We had cash flows from operating activities of continuing operations for the year ended December 31, 2005 of $166.8 million compared to $164.5 million for 2004. We received eleven monthly payments from the Centers for Medicare and Medicaid Services (CMS) during 2005 compared to twelve monthly payments during 2004. This was offset by a decrease in the use of cash to fund the phase-out of our military health services operations segment and the additional payments from CMS in 2005, of over $30 million, which have been recorded in unearned premium revenue. See below under Medical Premiums for further discussion on this unearned premium revenue.
Our commercial membership increased from 226,000 at December 31, 2004 to 254,000 at December 31, 2005. The increase in commercial membership is attributed to in-case growth and new accounts including movement from self-insured groups to our commercial products.
DHCFP's request for proposal (RFP) to continue our services in October 2005. On November 10, 2005, we received notice from the DHCFP of its intent to award a contract to HPN as one of two Medicaid managed care contractors in the state of Nevada. On December 20, 2005, HPN received final confirmation of the contract award. On January 4, 2006, we announced we had received notice that the contract had been rescinded and would be reopened to a new bid at a later date. This action was taken in response to a reported error in the state's calculation of responses to the RFP from various bidders, as well as a change in the composition of the evaluation panel and the instructions it received. Sierra's current contract to provide certain Medicaid services remains in effect. We have received a new RFP from the state and a request to extend the current contract by four months. We plan to respond to the new RFP.
Provision for Income Taxes. The effective tax rate for 2005 was 34.0% compared to 36.3% for 2004. The lower tax rate in 2005 is a result of a settlement benefit recorded relative to state taxes in 2005 and the impact of state income taxes, valuation allowances and other non-deductible expenses during 2004.
Our commercial membership increased from 202,000 at December 31, 2003 to 226,000 at December 31, 2004. The increase in commercial membership during 2004 is attributed to in-case growth, movement from self-insured plans to our commercial products and new accounts.
Our HMO and insurance subsidiaries are required by state regulatory agencies to maintain certain deposits and must also meet certain net worth and reserve requirements. The HMO and insurance subsidiaries had restricted assets on deposit in various states totaling $17.6 million at December 31, 2005. The HMO and insurance subsidiaries must also meet requirements to maintain minimum stockholders' equity, on a statutory basis, as well as minimum risk-based capital requirements, which are determined annually. In conjunction with the exit from the Texas HMO health care market, the Texas Department of Insurance approved a plan of withdrawal and Texas Health Choice, L.C., is currently required to maintain deposits of $1.5 million and net worth of at least $3.5 million. We believe we are in material compliance with our regulatory requirements.
Our long-term debt consists of our 2¼% senior convertible debentures issued in March 2003. We occupy space and lease equipment under leases that are accounted for as capital leases, where the property and equipment and related lease obligations are recorded on our balance sheet.
Management believes, based on information presently available, that the recorded liability for medical claims payable, which at December 31, 2005, represented 35.3% of our total consolidated liabilities or $135.9 million, is reasonable and adequate to cover the related future health care claim payments. However, a difference between the recorded liability and actual developed claim payments could have a material impact on our financial results. For example, a 1% increase in medical claims payable as of December 31, 2005, would reduce reported net income for the year 2005 by $883,000 or 0.7% and diluted earnings per share would be reduced by $0.01.
Income Taxes. The Company accounts for income taxes using the liability method. Deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and the reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. The Company's temporary differences arise principally from loss carryforwards and credits, medical claims payable, compensation accruals, valuation allowance and depreciation.
Supplemental Retirement Plans. The Company has Supplemental Retirement Plans (the "SRPs") for certain officers, directors and highly compensated employees. The SRPs are non-qualified deferred compensation plans through which participants may elect to postpone the receipt and taxation of a portion of their salary and bonuses received from the Company. As contracted with the Company, the participants or their designated beneficiaries may begin to receive benefits under the SRPs upon a participant's death, disability, retirement, termination of employment or certain other circumstances including financial hardship. The Company had a liability of $18.4 million and $16.5 million for the SRPs at December 31, 2005 and 2004, respectively. While the SRPs are unfunded plans, the Company is informally funding the plans through life insurance contracts on certain Company employees. The life insurance contracts had cash surrender values of $17.3 million and $15.3 million at December 31, 2005 and 2004, respectively.
repurchases for the second quarter of 2004 are 1,000,000 shares the Company purchased from its CEO, at $21.60 per share, for a total of $21.6 million. The closing price of the Company's common stock on the date of the transaction, May 27, 2004, was $21.63. The independent directors of the Company's Board of Directors approved both of the purchases.
Rent expense totaled $19.8 million, $23.3 million and $20.6 million for the years ended December 31, 2005, 2004 and 2003, respectively.