While we believe we have made reasonable estimates and assumptions to calculate the fair values of the reporting units and other intangible assets, it is possible a material change could occur. Under the income approach, we assumed certain growth rates, capital expenditures, discount rates and terminal growth rates in our calculations. We also assume a control premium that is reasonable based on our assessment of control premiums of entities of a similar size and/or in a similar industry. If the assumptions used in our fair-value-based tests differ from actual results, the estimates underlying our goodwill impairment tests could be adversely affected.
Total Health Plan membership decreased 107,000 primarily due to membership losses in Commercial Risk. During 2009, the growth in national unemployment resulted in an acceleration of “in group” Health Plan Commercial Risk membership attrition compared to 2008. Additionally, the Commercial membership declined as a result of premium pricing increases related to the higher medical cost experienced in 2008. The increase in Medicare Advantage CCP membership is primarily due to the result of our successful annual election period and open enrollment period for 2009 and also due to age-ins. Other National ASO membership decreased by 68,000 primarily due to the attrition of membership associated with our loss of National Accounts business compared to 2008.
Our investment guidelines require our fixed income securities to be investment grade in order to provide liquidity to meet future payment obligations and minimize the risk to the principal. Our fixed income portfolio has an average quality rating of “AA+” and a modified duration of 2.8 years as of December 31, 2009. Typically, the amount and duration of our short-term assets are more than sufficient to pay for our short-term liabilities and we do not anticipate that sales of our long-term investment portfolio will be necessary to fund our claims liabilities.
During the prior year ended December 31, 2008, we made acquisitions using cash of approximately $137.4 million, net of cash acquired.
As of December 31, 2009, we were contractually obligated to make the following payments during the next five years and thereafter (in thousands):
For our Health Plan based Medicare Advantage product, we currently are forecasting membership to remain approximately flat for 2010 against 2009 results. We expect the 2010 Medicare Advantage MLR to be in the mid 80%s.
The negative medical cost amounts noted as “prior year development” are favorable adjustments for claim estimates being settled for amounts less than originally anticipated. As noted above, these favorable developments from original estimates occur due to changes in medical utilization, mix of provider rates and other components of medical cost trends. Medical claim liabilities are generally paid within several months of the member receiving service from the provider. Accordingly, the 2009 prior year development relates almost entirely to claims incurred in calendar year 2008.
In April 2009, the FASB issued ASC 825-10-65-1, “Transition Related to FASB Staff Position FAS 107-1 and APB 128-1, Interim Disclosures about Fair Value of Financial Instruments.” This guidance requires disclosing qualitative and quantitative information about the fair value of all financial instruments on a quarterly basis, including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The disclosures required by this update were effective for the quarter ended June 30, 2009 and are included in Note G, Investments, to the consolidated financial statements.
The table below shows the carrying amounts of the major classes of assets and liabilities of FHSC as of December 31, 2008, that were included as part of the disposal group on the July 31, 2009 sale to Magellan (in thousands):
The changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008 were as follows (in thousands):
In order to determine the fair value of its reporting units, the Company weighted the income approach and the market approach. Under the income approach, the Company assumed certain growth rates, capital expenditures, discount rates and terminal growth rates in its calculations. The key assumptions used to determine the fair value of the Company’s reporting units included terminal values based upon long term growth rates and a discount rate based on the Company’s weighted average cost of capital adjusted for the risks associated with the operations. The market approach estimates a business’s fair value by utilizing market multiples.
The following table summarizes PSU activity for the twelve months ended December 31, 2009 (in thousands):
(1) Includes $207.1 million and $94.0 million classified as current assets at December 31, 2009 and 2008, respectively, and $(198.0) million and $(217.7) million classified as noncurrent assets (liabilities) at December 31, 2009 and 2008, respectively.