In late 2007, we expanded into the Medicare market by offering a new portfolio of Medicare Advantage PFFS - called HMCA Plans - in selected markets in 29 states with calendar year coverage effective for January 1, 2008. On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 (HR. 6331) was enacted, resulting in significant changes to the Medicare program. These changes include, among other things, the phased elimination of Medicare Advantage PFFS “deeming” arrangements with providers beginning in 2011. Based on our determination that this new law would make it difficult for the Company to operate effectively in the Medicare market, in July 2008, we decided that the Company would not participate in the Medicare Advantage marketplace beyond the current year. We will continue to fulfill our remaining obligations under the 2008 calendar year Medicare contract with CMS.
Our revenues consist primarily of premiums derived from sales of our indemnity, PPO and life insurance policies. Premiums on health insurance contracts are recognized as earned over the period of coverage on a pro rata basis. Premiums on traditional life insurance are recognized as revenue when due. Revenues also include investment income derived from our investment portfolio and other income, which consists primarily of income derived by the SEA Division from ancillary services and membership marketing and administrative services provided to the membership associations that make available to their members the Company’s health insurance products.
Additionally, the underwriting, acquisition and insurance expenses in 2008 include a minimum volume guarantee fee and contract termination cost of $4.9 million payable to the Company’s third-party administrator in connection with the decision to exit the Medicare Advantage PFFS market.
Historically, the Company’s primary sources of cash on a consolidated basis have been premium revenue from policies issued, investment income, and fees and other income. The primary uses of cash have been payments for benefits, claims and commissions under those policies, servicing of the Company’s debt obligations and operating expenses.
The Company has entered into several financing agreements designed to strengthen both its capital base and liquidity, the most significant of which are described below. Each of these agreements is discussed in more detail in our consolidated financial statements and related notes included elsewhere in the Form 10-K.
At December 31, 2006, the Company changed its accounting policy, effective January 1, 2006, with respect to the amortization of a portion of DAC associated with commissions paid to agents.
Investments are selected based upon the parameters established in the Company’s investment policies. Emphasis is given to the selection of high quality, liquid securities that provide current investment returns. Maturities or liquidity characteristics of the securities are managed by continually structuring the duration of the investment portfolio to be consistent with the duration of the policy liabilities. Consistent with regulatory requirements and internal guidelines, the Company invests in a range of assets, but limits its investments in certain classes of assets, and limits its exposure to certain industries and to single issuers.
The Company regularly monitors its investment portfolio to attempt to minimize its concentration of credit risk in any single issuer. Set forth in the table below is a schedule of all investments representing greater than 1% of the Company’s aggregate investment portfolio at December 31, 2008 and 2007, excluding investments in U.S. Government securities: