Our Specialty segment is comprised of businesses providing pharmacy benefit management, group life and disability insurance benefits, behavioral health benefits, dental, vision, workers’ compensation and long-term care insurance.
Large Group consists of those employer customers with 51 to 4,999 employees eligible to participate as a member in one of our health plans. In addition, Large Group includes customers with 5,000 or more eligible employees with less than 5% of eligible employees located outside the headquarter’s state. Large Group also includes members in the FEP, which provides health insurance coverage to United States government employees and their dependents within our geographic markets through our participation in the national contract between the BCBSA and the U.S. Office of Personnel Management.
In response to cost trends, we continue to pursue contracting and plan design changes, promote and implement performance-based contracts that reward clinical outcomes and quality, and expand our radiology management, disease management and advanced care management programs. In addition, we are expanding our specialty pharmacy programs and continuously evaluate our drug formulary to ensure the most effective pharmaceutical therapies are available for our members.
first quarter of 2003. Also included in 2003 were premium refunds of $40.4 million issued to policyholders as claims costs in certain lines of business were much lower than expected. Additionally, our Health Care segment made contributions of $20.0 million to our charitable foundation in 2003 that did not occur in 2004.
The Company’s use of derivatives is limited by statutes and regulations promulgated by the various regulatory bodies to which it is subject, and by its own derivative policy.
In accordance with FAS 141, the purchase price was allocated to the fair value of WHN assets acquired and liabilities assumed, including identifiable intangible assets. The excess of purchase price over the fair value of net assets acquired resulted in $7,626.4 of non-tax deductible goodwill, of which $7,397.6 was allocated to the Health Care segment and $228.8 to the Specialty segment.
During 2005 and 2004, the Company entered into securities lending programs. Securities on loan under the Company’s securities lending programs are included in the investment captions shown on the accompanying consolidated balance sheets. Under these programs, brokers and dealers who borrow securities are required to deliver substantially the same security to the Company upon completion of the transaction. The fair value of securities on loan as of December 31, 2005 and 2004 was $1,360.1 and $643.8, respectively. Income earned on security lending transactions for the year ended December 31, 2005, 2004 and 2003 was $1.6, $0.1 and $0.0, respectively.
For the year ended December 31, 2005 and 2004, the Company recognized $0.5 and $0.1 from these swap agreements, which were recorded as a reduction of interest expense.
The Company’s 2001 Stock Incentive Plan (“Stock Plan”) provides for the granting of stock options, restricted stock awards, performance stock awards, performance awards and stock appreciation rights to eligible employees and non-employee directors. The Stock Plan permits the Compensation Committee of the Board of Directors to make grants in such amounts and at such times as it may determine, including grants of shares of restricted and unrestricted common stock in lieu of the Company’s obligations to pay cash under other plans and compensatory arrangements, including the Company’s Annual Incentive Plan and Long Term Incentive Plan.
The Company leases office space and certain computer and related equipment using noncancelable operating leases. At December 31, 2005, future lease payments for operating leases with initial or remaining noncancelable terms of one year or more consisted of the following:
The Company’s estimated future payments for pension benefits and postretirement benefits, including the estimated impact of the “Medicare Prescription Drug, Improvement and Modernization Act of 2003”, which reflect expected future service, as appropriate, are as follows:
In connection with an investment in July 2004 in a joint venture to develop and operate a well-being center in California, the Company may be required to make an additional capital contribution of up to $18.0 during the first three years that the well-being center is in operation if cash flows and room nights generated by the Company do not exceed specified targets. It is currently anticipated that construction of the well-being center will be completed during 2006.
The Company’s focus on regional concentration allows management to understand and meet customer needs while effectively managing the cost structure. The Company’s chief operating decision maker (the Chief Executive Officer) reviews the results of operations on a regular basis and holds each division president accountable for his or her segment’s operating results. Operating segments comprising the Health Care segment provide a broad spectrum of network-based health plans and other health care-related products to large and small employers and individuals. The Specialty segment is maintained as a separate segment providing various products, including pharmacy benefits management, dental, life insurance, disability insurance, behavioral health, and workers’ compensation products and services. In addition to intersegment sales and expense eliminations and corporate expenses not allocated to reportable segments, the Other segment includes results from the Company’s government health services and other businesses that do not meet the quantitative thresholds for an operating segment defined under FAS 131.