Our principal administrative, sales and marketing facilities are located at our leased corporate headquarters in Tampa, Florida. Our corporate headquarters is used in all of our lines of business. As of December 31, 2018, we also leased office space for the administration of our health plans in Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, South Carolina, Tennessee, Texas, Washington D.C. and Wisconsin. These properties are all in good condition and are well maintained. We believe these facilities are suitable and provide the appropriate level of capacity for our current operations. Upon expiration of the terms of the leases, we believe we could renew these leases on acceptable terms, or find suitable space elsewhere.
The following table sets forth our summary financial data. This information should be read in conjunction with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this 2018 Form 10-K.
Our Adjusted SG&A expense ratio measures selling, general and administrative expense as a percentage of total revenues, excluding Medicaid premium tax reimbursement for all years presented and the Medicaid ACA industry fee reimbursements for the years ended December 31, 2018, 2016, 2015 and 2014. The Medicaid ACA industry fee reimbursement was not applicable for the year ended December 31, 2017 due to the one-year moratorium. The ratio also excludes the effect of investigation costs for all years presented, Sterling divestiture, Iowa SG&A and pharmacy benefit manager ("PBM") transitory costs; and certain costs associated with our acquisitions of Meridian, Universal American and the Aetna Part D membership, as applicable.
Net cash used in investment activities has been retrospectively adjusted to reflect the adoption of ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" effective January 1, 2018. Accordingly, investment activities for years ended 2017, 2016, 2015 and 2014 were adjusted by $95.5 million, ($88.1) million, $48.4 million and ($59.6) million, respectively. See Note 2 - Summary of Significant Accounting Policies for further discussion.
WellCare Health Plans, Inc. (the "Company," "we," "us," "our") focuses primarily on providing government-sponsored managed care services to families, children, seniors and individuals with complex medical needs, primarily through Medicaid, Medicare Advantage ("MA") and Medicare Prescription Drug Plans ("PDP"), as well as individuals in the Health Insurance Marketplace. As of December 31, 2018, we served approximately 5.5 million members. During the twelve months ended December 31, 2018, we operated Medicaid health plans, including states where we receive Medicaid premium revenues associated with dually eligible special needs plans, in Arizona, Florida, Georgia, Hawaii, Illinois, Kentucky, Michigan, Missouri, Nebraska, New Jersey, New York, South Carolina and Texas.
As of December 31, 2018, we operated MA coordinated care plans ("CCPs") in Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maine, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, South Carolina, Tennessee and Texas, as well as stand-alone Medicare prescription drug plans ("PDP") nationwide.
Summarized below are the key financial highlights for the year ended December 31, 2018. For additional information, refer to the "Results of Operations" section, which discusses both consolidated and segment results.
Net Income increased $66.1 million, or 17.7%, in 2018 compared with 2017 driven by continued improvement in operational execution across all of our segments, the acquisition of Universal American in April 2017 and the effect of the Tax Cuts and Jobs Act of 2017 ("TCJA"), which reduced the U.S. federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. These increases are partially offset by the favorable effect of revaluing our deferred tax assets and liabilities in 2017 as a result of the TCJA, the expiration of the 2017 ACA industry fee moratorium and reestablishment of the ACA industry fee for 2018, which is nondeductible for tax purposes.
Presented below are key developments and accomplishments relating to progress on our business strategy that have affected, or are expected to affect, our results:
In August 2018, we completed a public offering and issuance of 5,207,547 shares of our common stock, at an offering price of $265.00 per share. The net proceeds from the offering were approximately $1.3 billion, after deducting underwriting discounts and offering costs of $37.7 million. We used the net proceeds to fund a portion of the cash consideration for the acquisition of Meridian.
In March 2018, we announced that our Arizona subsidiary, Care1st Health Plan Arizona, Inc., was selected to enter into a contract with the Arizona Health Care Cost Containment System ("AHCCCS") to coordinate the provision of physical and behavioral healthcare services in the Central and North geographic service areas ("GSAs"). Under the
new program, health plans were eligible to be awarded two of the three GSAs. Services under the new contract began on October 1, 2018. The initial term of the contract with AHCCCS is three years. The parties may extend the term upon mutual consent for up to two additional two-year terms.
Effective January 1, 2017, the Consolidated Appropriations Act, 2016 provided for a one-year moratorium on the ACA industry fee, which also eliminated the associated Medicaid ACA industry fee reimbursements from our state government partners. This 2017 moratorium expired effective January 1, 2018. Accordingly, we incurred $344.1 million of ACA industry fee expense for 2018. We did not incur ACA industry fee expense for 2017. Additionally, we recognized $302.2 million in Medicaid ACA industry fee reimbursement revenue for 2018. We did not receive any Medicaid ACA industry fee reimbursement revenue during 2017.
Please refer to Part I, Item 1 - Business, General Economic and Political Environment Affecting our Business and Health Care Reform for a further discussion of the current economic and political environment that is affecting our business.
The following table sets forth condensed data from our consolidated statements of operations data, as well as other key data used in our results of operations discussions for the years ended December 31, 2018, 2017 and 2016.
As of December 31, 2018, membership increased approximately 1,167,000, or 26.7%, compared with December 31, 2017. Membership discussion by segment follows:
Medicare PDPs. Membership decreased by 95,000, or 8.2%, to 1.1 million members as of December 31, 2018. The decrease was primarily the result of our 2018 bid positioning. Our 2018 PDP bids resulted in one of our basic plans being below CMS benchmarks in 25 of the 34 CMS regions, and within the de minimis range in five other regions, compared with our 2017 bids, in which we were below the benchmarks in 30 of the 34 CMS regions, and within the de minimis range in three other regions.
As of December 31, 2017, membership increased approximately 473,000, or 12.1%, compared with December 31, 2016. Membership discussion by segment follows:
For the year ended December 31, 2018, our net income increased by $66.1 million, or 17.7%, compared with the same period in 2017 driven by continued improvement in operational execution across all of our segments, the acquisitions of Universal American in April 2017 and the effect of the TCJA, which reduced the U.S. federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018 (discussed in Note 14 - Income Taxes to the consolidated financial statements of this 2018 Form 10-K). These increases are partially offset by the expiration of the 2017 ACA industry fee moratorium and reestablishment of the ACA industry fee for 2018, which is nondeductible for tax purposes and the favorable effect of revaluing our deferred tax assets and liabilities in 2017 as a result of the TCJA. Refer to Segment Reporting below for a discussion of current developments, operating results and other key performance measures by reportable segment.
Premium revenue for the year ended December 31, 2018, increased approximately $3.2 billion, or 18.8%, compared with the same period in 2017, reflecting our acquisitions of Meridian in September 2018 and Universal American in April 2017, the assignment of additional members in our Illinois Medicaid health plan, organic growth in our Medicare Health Plans segment and the expiration of the 2017 ACA industry fee moratorium, which reestablished the associated Medicaid ACA industry fee reimbursements from our state government partners for 2018 as discussed in "Key Developments and Accomplishments." These increases were partially offset by the previously discussed membership declines in our Medicare PDP segment.
Medical benefits expense for the year ended December 31, 2017, increased $2.7 billion, or 22.0%, primarily driven by the previously noted 2017 and 2016 acquisitions, our participation in the Missouri Medicaid program expansion, and additional organic membership growth across all lines of business. The increase was partially offset by the favorable result of continued performance in clinical and pharmacy execution.
SG&A expense, under generally accepted accounting principles in the United States of America ("GAAP"), includes aggregate costs related to previously disclosed government investigations and related litigation and resolution costs ("Investigation costs"). Refer to Note 13-Commitments and Contingencies within the consolidated financial statements included in this 2018 Form 10-K for additional discussion of these Investigation costs.
Our Adjusted SG&A expense for the year ended December 31, 2018, increased approximately $228.2 million, or 15.9%, compared with the same period in 2017, primarily reflecting our 2018 acquisition of Meridian, our 2017 acquisition of Universal American and variable management incentive compensation due to improved company performance. Our Adjusted SG&A ratio decreased by 20 basis points for the year ended December 31, 2018, compared with the same period in 2017, primarily reflecting continued improvements in operating efficiency, partially offset by higher variable management incentive compensation in 2018.
Our SG&A expense for the year ended December 31, 2017, increased approximately$351.6 million or 31.0%, compared with the same period in 2016. Additionally, our SG&A ratio increased by 70 basis points for the year ended December 31, 2017, compared with the same period in 2016. These increases were primarily the result of our acquisitions of Universal American, including one-time transaction and integration costs, and Care1st Arizona, staffing and infrastructure costs to support organic growth, and variable management incentive compensation due to improved company performance. The increase in the SG&A ratio is also due to the effect of the ACA industry fee moratorium for 2017, which resulted in the elimination of any associated Medicaid ACA industry fee reimbursements from our state government partners.
Due to the effect of the previously noted ACA industry fee moratorium for 2017, we did not incur ACA industry fee expense for the year ended December 31, 2017, compared with $228.4 million for the same period in 2016.
Income tax expense for the year ended December 31, 2018, increased $165.1 million, or 187.8%, compared with the same period in 2017, while our effective tax rate for the year ended December 31, 2018, increased to 36.5% compared with 19.0% for the same period in 2017. These increases were primarily driven by the favorable effect of revaluing our deferred tax assets and liabilities in 2017 as a result of the TCJA, the recognition of certain previously unrecognized tax benefits in 2017, and the effect of the nondeductible ACA industry fee incurred in 2018 as a result of the expiration of the 2017 ACA industry fee moratorium. These increases were partially offset by the effect of federal income tax rate decreases in 2018 associated with the TCJA. Refer to Note 14 - Income Taxes to the consolidated financial statements in this 2018 Form 10-K for further discussion regarding the recognition of previously unrecognized tax benefits in 2017 and the current year tax effect of the TCJA.
For further information regarding premium revenues and medical benefits expense, please refer below to "Premium Revenue Recognition and Premiums Receivable" and "Medical Benefits Expense and Medical Benefits Payable" under "Critical Accounting Estimates."
The following table reconciles our reportable segment results with our income from operations (before income taxes), as reported in accordance with generally accepted accounting principles in the United States of America ("GAAP").
Corporate and other category includes businesses that are not individually reportable because they do not meet the quantitative thresholds required by generally accepted accounting principles.
Our Medicaid Health Plans segment includes plans for beneficiaries of Temporary Assistance for Needy Families ("TANF"), Supplemental Security Income ("SSI"), Aged Blind and Disabled ("ABD") and other state-based programs that are not part of the Medicaid program, such as CHIP and the Long-Term Services and Supports ("LTSS") program.
"All other states" consists of Arizona, Hawaii, Missouri, New Jersey, New York, South Carolina and Texas. In 2017 and 2018, it also includes Nebraska.
Medicaid total premiums increased $2.3 billion, or 21.1%, for the year ended December 31, 2018, compared with the same period in 2017, primarily driven by our September 2018 acquisition of Meridian; the expiration of the 2017 ACA industry fee moratorium, which reestablished the associated Medicaid ACA industry fee reimbursements from our state government partners in 2018; the assignment of additional members in our Illinois Medicaid health plan, effective January 1, 2018; and net premium rate increases in certain of our Medicaid markets. The increase is also attributable to organic growth in certain markets including Arizona, Missouri and New York, which are partially offset by eligibility decreases in certain of our Medicaid markets. The increases are also partially offset by lower average membership in our Georgia health plan due to the introduction of a fourth managed care organization in the State, effective July 1, 2017.
Medical benefits expense increased by approximately $1.8 billion, or 18.7% for the year ended December 31, 2018, compared with the same period in 2017, primarily resulting from the previously discussed acquisition of Meridian, the assignment of additional members in our Illinois Medicaid health plan, effective January 1, 2018, and organic growth in certain markets, including Arizona, Missouri and New York. These increases are partially offset by the previously discussed lower average membership in our Georgia health plan, eligibility decreases in certain of our Medicaid markets and the favorable result of continued performance in clinical and pharmacy execution.
Medicaid total premiums increased $1.2 billion, or 12.9%, for the year ended December 31, 2017, compared with the same period in 2016, primarily driven by membership acquired from our Arizona acquisitions, our new Nebraska Medicaid plan and our participation in Missouri's Medicaid program statewide expansion. The increase is also attributable to net rate increases in certain of our existing Medicaid markets. These increases were partially offset by the effect of the previously noted ACA industry fee moratorium for 2017, which resulted in the elimination of any associated Medicaid ACA industry fee reimbursements from our state government partners.
Medical benefits expense increased by approximately $1.2 billion, or 15.0%, for the year ended December 31, 2017, compared with the same period in 2016, primarily resulting from the previously discussed net increase in membership, including growth from acquisitions and organic growth resulting from our new Nebraska market and Missouri's statewide expansion.
Our Medicaid Health Plans segment MBR increased by 160 basis points for the year ended December 31, 2017, compared with the same period in 2016. The increase is primarily a result of the effect of the ACA industry fee moratorium, and, as a result the elimination of associated Medicaid reimbursement revenue, the addition of our new Medicaid businesses in Arizona and Nebraska, and new members from the statewide expansion of the Missouri Medicaid program. This increase was partially offset by continued operational execution and net rate increases in certain Medicaid markets.
In 2018, we operated our MA CCPs in 524 counties across 21 states, including Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maine, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, South Carolina, Tennessee and Texas. We cover a wide spectrum of medical services through our MA plans. For many of our plans, we provide additional benefits not covered by Original Medicare, such as vision, dental and hearing services. Through these enhanced benefits, out-of-pocket expenses incurred by our members are generally reduced, which better allows our members to manage their health care costs.
The following table sets forth the summarized results of operations and other relevant performance measures for our Medicare Health Plans segment for the years ended December 31, 2018, 2017 and 2016:
Medicare Health Plans premium revenue increased by $1.0 billion, or 18.7%, for the year ended December 31, 2018, compared with the same period in 2017, primarily driven by our 2018 bid strategy, organic growth, and the acquisitions of Meridian in September 2018 and Universal American in April 2017.
Medicare Health Plans medical benefits expense increased $0.8 billion, or 16.8%, for the year ended December 31, 2018, compared with the same period in 2017, primarily due to increased membership acquired from the acquisitions of Meridian in September 2018 and Universal American in April 2017, as well as organic growth in certain markets. The Medicare Health Plans MBR decreased by 130 basis points for the year ended December 31, 2018, compared with the same period in 2017, primarily resulting from our 2018 bid positioning and the favorable result of continued performance in clinical and pharmacy execution.
our 2017 bid strategy. The Medicare PDPs MBR increased by 870 basis points for the year ended December 31, 2017 compared with the same period in 2016 reflecting the effect of our 2017 bid strategy.
The Medicaid Health Plans MBR (GAAP) is expected to be in the range of 88.8% to 89.3% for 2019, compared with 86.0% for 2018. The Medicaid Health Plans Adjusted MBR is expected to be in the range of 89.5% to 90.0%, compared to 88.9% reported in 2018. These increases reflect new business mix as a result of the company’s expanded Medicaid contract in Florida and the acquisition of Meridian in 2018. Additionally, the GAAP Medicaid Health Plans MBR reflects the absence of Medicaid ACA industry fee reimbursement in 2019.
Medicare PDPs - We expect premium revenue for our Medicare PDPs segment to be in the range of $1.05 billion to $1.15 billion for 2019, compared with $835.0 million for 2018. The premium revenue increase is due to the introduction of a new enhanced product in 2019. Medicare PDPs MBR is expected to be in the range of 82.5% to 83.5% for 2019, compared with 72.4% for 2018 due to bid positioning for the 2019 plan year.
Income Taxes - Our consolidated effective income tax rate (GAAP) is not estimable as we currently are not able to project future amounts associated with Transaction and Integration costs associated with our acquisitions, as defined earlier. However, we expect our effective income tax rate to decrease in 2019 compared to 2018 due to the one-year moratorium of the ACA industry fee in 2019. The ACA industry fee, which was reinstated in 2018 and was nondeductible for tax purposes, had the effect of increasing our income tax rate in 2018.
Each of our existing and anticipated sources of cash is affected by operational and financial risks that influence the overall amount of cash generated and the capital available to us. Additionally, we operate as a holding company in a highly regulated industry. The parent and other non-regulated companies ("non-regulated subsidiaries") are dependent upon dividends and management fees from our regulated subsidiaries, most of which are subject to regulatory restrictions. For a further discussion of risks that can affect our liquidity, see Part I - Item 1A - Risk Factors included in this 2018 Form 10-K.
Unregulated cash, cash equivalents and investments totaled approximately $516.0 million at December 31, 2018, a decrease of approximately $101.0 million from $617.0 million at December 31, 2017. The decrease is primarily due to capital contributions to our regulated subsidiaries, the interest payments for our 2025 Notes and cash on hand used to fund the Meridian acquisition, partially offset by cash acquired in the Meridian acquisition and dividends from certain of our regulated subsidiaries.
Net proceeds of approximately $1.3 billion from an issuance of 5,207,547 shares of our common stock, after deducting underwriting discounts and offering costs.
compared with the same period in 2016 is due to the effect of our 2017 bids, as well as the timing of pharmacy claims payments in 2016.
Aggregate net proceeds of $156.1 million resulting from debt transactions executed during 2017 reflecting net proceeds of $1.2 billion received from the issuance of our 2025 Notes in March 2017, partially offset by the early redemption in full of our $900.0 million principal amount of 2020 notes in April 2017, including the $25.9 million redemption premium, and a $100.0 million repayment of outstanding borrowings under our Revolving Credit Facility. Refer to "Capital Resources" below for further discussion of our 2017 debt transactions. Debt-related activity for 2016 reflects $200.0 million drawn from our Revolving Credit Facility, which, along with $100.0 million in cash, was used to repay in full the $300.0 million term loan under our prior credit facility.
The 2026 Notes will mature on August 15, 2026, and bear interest at a rate of 5.375% per annum, payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2019.
In addition, the 2026 Indenture requires that for the Company to merge, consolidate or sell all or substantially all of its assets, (i) either the Company must be the surviving entity, or the surviving entity or purchaser must be a U.S. entity; (ii) the surviving entity or purchaser must assume all the obligations of the Company under the 2026 Notes and the 2026 Indenture; (iii) no default or event of default (as defined under the Indenture) exits and (iv) the surviving entity, after giving pro forma effect to the transaction, (x) may incur at least $1.00 of additional indebtedness pursuant to the fixed charge coverage ratio or (y) have a fixed charge coverage ratio that is no worse than the fixed charge coverage ratio of the Company without giving pro forma effect to the transactions.
In addition, the 2025 Indenture requires that for the Company to merge, consolidate or sell all or substantially all of its assets: (i) either the Company must be the surviving entity, or the surviving entity or purchaser must be a U.S. entity; (ii) the surviving entity or purchaser must assume all the obligations of the Company under the 2025 Notes and the 2025 Indenture; (iii) no default or event of default (as defined under the indenture) exists; and (iv) the surviving entity, after giving pro forma effect to the transaction, (x) may incur at least $1.00 of additional indebtedness pursuant to the fixed charge coverage ratio or (y) have a fixed charge coverage ratio that is no worse than the fixed charge coverage ratio of the Company without giving pro forma effect to the transactions.
In November 2013, we issued $600.0 million in aggregate principal amount of our 2020 Notes. In June 2015, we issued an additional $300.0 million of 2020 Notes, pursuant to a reopening of such notes. Refer to Note 10 - Debt to the consolidated financial statements included in this 2018 Form 10-K for additional information regarding these 2020 Notes.
Unutilized commitments under the Amended and Restated Credit Agreement are subject to a fee of 0.20% to 0.30% depending upon our ratio of total debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA"), as calculated in accordance with the Amended and Restated Credit Agreement.
total debt to consolidated EBITDA, as calculated in accordance with the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement includes negative and financial covenants that limit certain of our and our subsidiaries’ activities, including (i) restrictions on our and our subsidiaries’ ability to incur additional indebtedness; and (ii) financial covenants that require (a) the ratio of total debt to consolidated EBITDA not to exceed a maximum and (b) a minimum interest expense and principal payment coverage ratio.
As of December 31, 2018, $200.0 million was outstanding under our Revolving Credit Facility. Additionally, we were in compliance with all covenants under the 2026 Notes, the 2025 Notes and the Amended and Restated Credit Agreement. For additional information on our long-term debt, see Note 10 - Debt to the consolidated financial statements included in this 2018 Form 10-K.
Such statues, regulations and capital requirements also restrict the timing, payment, and amount of dividends and other distributions that may be paid to us as the sole stockholder. Dividend restrictions vary by state, but the maximum amount of dividends which can be paid without prior approval from the applicable state is subject to restrictions relating to statutory capital, surplus and net income for the previous year. Some states require prior approval of all dividends, regardless of amount. States may disapprove any dividend that, together with other dividends paid by a subsidiary in the prior 12 months, exceeds the regulatory maximum as computed for the subsidiary based on its statutory surplus and net income. We received $335.6 million, $335.0 million and $241.0 million in dividends from our regulated subsidiaries during the years ended December 31, 2018, 2017, and 2016, respectively. The 2018 amount included $65.6 million not requiring prior regulatory approval, and $270.0 million paid after obtaining prior regulatory approval. Under applicable regulatory requirements at December 31, 2018, the amount of dividends that may be paid through the end of 2019 by our HMO and insurance subsidiaries without prior approval by regulatory authorities is approximately $420.7 million in the aggregate. Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.
For additional information on regulatory requirements, see Note 16 - Regulatory Capital and Dividend Restrictions to the consolidated financial statements in this 2018 Form 10-K.
Our purchase obligations include commitments under contracts for equipment leases and software maintenance.
At December 31, 2018, we did not have any off-balance sheet financing arrangements except for operating leases as described in the table above.
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of our results of operations and financial condition in conformity with GAAP. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that our accounting estimates relating to premium revenue recognition and premiums receivable, medical benefits expense and medical benefits payable, and goodwill and intangible assets, are those that are most important to the portrayal of our financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The ACA industry fee began in 2014. For 2016 and 2018, we received amendments, written agreements or other documentation from all of our state Medicaid customers that commit them to reimburse us for the portion of the ACA industry fee attributable to our Medicaid plans, including its non-deductibility for income tax purposes. We recognized $302.2 million and $244.9 million of reimbursement for the ACA industry fee as premium revenue for the years ended December 31, 2018 and 2016, respectively. The Consolidated Appropriations Act, provided for a one-year moratorium on the ACA industry fee in 2017, and, as a result, eliminated the associated Medicaid ACA industry fee reimbursements from our state government partners for 2017. Accordingly, we did not recognize any Medicaid ACA industry fee reimbursement revenue for the year ended December 31, 2017.
As previously discussed, Medicaid premium rate changes are recognized in the period the change becomes effective, when the effect of the change in the rate is reasonably estimable and collection is assured. In some instances, our Medicaid premiums are subject to risk score adjustments based on the health profile of our membership. Generally, the risk score is determined by the state agency's analysis of encounter submissions of processed claims data to determine the acuity of our membership relative to the entire state's Medicaid membership. The frequency of when states adjust premiums varies, but is usually done quarterly or semi-annually on a retrospective basis. We recognize periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured. Historically, we have not experienced significant differences between our estimates and amounts ultimately paid or received.
We may be required to refund certain premium revenue to state agencies and CMS under various contractual and plan arrangements. We estimate the effect of the following arrangements on a monthly basis and reflect any adjustments to premium revenues in current operations. We report the estimated net amounts due to state agencies and CMS in other payables to government partners in the consolidated balance sheets.
standard coverage as defined by CMS, less rebates included in our submitted plan year bid. We receive additional premium from CMS if our actual experience is more than 5% above the target amount. We refund premiums to CMS if our actual experience is more than 5% below the target amount. Based on the risk corridor provision and PDP activity-to-date, an estimated risk-sharing receivable or payable is recorded as an adjustment to premium revenue. After the close of the annual plan year, CMS performs the risk corridor calculation and any differences are settled between CMS and our plans. Historically, we have not experienced material differences between the subsequent CMS settlement amount and our recorded estimates.
(1) The components of net payables to government partners are classified in the consolidated balance sheets as $28.5 million and $458.9 million in current assets and current liabilities, respectively, as of December 31, 2018 and $44.2 million and $367.0 million in current assets and current liabilities, respectively, as of December 31, 2017.
Coverage Gap Discount Subsidy ("CGDS") - CMS provides monthly prospective payments for pharmaceutical manufacturer discounts made available to members.
CGDS advance payments are recorded within Funds receivable/held for the benefit of members in the consolidated balance sheets. Receivables are set up for manufacturer-invoiced amounts. Manufacturer payments reduce the receivable as payments
are received. After the end of the contract year, during the Medicare Part D Payment reconciliation process for the CGD, CMS will perform a cost-based reconciliation to ensure the Medicare Part D sponsor is paid for gap discounts advanced at the point of sale, based on accepted prescription drug event data.
(1) The components of net funds payable for the benefit of members, net are classified in the consolidated balance sheets as $187.3 million and $693.3 million in current assets and current liabilities, respectively, as of December 31, 2018, and as $27.5 million and $1.1 billion in current assets and current liabilities, respectively, as of December 31, 2017.
Consistent with the criteria specified and defined in guidance issued by the Department of Health and Human Services ("HHS") for costs that qualify to be reported as medical benefits under the minimum MLR provision of the ACA, we record certain medically-related administrative costs such as preventive health and wellness, care management, and other quality improvement costs, as medical benefits expense. All other medically-related administrative costs, such as utilization review services, network and provider credentialing and claims handling costs, are recorded in selling, general, and administrative expense.
Medical benefits payable represents amounts for claims fully adjudicated but not yet paid and estimates for IBNR. Our estimate of IBNR is the most significant estimate included in our consolidated financial statements. We determine our best estimate of the base liability for IBNR utilizing consistent standard actuarial methodologies based upon key assumptions, which vary by business segment. Our assumptions include current payment experience, trend factors and completion factors. Trend factors in our standard actuarial methodologies include contractual requirements, historic utilization trends, the interval between the date services are rendered and the date claims are paid, denied claims activity, disputed claims activity, benefit changes, expected health care cost inflation, seasonality patterns, maturity of lines of business, changes in membership and other factors.
After determining an estimate of the base liability for IBNR, we make an additional estimate, also using standard actuarial techniques, to account for adverse conditions that may cause actual claims to be higher than the estimated base reserve. We refer to this additional liability as the provision for moderately adverse conditions. Our estimate of the provision for moderately adverse conditions captures the potential adverse development from factors such as:
(1) Incurred amounts for 2018 and 2017 include a premium deficiency reserve for our Illinois Medicaid programs ("Illinois PDR"), which amounted to $16.1 million and $45.6 million, respectively, as discussed further in Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements included in this 2018 Form 10-K.
Medical benefits payable recorded developed favorably by approximately $475.3 million, $367.6 million and $284.7 million in 2018, 2017 and 2016, respectively. The release of the provision for moderately adverse conditions included in our prior year estimates was substantially offset by the provision for moderately adverse conditions established for claims incurred in the current year. Accordingly, the favorable development in our estimate of medical benefits payable related to claims incurred in prior years does not directly correspond to a decrease in medical benefits expense recognized during the period in which the favorable development is recognized.
Excluding the prior year development related to the release of the provision for moderately adverse conditions, our estimates of consolidated medical benefits expense recorded developed favorably by approximately $243.8 million, $224.6 million, and $154.3 million in 2018, 2017 and 2016, respectively. Such amounts are net of the development relating to refunds due to government customers in connection with minimum loss ratio provisions. The net favorable development recognized in 2018, 2017 and 2016 was primarily in our Medicaid Health Plans segment and, to a lesser extent, in our Medicare Health Plans segment. The net favorable development resulted primarily from a number of operational and clinical initiatives planned and executed, that contributed to lower than expected pharmacy and medical trends, and actual claim submission time being faster than we originally assumed (i.e. our completion factors were higher than we originally assumed) in establishing our medical benefits payable in the prior years. This development does not directly correspond to an increase in our current year operating results as these reductions were offset by estimated current period medical benefits expense when we established our estimate of the current year medical benefits payable. Both completion factor and medical trend assumptions are influenced by utilization levels, unit costs, mix of business, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, our ability and practices to manage medical and pharmaceutical costs, claim submission patterns and operational changes resulting from business combinations, among others. Our actual costs were ultimately less than expected.
We evaluate our contracts to determine if it is probable that a loss will be incurred. We establish a premium deficiency reserve ("PDR") when it is probable that expected future medical benefits and administrative expenses will exceed future premiums and reinsurance recoveries for the remainder of a contract period. For purposes of determining a PDR, we do not consider investment income and contracts are grouped in a manner consistent with our method of acquiring, servicing and measuring the profitability of such contracts. A PDR is recorded as medical benefits expense and in medical benefits payable. Once established, a PDR is reduced over the contract period as an offset to actual losses. We re-evaluate our PDR estimates each reporting period and, if estimated future losses differ from those in the current PDR estimate, we adjust the liability through medical benefits expense, as necessary.
We recorded a premium deficiency reserve for our Illinois Medicaid programs ("Illinois PDR") of $16.1 million and $45.6 million as of December 31, 2018 and 2017, respectively, in connection with our new Medicaid managed care contract with the Illinois Department of Health Care and Family Services ("HFS") that was effective on January 1, 2018 (the "Illinois PDR"). The Illinois PDR reflects the initial premium rate structure, estimated medical benefits and other costs expected to be incurred during the initial four-year contractual term of the contract.
Our acquisitions typically result in goodwill, which represents the excess of the acquisition cost over the fair value of net assets acquired. Goodwill is assigned to reporting units, which we determined to be the same as our operating segments. Goodwill recorded at December 31, 2018 was $2.2 billion compared with $660.7 million at December 31, 2017. Goodwill attributable to our Medicaid reporting unit was $274.7 million and $274.7 million at December 31, 2018 and 2017, respectively. Goodwill attributable to our MA reporting unit was $392.3 million and $386.0 million at December 31, 2018 and 2017, respectively. Additionally, we recorded $1.6 billion attributed to the Meridian acquisition that has not been assigned to a reporting unit as of December 31, 2018. The increases in goodwill for the various reporting unit from December 31, 2017 primarily resulted from our acquisition Meridian during 2018. Refer to Note 3 - Acquisitions, included in the consolidated financial statements in this 2018 Form 10-K for additional discussion.
Other intangible assets resulting from our acquisitions include provider networks, broker networks, trademarks, state contracts, non-compete agreements, licenses and permits. We amortize other intangible assets over their estimated useful lives ranging from approximately one to 15 years. These assets are allocated to reporting units for impairment testing purposes. We review our other intangible assets for impairment when events or changes in circumstances occur, which may potentially affect the estimated useful life or recoverability of the remaining balances of our intangible assets. Such events and changes in circumstances would include significant changes in membership, state funding, federal and state government contracts and provider networks. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to current forecasts of undiscounted future net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities. If these assets are determined to be impaired, the amount of impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. During 2018, 2017 and 2016, no events or circumstances have occurred, which may potentially affect the estimated useful life or recoverability of the remaining balances of our other intangible assets. Accordingly, there were no impairment losses recognized during these periods.
Refer to Note 2 - Summary of Significant Accounting Policies, included in the consolidated financial statements for information and disclosures related to new accounting standards which are incorporated herein by reference.