We manage our business with four reportable segments: fully-insured dental HMO and indemnity (“dental HMO/IND”), 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 primarily consists of revenue associated with our dental PPO and vision products underwritten by third-party insurance carriers and certain other corporate activities.
During 2017, the Board of Directors established a Special Committee to consider strategic alternatives available to the Company, including consideration of certain third party proposals made to the Company. The significant amount of work by the Special Committee and advisors to the Special Committee resulted in increased director compensation expense and professional expense during 2017. The Special Committee is in preliminary discussions with a third party related to a potential change in control transaction. There can be no assurance that these preliminary discussions will result in a definitive agreement, and consummation of any such transaction would be subject to approval of the shareholders, regulators and various other conditions.
Our strategy has focused on providing solutions to employers and individuals to manage the rising cost of dental care by leveraging our products that give employer groups and members options that meet their needs. We strive to provide excellent customer service to our employer groups, members, brokers and providers. Additionally, we have increased the diversification of our membership base, not only through our newer products, but also by entering new geographic territories.
We have experienced steady growth in membership and revenue in our dental products during the last five years. We attribute this growth to our broad provider networks, competitive premium rates for our fully-insured business and ASO fees for our self-insured business, and our commitment to providing outstanding customer service to all of our constituencies (employer groups, members, brokers, and providers).
Our self-insured dental membership increased by approximately 1,500 members in 2017. During 2017, approximately 10,000 members of an employer group converted from our fully-insured dental HMO/IND product to our self-insured dental product effective January 1, 2017, which was offset by a decrease of 8,500 members as a result of employer groups that did not renew with the Company. Some of our self-insured dental HMO/IND membership losses were the result of corporate consolidation and employer groups moving to other carriers.
Other income and realized (losses) gains on investments increased approximately $171,000 to $249,000 in 2017 from $128,000 in 2016. The increase is primarily the result of realized gains due to the sale of investments in 2017 that did not occur in 2016, offset by a decrease in other income.
Fully-insured dental HMO/IND healthcare services expense decreased $1,473,000 in 2017. Fully-insured dental HMO/IND healthcare services expense on a PMPM basis decreased by 1.0% from, $20.13 PMPM in 2016 to $19.93 PMPM in 2017. A decrease in fully-insured dental HMO/IND membership due to the conversion of an employer group to our self-insured product resulted in a claim decrease of approximately $2,431,000, which was offset by a claim expense increase of approximately $1,358,000 due to new membership in the year. Lower healthcare services utilization resulted in a decrease in fully-insured dental HMO/IND healthcare services expense of approximately $828,000 in 2017 compared to 2016. This decrease was offset by an increase of approximately $428,000 attributable to fee schedule increases effective January 1, 2017.
Fully-insured dental PPO premium rates negotiated with employer groups at their renewals resulted in a decrease of approximately $431,000 in fully-insured dental PPO premium revenue. An increase in fully-insured PPO group membership in 2016 resulted in an increase in fully-insured dental PPO premiums of approximately $3,596,000. The increase in membership is the result of an increase in fully-insured dental PPO group membership as well as an increase in fully-insured on exchange dental PPO membership. The fully-insured dental PPO segment represented approximately 21.2% of our total dental business.
Self-insured dental revenue increased by approximately $121,000 due to new self-insured sales and an increase in membership for existing employer groups. Self-insured revenue increased by approximately $24,000 due to an increase in the self-insured claims revenue on a per member per month basis, offset by a decrease in self-insured administrative fee rates on a per member per month basis. The self-insured dental segment represented approximately 27.5% of our total dental business in 2016. The self-insured segment revenue has two components:
Self-insured healthcare services expense increased slightly 0.6%, in 2016. An increase of 0.2% in self-insured member month volume in 2016 compared to 2015 resulted in an increase in self-insured healthcare services expense of approximately $104,000. Self-insured dental healthcare services expense increased by approximately $125,000 due to fee schedule increases effective January 1, 2016. These were offset by a decrease of approximately $69,000 due to an decrease in dental service utilization by our self-insured members in 2016 compared to 2015.
Cash increased $1,956,000, or 17.4%, for the year ended December 31, 2017 to approximately $13,177,000 at December 31, 2017 from approximately $11,221,000 at December 31, 2016. This cash increase is primarily the result of cash flow provided by operations of approximately $3,608,000. This increase was offset by a decrease in cash flow used in investing activities and financing activities of approximately $592,000 and $1,060,000, respectively.
In 2015, approximately $2,994,000 was provided by operating activities. We had net income of approximately $958,000. An increase in premiums received in advance as well as an improvement in remittance of uncollected accounts receivable resulted in a favorable increase of cash of approximately $829,000 in 2015. Due to claims activity and the timing of our payments, our claims payable liability increased approximately $256,000. Our deferred compensation liability increased by approximately $748,000 primarily due to current year vesting activity for restricted share unit awards and an increase in current book value in 2015. Other payables and accrued expenses increased and resulted in a net increase in cash flow from operations of approximately $98,000. The remaining effects of changes in operating assets and liabilities that represent fluctuations are not significant and are consistent with 2014.
A summary of our future commitments as of December 31, 2017 is as follows:
As of December 31, 2017, we believe our most significant other commitments are:
Deferred Compensation - We expect to pay our deferred compensation liability to the Company directors and employees as they retire or otherwise terminate their association with the Company in future years.
We believe our cash, short term investments and working capital lines of credit together are sufficient to meet our short term and long term liquidity needs. We are obligated to make payments related to our contractual obligations such as our building mortgage and our operating leases and other commitments (see contractual obligations and other commitments). We will also be obligated in certain circumstances to repurchase the redeemable shares of our Class A, Class B and Class C shareholders who die and our Class A and Class B shareholders who become permanently disabled, or retire. Our Board considers limitations on the amount of share redemptions each year. While we are not able to estimate future redeemable share redemptions, we repurchased approximately $182,000, $276,000, and $223,000, of Redeemable Common Shares in the years ended December 31, 2017, 2016, and 2015, respectively. We believe our cash balances, available-for-sale investment securities, operating cash flows, and borrowing capacity, taken together, provide adequate resources to fund ongoing operating and regulatory requirements and fund future expansion opportunities and capital expenditures in the foreseeable future.
Our largest subsidiary, Dental Care Plus, operates in states that regulate its payment of dividends and debt service on inter-company loans, as well as other inter-company cash transfers and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid by Dental Care Plus, without prior approval by state regulatory authorities, is limited based on statutory income and statutory capital and surplus. Dividends cannot 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 positive retained earnings. There were no dividends declared or paid by Dental Care Plus during 2017, 2016 or 2015. Even if prior approval is not required, prior notification must be provided to state insurance departments before paying a dividend.
Dental Care Plus, an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation, is able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products in Ohio. The minimum required capital and surplus for Dental Care Plus licensed as a life and health insurance company in Ohio was $2.5 million at December 31, 2017.
We maintained aggregate statutory capital and surplus of approximately $14.8 million as of December 31, 2017 and were in compliance with applicable statutory requirements. Although the minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements can vary significantly from state to state. Given our anticipated premium growth in 2018 resulting from the expansion of our networks and membership, capital requirements will increase. We expect to fund these increased requirements through the retention of earnings and/or future capital raising activities.
Refer to Note 2 of the consolidated financial statements for further information on recently issued accounting standards.
We do not consider the impact of changes in prices due to inflation to be material in the analysis of our overall operations.
We have audited the accompanying consolidated balance sheets of DCP Holding Company and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, redeemable shares and shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
DCP Holding Company (the “Company”) is the parent holding company of three wholly-owned subsidiaries which include Dental Care Plus, Inc., an Ohio corporation, Insurance Associates Plus, Inc., an Ohio corporation, and Adenta, Inc., a Kentucky corporation. Providers who participate in one or more of the Dental Care Plus networks own a majority of the Company’s Redeemable Common Shares. The Company’s Redeemable Common Shares are also owned by retired providers, Company board members, non-provider individuals and employees. The Company primarily offers to employer groups of all sizes dental health maintenance organization (“HMO”), participating provider organization (“PPO”) and indemnity plans for dental care services and vision benefit plans. As of December 31, 2017, we had approximately 346,300 members in our dental benefits plans and approximately 40,300 members in our vision benefit plans with approximately 3,000 providers participating in our dental HMO network, approximately 3,100 providers participating in our DentaSelect dental PPO network and approximately 2,200 in our Balanced Value dental PPO network. The Company has a network access agreement with a national dental network management company that has one of the largest PPO networks of providers under contract in the United States. With this network access agreement, our dental PPO members have access to approximately 45,900 additional providers throughout the United States. The Company also has a network access arrangement with a national dental administration company for the dental PPO plans that it offered on the FFM exchanges in 2017. With this network access arrangement, FFM exchange members have access to approximately 10,900 providers across the eight FFM exchange states. Dental Care Plus Inc. is an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation and able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products.
Basis of Presentation- The accompanying consolidated financial statements include the accounts of the Company and subsidiaries, each of which is wholly-owned, and have been prepared in conformity with GAAP. All intercompany accounts and balances have been eliminated in consolidation. The Company presents its financial statements to conform with Article 7 of the Securities and Exchange Commission Regulation S-X pursuant to Section 13-15(d) of the Securities Exchange Act of 1934.
Deferred Acquisition Costs- Deferred acquisition costs are those incremental direct costs related to the successful acquisition of new and renewal business. These incremental direct costs are those that are essential to the contract transaction and would not have been incurred had the contract transaction not occurred. Such incremental direct costs include commissions, costs of contract issuance and underwriting, state premium taxes and other costs the Company incurs to successfully acquire new business or renew existing business. The Company defers policy acquisition costs and amortizes them over the estimated life of the contracts, which are short-duration in nature, in proportion to premiums earned. The Company capitalized deferred acquisition costs of approximately $4,508,000, $5,877,000, and $4,358,000, and amortized approximately $4,980,000, $4,780,000, and $4,396,000 of these capitalized costs for the years ended December 31, 2017, 2016, and 2015, respectively. The amortization of these costs are recorded in commission expenses and other acquisition costs included in the consolidated statements of comprehensive income.
On June 30, 2016, the Company delivered written notice to the holders of its (i) Redeemable Institutional Preferred Shares - 2010 Series, (ii) Redeemable Institutional Preferred Shares - 2012 Series, and (iii) Redeemable Institutional Preferred Shares - 2013 Series (collectively, the “Preferred Shares”), pursuant to which the Company exercised its right to redeem all of the Preferred Shares. The “Call Price” for each Preferred Share is 100% of the Adjusted Book Value per Preferred Share (as defined in the Company’s Articles of Incorporation), plus all accrued, but unpaid, dividends on each Preferred Share plus a 5% premium payable to holders of the 2012 Series and 2013 Series Preferred Shares. The holders of the Preferred Shares and the Company agreed to close the redemption on June 30, 2016, and on such date, the aggregate price paid for redemption of the Preferred Shares by the Company was approximately $2,924,000.
Concentrations of Credit Risk- Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of premiums receivable. Other than as discussed below, concentrations of credit risk with respect to premiums receivable are limited because of the large number of employer groups comprising the Company’s client base and contracts are cancelled if premiums are not paid within 90 days.
The Company had one customer that had a balance of approximately 25% and 24% of the uncollected premium receivable balance at December 31, 2017 and 2016, respectively.
Fair Value of Financial Instruments- Certain financial instruments are required to be recorded at fair value. The Company primarily bases fair value for investments in fixed-maturity securities (including federally-insured certificates of deposits, investment grade corporate bonds and non-investment grade corporate bonds) on quoted market prices or on prices from a pricing vendor, an outside resource that supplies securities pricing, dividend, corporate action and descriptive information to support pricing, securities operations, research and portfolio management. The Company obtains and reviews the pricing service’s valuation methodologies and validates these prices using various inputs, including quotes from other independent regulatory sources. When deemed necessary, the Company validates prices by replicating a sample using a discounted cash flow model. Changes in assumptions or estimation methods could affect the fair value estimates.
New Accounting Guidance- In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers. The new guidance requires that an entity recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The new guidance also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. Insurance contracts are not included in the scope of this new guidance and therefore our fully-insured dental HMO/IND and fully-insured dental PPO segments are not impacted. The effective date of ASU 2014-09 is for annual reporting periods beginning after December 15, 2017. We adopted the standard on January 1, 2018 using the modified retrospective approach. Upon adopting the guidance, the cumulative effect will be presented as an adjustment to beginning retained earnings of approximately $53,000.
We have reached conclusions on our key accounting assessments related to the standard and have finalized our accounting policies. Based on our assessment, revenue recognition for our self-insured dental segment will not materially change. Based on our assessment of ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), issued by the FASB in March 2016, the Company acts as a principal and as such will continue to record self-insured dental revenue on a gross basis.
In preparation for adoption of the standard, we have implemented internal controls and revised business processes to prepare financial information in accordance with the standard. These new processes and procedures ensure data utilized for financial reporting is complete and accurate and is assessed in accordance with the guidelines of the standard.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 introduces new guidance that requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or operating leases and both types of leases will be recognized on the balance sheet. The new guidance will also require new qualitative and quantitative disclosures. The effective date of ASU 2016-02 is for interim and annual reporting periods beginning after December 15, 2018. The ASU has not yet been adopted by the Company. The Company’s implementation efforts are primarily focused on the review of its existing lease contracts as well as identification of other contracts that may fall under the scope of the new guidance. We do not expect the adoption to have a material impact on the Company’s consolidated financial position, cash flows and results of operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends previous guidance on the impairment of financial instruments by adding an impairment model that allows an entity to recognize expected credit losses as an allowance rather than impairing as they are incurred. The new guidance is intended to reduce complexity of credit impairment models and result in a more timely recognition of expected credit losses. The effective date of ASU 2016-13 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted by the Company. Management is currently evaluating the impact on our Company’s consolidated financial position, cash flows and results of operations, but it is not expected to have a significant impact.
The Company owned corporate bonds at December 31, 2017, which consist primarily of investment grade securities. At December 31, 2017, total bond fair value was approximately $8,259,000, which consists of approximately $7,588,000 with a credit rating of BBB- or better. The remaining securities, totaling approximately $671,000, had a credit rating of between BB+ and B. The weighted average yield-to-cost of the Company’s corporate bonds was approximately 3.22% at December 31, 2017. The weighted average maturity of the Company’s corporate bonds was 5.24 years at December 31, 2017.
Investments classified at December 31, 2017 and 2016, as fixed maturities and short-term investments were as follows:
Unrealized losses at December 31, 2017 and 2016 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 year ended December 31, 2017 and 2016. The Company had six other-than-temporarily impaired securities which were recorded as a realized loss of approximately $111,000 for the year ended December 31, 2015. The Company had no investments in a material unrealized loss position for greater than one year as of December 31, 2017 and 2016.
In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the “Plans”), Company directors and certain key employees elected to defer portions of their director fees and employee compensation, as applicable. The Company recorded expense of approximately $56,000, $61,000, and $141,000 related to deferred director fees and deferred employee compensation for the years ended December 31, 2017, 2016 and 2015, respectively. Directors and key employees who elect to defer cash compensation may request that the Company invest this compensation in a mutual fund investments or phantom shares of the Company. The deferred cash compensation is included in the deferred compensation liability at December 31, 2017 and 2016.
The Plans also provide for the directors and key employees to receive share awards based on the book value of the Redeemable Common Shares. Subsequent to 2010, a director will receive Class B Redeemable Common Shares upon vesting of these share awards. A key employee may elect to defer receiving such amounts until termination of employment and vesting requirements are met. If a key employee does not elect to defer receiving his or her share awards, the individual will receive Class B Redeemable Common Shares upon vesting. If the share awards are deferred, these deferred amounts will be paid in cash when deferred obligations are payable at an amount equal to the values of Class B Redeemable Common Shares. An individual director’s award vests 100% at the end of each year if the director meets certain attendance requirements. The key employee awards vest 10%, 20%, 30% and 40% at the end of each respective year in a four-year period following the grant date. There are no performance criteria associated with the vesting of the awards for key employees and the only requirement for vesting is that the individual is an employee of the Company at the end of the vesting year in question. There were approximately 183 and 170 of these non-vested awards outstanding at December 31, 2017 and 2016, respectively. The number of awards expected to vest approximates the total non-vested awards outstanding.
The deferred compensation expense related to these awards is recorded ratably during the applicable vesting period. The Company recorded deferred compensation expense of approximately $956,000, $710,000, and $597,000, with a deferred tax benefit of approximately $325,000, $241,000, and $203,000, related to deferred share awards and the change in the value of phantom shares for the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017, there is approximately $175,000 of total unrecognized compensation cost related to non-vested awards under the Plans. That cost is expected to be recognized over a weighted average period of 1.69 years.
Reconciliation of claims payable liability to unpaid claims and claim adjustment expenses are as follows:
Substantially all of the incurred but not reported (“IBNR”) balance for dental HMO and dental PPO as of December 31, 2017 relates to the current year. At December 31, 2017 and 2016, the IBNR balance included in the total claims payable liability was approximately $2,054,000 and $1,441,000, respectively. The following is information about fully insured dental healthcare expense incurred and fully insured healthcare expense paid as of December 31, 2017:
The Company has a mortgage note with a bank, secured by the land and the office building with interest 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 $1,095,000 approximates fair value. The Company also entered into an interest rate swap agreement that effectively changed the interest rate related to the 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.
The Company entered into an interest rate swap agreement (cash flow hedge) used to manage the Company’s interest rate risk. The swap agreement effectively changed the interest rate related to the Company’s 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. The Company’s risk management policy is to not enter into derivatives for speculative purposes. The notional amount decreases in direct correlation to the principal reduction of the mortgage and was approximately $1,095,000 and $1,148,000 at December 31, 2017 and 2016, respectively. The Company believes that the risk of nonperformance by the counter party to this agreement is not material to the financial statements. At December 31, 2017 and 2016, the fair value of this agreement was approximately $7,000 and ($7,000), respectively. The agreement will terminate upon maturity of the mortgage loan payable (Note 7).
The amounts included in other comprehensive income (loss) related to the interest rate swap was $9,043, $7,471, and $(8,687), net of income tax expense (benefit) of $4,659, $3,848, and $(4,475), during 2017, 2016 and 2015, respectively.
The components of the provision for income taxes are summarized as follows for the years ended December 31, 2017, 2016 and 2015, respectively:
The Tax Act is subject to further clarification and interpretation by the U.S. Treasury Department and the Internal Revenue Service. For example, the Tax Act changes the way that companies calculate their insurance claims and reserves for tax purposes, including revaluing those tax basis liabilities as of January 1, 2018, based on a methodology and discount factors that have not been published. The resulting transitional deferred tax liability and offsetting increase in the Company’s insurance claims and reserves deferred tax assets, were recorded at December 31, 2017 using reasonable estimates based on available information and should be considered provisional in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”). Because the established transition liability was completely offset by an increase in related deferred tax assets, any adjustment to the provisional amount will not impact the Company’s effective tax rate. In accordance with SAB 118, the insurance claims and reserves transitional deferred tax liability (and offsetting adjustment to the related deferred tax assets) and any other changes in deferred taxes resulting from clarification and interpretation of the Tax Act provided during 2018 will be recorded in the period in which the guidance is published.
For the years ended December 31, 2017, 2016, and 2015, the Company did not have any significant uncertain tax positions. The Company is primarily subject to U.S. federal and various U.S. state and local tax authorities. Tax years subsequent to 2013 remain open to examination by the Internal Revenue Service (“IRS”), and tax years subsequent to 2012 remain open to other state and local tax authorities.
Leases-The Company leases certain software, equipment and office space under non-cancelable operating leases. Rent expense under all operating leases was approximately $324,000, $206,000, and $168,000, for the years ended December 31, 2017, 2016 and 2015, respectively.
The results of the fully-insured dental HMO and indemnity, fully-insured dental PPO and self-insured dental segments are measured by gross profit. The Company does not allocate insurance expense, investment and other income, assets or liabilities to these segments because the Company does not use these measures to analyze the segments. These items are assigned to the remainder of the Company’s business, which it identifies as corporate, all other. The Company’s gross profit was approximately $25,981,000, $25,094,000, and $21,577,000 for the years ended December 31, 2017, 2016 and 2015, respectively.
Listed below is financial information required for each reportable segment for the years ended December 31, 2017, 2016 and 2015 (amounts in thousands):
The Company’s providers, who are also shareholders, submitted claims of approximately $33,291,000, $38,256,000, and $38,248,000, in 2017, 2016, and 2015, respectively. The Company had claims payable liability to related party providers of approximately $1,487,000 and $1,779,000 at December 31, 2017 and 2016, respectively.
At December 31, 2017 and 2016, there were no assets or liabilities that were required to be measured at fair value on a non-recurring basis. The Company did not have any transfers between fair value hierarchy levels during years ended December 31, 2017 and 2016. As of December 31, 2017 and 2016, the Company did not have any assets or liabilities classified as Level 3 of the fair value hierarchy.
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, 2016 and 2015, no 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 Dental Care Plus in 2017, 2016, or 2015. During 2017, the total dividend that the Dental Care Plus subsidiary may declare without prior regulatory approval is approximately $1,480,000.
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 $2,108,000, $1,653,000, and $710,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Statutory-basis equity was approximately $14,800,000, and $12,271,000 at December 31, 2017 and 2016, respectively.
A summary of our unaudited quarterly results of operations for the years ended December 31, 2017 and 2016 is as follows (amounts in thousands):
In accordance with the provisions of the Patient Protection and Affordable Care Act of 2010, the federal government imposed an annual assessment on all U.S. health insurers of approximately $14.3 billion in 2018 . This annual assessment will increase each year. 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 2018, the Company established a liability for the federal premium tax of approximately $867,000 that is payable to the United States Treasury in September 2018, along with an offsetting asset that will be amortized during 2018.