratio for the California health plan’s ABD membership was 110% in the third quarter of 2012, 100% for the nine months ended September 30, 2012, and 84% for the third quarter of 2011. The California Department of Health Care Services has recently solicited health plan input as to whether to conduct a review of the adequacy of ABD premium rates in California. The Company’s California health plan, which believes the ABD premium rates to be inadequate, has provided input supporting such a review. During the fourth quarter of 2012, the Company intends to exit an unprofitable service area in California, reducing enrollment by approximately 6,000 members.The addition of ABD members to the Washington health plan effective July 1, 2012, increased its medical care ratio to 86% in the third quarter of 2012 compared with 83% in the third quarter of 2011. The higher premium revenue PMPM associated with the ABD membership, however, offset the increased medical care ratio, so that income from operations was consistent between the third quarters of 2012 and 2011. The medical care ratio for the Washington health plan’s new ABD membership was 93% in the third quarter of 2012.
|Three Months Ended September 30,||Nine Months Ended September 30,|
|Service revenue before amortization||$||48,958||$||39,273||$||133,193||$||116,567|
|Amortization recorded as reduction of service revenue||(536||)||(1,545||)||(842||)||(5,277||)|
|Cost of service revenue||37,004||34,584||98,111||105,020|
|General and administrative costs||1,980||2,069||7,187||6,421|
|Amortization of customer relationship intangibles recorded as amortization||1,282||1,282||3,846||3,846|
|Operating income (loss)||$||8,156||$||(207||)||$||23,207||$||(3,997||)|