In addition to the buildings owned, the Company leases approximately 14,100 square feet in Newburgh, New York, 3,100 square feet in Albany, New York, 750 square feet in Nyack, New York, 1,250 square feet in Binghamton, New York, 2,100 square feet in Kingston, New York and 10,000 square feet in New York, New York, at an annual expenses of approximately $380,000, $50,000, $43,500, $15,200, $32,600 and $183,800, respectively. In turn, the Company subleases roughly 4,100 square feet in Newburgh, New York and the 2,100 square feet in Kingston, New York, to health care providers at annual rental incomes of approximately $109,900 and $32,600, respectively.
WellCare's principal source of revenue is premiums earned from the WellCare HMOs, while interest and other income consists of management and administrative fees, interest and investment income, reimbursements from certain third-party insurers, contributions, rental income and miscellaneous service income. Premium revenues represent in excess of 94% of the Company's total revenue for each of the years ended December 31, 1996, 1995 and 1994, and have grown substantially since the Company's inception as a result of increases in both HMO membership and premium rates.
Medical expenses increased 17.7%, or $20.4 million, to $136.0 million in 1996 representing a 14.2% increase on a per member per month basis, and increased as a percentage of premiums earned (the "medical loss ratio") from 80.0% in 1995 to 86.5% in 1996. The increase in the medical loss ratio is due, in large part, to the Company agreeing to record a one-time additional liability in the second quarter of 1996 of approximately $3.7 million resulting from assuming the cost of hospital inpatient care for members, the cost of which had previously been assumed by the Alliances and to the recording of medical expenses of approximately $2.9 million relating to unpaid claims for the period prior to October 1, 1994 (classified as physician services). Both of the aforementioned medical expenses were recorded by WCNY at the instruction of the New York State Insurance Department ("NYSID"). Both of these changes represent obligations which had previously been assumed by the Alliances and for which the Company had no contractual obligation to pay. A percentage of the increase in medical expenses is also due to a restructuring of the contractual capitation arrangements with the Alliances. As a result of a prior period restatements, medical expenses in 1996 were reduced approximately $2,423,000 (See Note 2a of "Notes to Consolidated Financial Statements).
Depreciation and amortization increased by approximately $962,000 to $3.3 million in 1996 as a result of amortization of preoperational costs associated with service area and product line expansions.
At December 31, 1996, the Company had working capital of $11.2 million, excluding the $6.7 million cash reserve required by New York State which is classified as a non-current asset, compared to working capital of $12.7 million, excluding the $8.2 million cash reserve, at December 31, 1995; the decrease in working capital was attributable primarily to the increase in medical costs payable resulting from WellCare reassuming the risk for certain services previously contracted (through capitation) to the Alliances. The Company believes that cash on hand, cash generated from operations and available borrowing will be sufficient to meet the Company's capital requirements for in excess of twelve months.