Began serving individuals in New Mexico’s CoLTS program in August 2008;
In all of the states in which we operate, except New Mexico, Tennessee and Virginia, we are eligible to receive supplemental payments to offset the health benefits expenses associated with the birth of a baby. Each state contract is specific as to what is required before payments are collectible. Upon delivery of a baby, each state is notified according to our contract. Revenue is recognized in the period that the delivery occurs and the related services are provided to our member based on our authorization system for these services. Changes in authorization and claims data used to estimate supplemental revenues can occur as a result of changes in eligibility noted above or corrections of errors in the underlying data. Adjustments to revenue for corrections to authorization and claims data are recorded in the period in which the corrections become known. Historically, the impact of these adjustments has represented less than 1% of annual revenue, which results in a negligible impact on annual earnings as changes in revenue are typically accompanied by corresponding changes in the related health benefits expense. We believe this historical experience represents what is reasonably likely to occur in future periods.
As of December 31, 2008, our total membership decreased by 132,000 members, or 7.7%, to 1,579,000 members. This decrease resulted primarily from our conclusion of the ASO contract in West Tennessee effective October 31, 2008, under which we provided ASO services to approximately 170,000 members as of December 31, 2007. Our risk membership increased to 1,579,000 as of December 31, 2008 compared to 1,528,000 as of December 31, 2007, or 3.3%. This increase is primarily a result of growth in our Florida, Maryland and South Carolina markets all of which benefited from growth in the eligible populations through program expansion in each state. Additionally, our entry into the New Mexico market through the Medicare Advantage plan in January 2008 and the CoLTS program in August 2008 contributed to our increase in risk membership.
Also concurrent with the issuance of the Notes, we sold warrants to acquire, subject to customary anti-dilution adjustments, 6,112,964 shares of our common stock at an exercise price of $53.77 per share. If the average price of our common stock during a defined period ending on or about the settlement date exceeds the exercise price of the warrants, the warrants will be settled, at our option, in cash or shares of our common stock.
Health benefits expenses incurred during the year, related to prior years, for the year ended December 31, 2006 was approximately $62,800 which includes approximately $25,900 that was included in the medical claims payable as of January 1, 2006 in order to establish the liability at a level adequate for moderately adverse conditions. We did not experience moderately adverse conditions. The remaining reduction in health benefits expenses incurred during the year, related to prior years, of approximately $36,900 was due to cost trends not remaining at elevated levels as previously anticipated.
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale and held-to-maturity short-term investments are as follows at December 31, 2008 and 2007:
During the fourth quarter of 2008, we were notified by several of our brokers from whom we purchased auction rate securities that they would be repurchasing those securities over the course of 2009 and 2010. We entered into a forward contract with one of these brokers for auction rate securities totaling $15,612 as of December 31, 2008, at no cost to the Company. This forward contract provides the Company with the ability to sell these auction rate securities to the broker at par within a defined timeframe. As a result of this transaction, these securities have been reclassified to trading because the Company no longer intends to hold these securities until final maturity. Trading securities are carried at fair value. Changes in fair value are recorded in earnings. As of December 31, 2008, a realized loss of $2,238 was recorded related to these trading securities. Additionally, the value of the forward contract of $2,014 was estimated using a discounted cash flow analysis taking into consideration the
We incurred offering expenses totaling approximately $4,800 in connection with the Credit Agreement which are included in other long-term assets in the Consolidated Financial Statements and are being amortized using the effective interest method.
Concurrent with the issuance of the 2.0% Convertible Senior Notes, we purchased convertible note hedges covering, subject to customary anti-dilution adjustments, 6,112,964 shares of our common stock. The convertible note hedges allow us to receive shares of our common stock and/or cash equal to the amounts of common stock and/or cash related to the excess conversion value that we would pay to the holders of the 2.0% Convertible Senior Notes upon conversion. These convertible note hedges will terminate at the earlier of the maturity date of the 2.0% Convertible Senior Notes or the first day on which none of the 2.0% Convertible Senior Notes remain outstanding due to conversion or otherwise.
On February 15, 2001, the Board of Directors approved and we adopted an Employee Stock Purchase Plan. All employees are eligible to participate except those employees who have been employed by us less than 90 days, whose customary employment is less than 20 hours per week or any employee who owns five percent or more of our common stock. Eligible employees may join the plan every six months. Purchases of common stock are priced at the lower of the stock price less 15% on the first day or the last day of the six-month period. We have reserved for issuance 1,200,000 shares of common stock. We issued 104,238, 88,277, and 81,152 shares under the Employee Stock Purchase Plan in 2008, 2007, and 2006, respectively. As of December 31, 2008 we had a total of 609,303 shares available for issuance under the Employee Stock Purchase Plan.