Headquartered in Cincinnati, Ohio, the Dental Care Plus Group offers to Ohio, Kentucky and Indiana employer groups of all sizes dental HMO, dental PPO, dental indemnity and vision PPO benefit plans and related services. The Company also offers dental PPO plans to individuals and small groups on the Ohio, Indiana, Pennsylvania, Georgia, Tennessee, Kentucky, Virginia and Illinois exchanges and individual dental HMO and PPO plans in Ohio, Kentucky and Indiana. As of December 31, 2017, we had approximately 386,600 members in our dental and vision benefit programs with approximately 3,000 providers participating in our Dental Care Plus 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.
We had net income of approximately $1,829,000 for the year ended December 31, 2017 compared to net income of approximately $1,989,000 for the year ended December 31, 2016. This decrease in net income is primarily the result of higher deferred tax expense as a result of the U. S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”) which accounted for an approximate $692,000 increase in taxes, an increase in premium revenue of approximately $1,995,000 offset by an increase in healthcare services expense of approximately $1,108,000 in 2017. The increase in gross margin of approximately $887,000 was offset by an increase in insurance expenses of $552,000 in 2017. Our ratio of insurance expense to total premium revenue (“insurance expense ratio”) increased to 21.1% in 2017 from 21.0% in 2016.
Net income was approximately $1,829,000 and $1,989,000 for 2017 and 2016, respectively. This decrease in net income is primarily the result of higher deferred tax expense as a result of the Tax Act which accounted for an approximate $692,000 increase in taxes, an increase in premium revenue of approximately $1,995,000 offset by an increase in healthcare services expense of approximately $1,108,000 in 2017. The increase in gross margin of approximately $887,000 was offset by an increase in insurance expenses of $552,000 in 2017. Our ratio of insurance expense to total premium revenue (“insurance expense ratio”) increased to 21.1% in 2017 from 21.0% in 2016.
The differences between our net income and comprehensive income include the changes in the unrealized gains or losses on marketable securities and changes in the fair value of our interest rate swap agreement. For the years ended December 31, 2017, 2016, and 2015, respectively, such changes increased or (decreased), net of related income tax effects, by the following amounts:
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 $36,818,000 and $46,955,000 at December 31, 2017 and 2016, respectively, and primarily relates to the estimated premium revenue associated with the remaining contract periods. Related amounts recorded in accounts receivable were approximately $35,281,000 and $45,687,000 at December 31, 2017 and 2016, 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 $1,536,000 and $1,268,000 at December 31, 2017 and 2016, respectively. Management has determined that as of December 31, 2017 and 2016, respectively, no premium deficiency reserve is required. The Company’s premium deficiency reserve analysis includes an allocation of investment income.
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 accredited non-provider individuals. All participating providers, Company directors and Company employees are eligible to own the Class A and Class B voting redeemable common shares. Accredited non-provider 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.
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 appreciation (depreciation) on investments.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The effective date of ASU 2016-01 is for interim and annual reporting periods beginning after December 15, 2017. The ASU has not yet been adopted by the Company. We do not expect the adoption to have a material impact on the Company’s consolidated financial position, cash flows and results of operations.