Headquartered in Cincinnati, Ohio, Dental Care Plus Group offers to employer groups of all sizes dental HMO, dental PPO, dental indemnity and vision PPO benefit plans and related services. In 2014, the Company began offering low cost dental PPO plans to individuals and small groups on the Ohio exchange and individual dental HMO plans in southwest Ohio. As of December 31, 2014, we had approximately 335,900 members in our dental and vision benefit programs with approximately 2,808 dentists participating in our dental HMO provider network and approximately 3,047 dentists participating in our dental PPO provider network. The Company has a network leasing agreement with a national dental network management company that has one of the largest networks of dentists under contract in the United States. With this network leasing agreement, our dental PPO members have access to approximately 2,500 additional dentists in our operating territories and approximately 42,700 additional dentists throughout the United States. The Company also has a network leasing arrangement with a national dental administration company for the dental PPO plans that it offered on the Ohio exchange in 2014. With this network leasing arrangement, Dental Care Plus Ohio exchange members have access to approximately 1,600 dentists in Ohio.
We manage our business with four reportable segments: fully-insured dental HMO/IND, fully-insured dental PPO, self-insured dental, and corporate, all other. Corporate, all other consists of revenue associated with our dental PPO and vision products underwritten by third-party insurance carriers and certain corporate activities. Our dental HMO, PPO and indemnity products and our vision product line are marketed to employer groups. Our dental HMO and PPO products are also marketed to individual subscribers.
Many factors have an effect on our results, but most notably our results are influenced by our ability to establish and maintain a competitive and efficient cost structure, and to accurately and consistently establish competitive premiums, ASO fees, and plan benefit levels that are commensurate with our dental and administrative costs. Dental costs are subject to a high rate of inflation due to many forces, including new higher priced technologies and dental procedures, new dental service techniques and therapies, an aging population, the tort liability system, and government regulations.
Prior to the advent of the ACA, there was limited growth in the number of individuals enrolled in dental benefit plans. In our markets, there has been limited growth in recent years in the number of individuals enrolled in dental benefit plans. However, there has been a shift of membership out of the more expensive dental indemnity products into the dental PPO products that offer both less expensive in-network benefits and out-of-network benefits. At the same time, members have migrated away from dental HMO products with very limited provider networks. While these dental HMO products are the least expensive, employers and members have focused their attention on the dental PPO products that offer broad provider access with the cost control associated within a contracted provider network for the in-network portion of the dental services rendered. Beginning in 2014, there has been a significant increase in publicly funded dental membership that was the result of the expansion of Medicaid in certain states and the dental membership associated with state-based insurance exchanges across the country.
In our original eight county service area, our non-exclusive dental HMO provider network includes approximately 95% of the dental providers in the market. In that market our dental HMO provides the broad provider access of a dental PPO along with effective utilization and cost control features. Because of the broad provider network and our professional support services to employers, our fully-insured dental HMO is priced higher than other dental HMOs and has premium rates more equivalent to competitor dental PPOs.
Historically, healthcare services expense has generally increased for both the fully-insured dental segment and the self-insured dental segment. We continue to review and adjust our provider fee schedules where appropriate. In 2014, insurance expenses increased by approximately 9.1% compared to 2013. In 2013, insurance expenses increased by approximately 14.9% compared to 2012. Other important factors that have an impact on our profitability are both the competitive pricing environment and market conditions. With respect to pricing, there is a tradeoff between sustaining or increasing underwriting margins versus increasing enrollment. With respect to market conditions, economies of scale have an impact on our administrative overhead. As a result of a decline in preference for more closely managed dental HMO products, dental costs have become increasingly comparable among our larger competitors. Product design and consumer involvement have become more important drivers of dental services consumption, and administrative expense efficiency is becoming a more significant driver of margin sustainability. Consequently, we continually evaluate our administrative expense structure and attempt to realize administrative expense savings principally through technology improvements.
Our ratio of healthcare services expense to premium revenue (“loss ratio”) decreased by 0.5%, to 78.0% in 2014 from 78.5% in 2013. This loss ratio decrease is primarily due to an increase in fully-insured premium rates in 2014 compared to 2013 and improved underwriting practices. The fully-insured dental HMO/IND and fully-insured dental PPO segments together represent approximately 70.1% of our total dental business.
Our fully-insured dental PPO membership increased by approximately 9,500 members in 2014. This membership increase is due to new sales in the Dayton and Central Ohio markets and the Southern Kentucky market of approximately 12,100 members during 2014, offset by the loss of approximately 6,600 members with employer groups that did not renew with the Company or reduced employee counts of retained employer groups in these markets. The remaining increase of approximately 4,000 members is due to the new sales on the Ohio exchange in 2014.
Self-Insured ASO Fees - Self-insured ASO fees increased approximately $73,000, or 5.7%. Approximately $44,000 of this increase is attributable to self-insured product sales and approximately $29,000 is due to an increase in average self-insured ASO fee rates for 2014 compared to 2013.
Fully-insured dental HMO/IND healthcare services expense increased by $971,000, or 2.8%, to $35,995,000 in 2014 from $35,024,000 in 2013. This increase is attributable to an increase in fully-insured dental HMO/IND healthcare services expense on a per member per month basis of approximately $600,000, or 1.7%, in 2014 for both existing and new fully-insured dental HMO/IND membership. Fully-insured dental HMO/IND healthcare services expense increased by approximately $531,000 due to the 1.5% fee schedule increase effective January 1, 2014. This increase was also the result of an increase in fully-insured dental HMO/IND claims of $69,000 due to an increase in dental service utilization level by our fully-insured dental HMO/IND members in 2014 compared to 2013. This increase in fully-insured dental HMO/IND healthcare services expense is also the result of an increase of approximately $371,000 due to an increase in fully-insured dental HMO/IND member months of 1.1% in 2014 compared to 2013.
Consolidated insurance expenses increased approximately $1,536,000 in 2014. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 19.9% for 2014, increasing 0.5% from the 2013 ratio of 19.4%. Salaries and wages increased by approximately $403,000 as a result of salary and wage increases in 2014, the addition of some incremental full-time positions and increased management bonuses in 2014 due to our profitability. Commissions expense increased approximately $470,000, or 12.7%, due to the increase in total premium revenue in 2014 compared to 2013. Third party administrative services expense increased by approximately $320,000, or 237.2%, as a result of the third party administration services provided to the Company for the new on exchange dental PPO plans. In addition, federal premium tax expense increased by approximately $333,000 as a result of the advent of the federal premium tax assessment applicable to Dental Care Plus in 2014 in accordance with the Affordable Care Act.
Our self-insured dental membership increased by approximately 4,000 members in 2013. This increase is partially due to the addition of new self-insured dental HMO and dental PPO employer groups in the Southwest Ohio and Northern Kentucky markets, and primarily due to an increase in membership of existing employer groups in the last twelve months.
Fully-insured dental PPO premium increased approximately $2,065,000 in 2013 compared to 2012. Fully-insured dental PPO premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $470,000 in fully-insured dental PPO premium revenue. An increase in fully-insured dental PPO membership in 2013 resulted in an increase in fully-insured dental PPO premiums of approximately $1,595,000. The fully-insured dental PPO segment represented approximately 15.6% of our total dental business in 2013.
Total self-insured revenue increased approximately $1,261,000 in 2013 compared to 2012. Self-insured dental revenue increased by approximately $1,163,000 due to new self-insured sales. In addition, self-insured revenue increased by approximately $98,000 due to an increase in the self-insured claims revenue on a per member per month basis as a result of slightly higher dental service utilization, offset by a slight decrease in self-insured administrative fee rates on a per member per month basis. The self-insured dental segment represented approximately 29.7% of our total dental business in 2013. The self-insured segment revenue has two components:
Self-Insured Claim Revenue - Self-insured claim revenue increased approximately $1,227,000, or 5.3%, to $24,358,000 in 2013 from $23,131,000 in 2012. Self-insured claim revenue increased by approximately $1,103,000 due to new self-insured sales. Also, self-insured claim revenue increased by approximately $124,000 primarily due to an increase in the self-insured claim revenue on a per member per month basis as a result of slightly higher dental service utilization.
Self-Insured ASO Fees - Self-insured ASO fees increased approximately $34,000, or 2.7%, to $1,283,000 in 2013 from $1,249,000 in 2012. Approximately $60,000 of this increase is attributable to the self-insured product sales. This increase was offset by a decrease of $26,000 due to a small decrease in average self-insured ASO fee rates.
Corporate, all other premium revenue is primarily derived from the non-DCP dental indemnity product, dental PPO product and vision product underwritten by third party insurance carriers. In aggregate, corporate, all other premium revenue increased by approximately $72,000, or 14.4%, to $572,000 in 2013 from $500,000 in 2012.
Investment income increased approximately $36,000, or 28.1%, to $164,000 in 2013 from $128,000 in 2012. This increase is the result of the increased amount of funds that were invested in both medium duration investment and non-investment grade corporate bonds and short duration investment grade corporate bonds with higher yields during 2013.
Consolidated insurance expenses increased approximately $2,180,000 in 2013. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 19.4% for 2013, increasing 1.2% from the 2012 ratio of 18.2%. Salaries and wages increased by approximately $1,010,000 as a result of salary and wage increases in 2013, the addition of some incremental full-time positions and increased management bonuses in 2013 due to our profitability. Commissions expense increased approximately $301,000, or 8.8%, due to the increase in total premium revenue in 2013 compared to 2012. Legal services expense in 2013 increased by approximately $149,000, or 86.3%, as a result of the legal fees incurred related to the amendments to our Articles of Incorporation and Code of Regulations. Professional consulting expense increased by approximately $675,000, or 158.9%, as a result of special projects related to business cycle process automation and the planning and design work associated with our new individual dental products. In addition, miscellaneous expenses increased by approximately $134,000 due to the one-time costs incurred relative to the recruitment of new management staff.
Our primary sources of cash are premiums, ASO fees, investment and other income, as well as the proceeds from the maturity or sale of our investment securities, from the sale of redeemable common and preferred shares, and from borrowings. Our primary uses of cash include disbursements for claims payments, insurance expense, interest expense, taxes, purchases of investment securities, capital expenditures, redeemable common shares redemptions, dividends, and payments on borrowings. Because premiums are collected in advance of claims payments, our business should normally produce positive operating cash flows during a period of increasing enrollment. Conversely, cash flows would be negatively impacted during a period of shrinking enrollment.
In 2014, we generated approximately $2,556,000 of cash from operating activities. This level of cash flow from operating activities is $139,000 lower than the cash flow generated from operating activities in 2013. We had net income of approximately $1,341,000 in 2014 compared to net income of $1,282,000 in 2013. During 2014, we paid approximately $1,270,000 in federal tax payments. As a result, our federal income tax payable decreased by approximately $216,000 in 2014. In addition to our 2014 net income, we had non-cash depreciation and amortization expense of approximately $335,000 and an increase in deferred compensation liabilities of $959,000. The increase in deferred compensation liabilities is primarily due to the 12.4% increase in the book value of the common shares during 2014. In 2014, our claims payable liability increased by approximately $778,000 due to an increase in membership and an increase in utilization. A decrease in accounts receivable of approximately $1,954,000 was offset by a decrease in unearned premium revenue of $2,759,000, resulting in a net cash decrease of $805,000. This cash decrease is attributable to an increase in premium receivable of $302,000 and a decrease in unearned premium revenue received in advance of $502,000. Accounts receivable and unearned premium revenue are recorded primarily as the result of non-cancelable short-term insurance contracts. Most of our contracts are one year in duration; however, we occasionally enter into multi-year contracts that tend to be for larger groups. As a result, depending on the timing of large group renewals, the accounts receivable and unearned premium revenue can experience large fluctuations from period to period.
In 2013, we generated approximately $2,696,000 of cash from operating activities. This level of cash flow from operating activities is significantly higher than the cash flow generated from operating activities in 2012. We had net income of approximately $1,282,000 in 2013 compared to net income of $1,318,000 in 2012. During 2013, we paid approximately $540,000 in federal tax payments as compared to $1,110,000 in 2012. As a result, our federal income tax payable increased by approximately $271,000 in 2013. In addition to our 2013 net income, we had non-cash depreciation and amortization expense of approximately $358,000 and an increase in deferred compensation liabilities of $675,000. The increase in deferred compensation liabilities is primarily due to the 9.7% increase in the book value of the common shares during 2013. An increase in accounts receivable of approximately $15,449,000 was offset by an increase in unearned premium revenue of $15,603,000, resulting in a net cash increase of $154,000. This cash increase is attributable to an increase in unearned premium revenue received in advance and uncollected premiums.
In 2013, we invested approximately $601,000 in building improvements, office equipment and computer equipment and software. In 2013, approximately $1.1 million of our investments in FDIC insured certificates of deposit, investment grade corporate bonds and money market funds either matured or were liquidated. We also invested approximately $4.2 million in additional FDIC insured certificates of deposit, investment grade corporate bonds and money market funds. In addition, in December of 2013, we also sold certain office equipment and computer equipment with a value of approximately $312,000 to a leasing company and entered into an agreement to lease back these same assets over a three year period. We also invested an additional $5,000 in a dental and vision discount product. Collectively, these investments and transactions resulted in a decrease in cash from investment activities of approximately $3.4 million.
Deferred Compensation - We expect to pay our deferred compensation liability of approximately $2,766,000 to the Company directors and employees as they retire or otherwise terminate their association with the Company in future years. As of December 31, 2014, we do not expect to pay any of our deferred compensation liability to any directors or key employees in 2015.
This increase in cash and short term investments from December 31, 2013 to December 31, 2014 is primarily due to the net cash provided by operating activities of approximately $2,556,000, offset by cash used in investing activities of approximately $845,000 and cash used in financing activities of approximately $627,000. In addition, there was a shift of approximately $443,000 from long term investments to short term investments during this period.
In July 2014, we renewed an annually renewable agreement with a commercial bank for a $500,000 working capital line of credit. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense for the line of credit in 2014, 2013 or 2012. As of December 31, 2014 and 2013, there was no amount outstanding on this line of credit.
The fair market value of the variable-to-fixed interest rate swap contract (net of income tax effects) increased by $33,504 due to an increase in prevailing interest rates during 2014. During 2013, the fair market value of the variable-to-fixed interest rate swap contract (net of income tax effects) decreased by $9,466 due to a slight decrease in prevailing interest rates at the end of December 2013. During 2012, the fair market value of the variable-to-fixed interest rate swap contract (net of income tax effects) decreased by $20,339 due to a slight decrease in prevailing interest rates at the end of December 2012. The fair market value of the variable-to-fixed interest rate swap contract was a liability of $4,854 and $55,618 and is included in other payables and accruals at December 31, 2014 and 2013, respectively.
State Guarantee Fund Deposits- The Company maintains funds on deposit with state insurance departments in those states where the Company is licensed to do business. These funds amounted to approximately $279,000 and $280,000 at December 31, 2014 and 2013, respectively. These funds are restricted and not available to the Company for normal operations and are included in other assets in the accompanying consolidated balance sheets.
In 2012, the Company entered into a Preferred Shares Purchase Agreement (the “2012-Stock Purchase Agreement”) with an investor. Pursuant to the 2012-Stock Purchase Agreement, the investor agreed to purchase 1,000 shares of Redeemable Institutional Preferred Shares (the “2012 Preferred Shares”) at a purchase price of $1,000 per share, for an aggregate purchase price of $1,000,000. The annual dividend payable on each 2012 Preferred Share is 5% of the book value at the beginning of the dividend period.
In 2013, the Company entered into a Preferred Shares Purchase Agreement (the “2013-Stock Purchase Agreement”) with an investor. Pursuant to the 2013-Stock Purchase Agreement, the investor agreed to purchase 1,000 shares of Redeemable Institutional Preferred Shares (the “2013 Preferred Shares”) at a purchase price of $1,000 per share, for an aggregate purchase price of $1,000,000. The annual dividend payable on each 2013 Preferred Share is 5% of the book value at the beginning of the dividend period.
In the event of any liquidation, dissolution or winding up of the Company, any merger or consolidation resulting in a change of control of the Company, or any sale, lease, transfer or other disposition of substantially all of the assets of Company, holders of the Institutional Preferred Shares purchased pursuant to the 2012 and 2013-Stock Purchase Agreements will have the right to receive a cash payment in an amount equivalent to the consideration the investor would have otherwise received if the investor had the ability to convert each Preferred Share to 1.2 Class B Common Shares.
Redeemable Common Shares- The Company’s Class A, Class B, and Class C redeemable common shares are owned by participating providers, Company directors, employees and non-dentist individuals. All participating providers, Company directors and Company employees are eligible to own the Class A and Class B voting redeemable common shares. Non-dentist individuals are eligible to own the Class C voting redeemable common shares. The maximum percentage of Class C Common Shares outstanding at any time as a proportion of all voting Common Shares is 40%. The Company’s Class A, Class B and Class C common shares are considered to be redeemable common shares due to the fact that the shareholders have the option to require the Company to repurchase these shares under certain circumstances. The Company records Class A, Class B and Class C common shares as Redeemable Common Shares in the consolidated balance sheets outside of shareholders’ equity at the redemption value of the common shares. Accordingly, the Company records total comprehensive income as a change to the redemption value of the Redeemable Common Shares to accrete (dilute) the carrying value of the Redeemable Common Shares to the redemption value at the end of each reporting period. Under this method, the end of the reporting period is treated as if it were also the redemption date for the securities.
Fully-Insured-Membership contracts are written on an annual basis and are subject to cancellation by the employer group upon thirty days written notice. The Company’s unearned premium revenue was approximately $32,637,000 and $35,395,000 at December 31, 2014 and 2013, respectively, and primarily relates to the estimated premium revenue associated with the remaining contract periods. Related amounts recorded in accounts receivable were approximately $31,554,000 and $33,810,000 at December 31, 2014 and 2013, respectively. Premiums are due monthly in advance and are recognized evenly as revenue during the period in which the Company is obligated to provide services to members. Any amounts not received by the end of a reporting period are recorded as accounts receivable by the Company. Any premiums received prior to the beginning of a reporting period are recognized as premiums received in advance and are included in unearned premium revenue in the accompanying consolidated balance sheets. Premiums received in advance were approximately $1,083,000 and $1,585,000 at December 31, 2014 and 2013, respectively. Management has determined that as of December 31, 2014 and 2013, respectively, no premium deficiency reserve is required. The Company’s premium deficiency reserve analysis includes an allocation of investment income.
Other Income and Realized Gains On Investments, Net - Other income is comprised primarily of rental income from the rental of space in the building owned and partially occupied by the Company (See Note 15). Realized gains on investments is primarily made up of realized investment gains and losses from the sale of investment grade and non-investment grade corporate bonds.
Reinsurance- In the normal course of business, the Company assumes premium revenue and related healthcare services expense from a third party insurance provider. There was no dental insurance premium assumed for the year ended December 31, 2014. Dental insurance premium assumed was approximately $38,000 and $189,000, for the years ended December 31, 2013 and 2012, respectively. There was no healthcare services expense assumed for the year ended December 31, 2014. The healthcare services expense assumed was approximately $28,000 and $173,000 for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2014, the Company had no reinsurance premium receivable or claims payable. As of December 31, 2013, the Company had approximately $1,000 of reinsurance premium receivable and claims payable of approximately $1,000.
Federal Income Tax- Deferred federal income tax is provided for in the accompanying consolidated financial statements for the tax effects of temporary differences between the carrying values and tax bases of assets and liabilities. Differences result primarily from items such as accrued commissions, deferred compensation, unearned premiums, property and equipment, deferred acquisition costs and unrealized gains on investments.
The Company reviews the deferred tax assets to determine the necessity of a valuation allowance. Valuation allowances are provided to the extent it is more likely than not that deferred tax assets will not be realized. The Company files a consolidated federal income tax return which includes all subsidiaries.
Unrealized losses at December 31, 2014 and 2013 on investments were generally due to higher current market yields relative to the yields of the investments at their amortized cost. Unrealized losses due to credit risk associated with the underlying collateral of the investments, if any, are not material. All investments with unrealized losses are reviewed quarterly to determine if any impairment is other than temporary, requiring a charge to earnings. The Company considers the severity of the loss on a security, duration of loss, duration of the investment, credit rating of the security, as well as payment performance and the Company’s intent or requirement to sell the investment before recovery when determining whether any impairment is other than temporary. The Company had no other than temporary impairment charges for the years ended December 2014, 2013 and 2012. The Company had no investments in a material unrealized loss position for greater than one year as of December 31, 2014 and 2013.
The Company has a long-term incentive compensation program for named executive officers pursuant to which an officer may receive an award of up to 45% of such officer’s base salary in the form of share awards which will vest if established Company performance criteria are achieved over a three year period. There were approximately 337 and 480 of these non-vested awards outstanding at December 31, 2014 and 2013, respectively.
In February 2014 and 2013, the Board declared a per share cash dividend for all Class A, Class B and Class C redeemable common shares in the amounts of $35.77 and $32.60 per share, respectively. With the dividend, the holders of restricted share units and phantom shares received an equivalent share based dividend that resulted in an increase in the deferred compensation liability of approximately $41,000 and $52,000 in February 2014 and February 2013, respectively.
The maximum aggregate number of share based awards that may be issued under the Plans are 15,000 Class B Common Shares. In 2014, the non-employee members of the Board were granted a total of 252 share based awards. In 2014, key employees were granted 295 share based awards. As of December 31, 2014, the Company has granted a total of 3,293 share awards, net of share based dividends, forfeitures and rescinded share awards.
The Company has 100,000 authorized Class D Redeemable Common Shares, without par value. The Class D Redeemable Common Shares are non-voting redeemable common shares that Preferred Shares may be converted to under certain circumstances. As of December 31, 2014 and 2013, none of these Class D redeemable shares were issued or are outstanding.
Redeemable Provider Preferred Shares-2009 Series are entitled to a cumulative cash dividend equal to 5% of the year end book value of the Redeemable Provider Preferred Shares. As of December 31, 2014 and 2013, none of these Provider Preferred Shares were issued or are outstanding.
Dividend restrictions vary among the subsidiaries. Dental Care Plus is restricted by regulatory requirements of its domiciliary state, which limit by reference to statutory net income and net worth, the dividends that can be paid without prior regulatory approval. Dividends paid by Dental Care Plus cannot, without prior approval of the Ohio Department of Insurance, exceed in any one year the lesser of: (i) 10% of net worth (as of the preceding December 31), or (ii) net income for the prior year, and only if net worth exceeds $250,000 and only out of unassigned surplus. There were no dividends declared or paid by any subsidiaries during 2014 or 2013. In December 2012, Dental Care Plus declared and paid a dividend to the Company totaling $360,000. During 2015, the total dividend that the Dental Care Plus subsidiary may declare without prior regulatory approval is approximately $969,000.
GAAP differs in certain respects from the accounting practices prescribed or permitted by state insurance regulatory authorities (“statutory-basis”), a non-GAAP basis of accounting. The statutory-basis net income for Dental Care Plus was approximately $1,156,000, $1,191,000, and $1,108,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Statutory-basis equity was approximately $9,689,000 and $8,560,000 at December 31, 2014 and 2013, respectively.
In December 2012, the Company refinanced the mortgage of its office building and in connection therewith, the Company executed a mortgage note with a bank, secured by the land and the office building, in the amount of $1,340,000. Interest is payable based on the 30-day LIBOR rate plus 1.95%. As a result of the mortgage note having a variable interest rate that adjusts monthly with the 30-day LIBOR rate, the carrying value of the mortgage note of $1,247,600 approximates fair value. The Company also entered into an interest rate swap agreement that effectively changed the interest rate related to the $1,340,000 mortgage note with a commercial bank from a variable rate based on the 30-day LIBOR rate plus 1.95% to a fixed rate of 3.90% for the 10-year period through December 22, 2022. Under this mortgage, the Company is required to have a minimum tangible net worth equal to or greater than $3,500,000 at the end of each fiscal year and a debt service ratio of at least 1:1. The mortgage note fair value disclosure is classified as Level 2 in the fair-value hierarchy.
At December 31, 2014, future required payments under all outstanding capital leases are as follows:
The Company has an annually renewable agreement with a commercial bank for a $500,000 working capital line of credit. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense or significant fees for the line of credit for each of the three years ended December 31, 2014. As of December 31, 2014 and 2013, there was no amount outstanding on this line of credit. The $500,000 working capital line of credit expires in July 2015.
Employees of the Company are covered by a defined contribution 401(k) plan sponsored by the Company. Discretionary contributions of a certain percentage of each employee’s contribution, which may not exceed a limit set annually by the Internal Revenue Service, are contributed by the Company each year and vest ratably over a five-year period. Company contributions, including administration fees paid by the Company, amounted to approximately $60,000 for the years ended December 31, 2014, 2013 and 2012.
The Company manages its business with four segments: fully-insured dental HMO and indemnity, fully-insured dental PPO, self-insured dental and corporate, all other. Self-insured dental consists of the self-insured dental HMO, self-insured dental PPO and self-insured dental indemnity products. Corporate, all other consists of revenue associated with the Company’s dental indemnity, dental PPO, and vision products underwritten by third-party insurance carriers and certain other corporate activities. These segments are consistent with information used by the Chief Executive Officer (the chief operating decision maker) in managing the business.
The following table presents for each of the fair value levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2014 and 2013 (amounts in thousands):
In accordance with the provisions of the Affordable Care Act of 2010, the federal government imposed an annual assessment on all U.S. health insurers of approximately $11.3 billion in 2015. This annual assessment will increase each year and is expected to be $16.0 billion in 2019. This annual assessment is allocated to individual health insurers based on the ratio of the insurer’s net premiums written during the preceding calendar year to the total health insurance premiums for any U.S. risk premium written for that same year. The first $25 million of a health insurer’s net premium written is exempt from the federal premium tax assessment. The net premium written by a health insurer from $25 million to $50 million is subject to 50% of the federal premium tax rate. Accordingly, in January 2015, the Company established a liability for the federal premium tax of approximately $530,000 that is payable to the United States Treasury in September 2015, along with an offsetting asset that will be amortized during 2015.