Overview. We offer managed care and other health insurance products to employer groups and Medicare beneficiaries in eight Western states and Guam. Our commercial and senior plans are designed to deliver quality health care and customer service to members cost-effectively. These programs include health maintenance organizations, or HMOs, preferred provider organizations, or PPOs, and Medicare Supplement products. We also offer a variety of specialty managed care products and services that employees can purchase as a supplement to our basic commercial and senior medical plans or as stand-alone products. These products include pharmacy benefit management, or PBM, behavioral health services, group life and health insurance and dental and vision benefit plans.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $141 million to $1.3 billion for the year ended December 31, 2002, from $1.2 billion in the prior year. Selling, general and administrative expenses increased primarily due to increased spending for information technology, or IT, initiatives, our PacifiCare and Secure Horizons brand building campaign and incentive compensation costs. These costs were partially offset by lower labor costs as a result of our 2001 corporate restructuring.
Impairment, Disposition, Restructuring, OPM and Other Charges. We recognized net pretax charges of approximately $3.7 million ($2.2 million or $0.07 diluted loss per share, net of tax) for the year ended December 31, 2002. See Note 10 of the Notes to Consolidated Financial Statements.
Employer self-funded membership decreased approximately 35% at December 31, 2001 compared to the prior year primarily due to membership losses in Texas. PPO and indemnity membership decreased approximately 10% at December 31, 2001 compared to the prior year primarily due to membership losses in California attributable to premium rate increases in 2001.
Medical Claims and Benefits Payable. The majority of our medical claims and benefits payable represent liabilities related to our risk-based contracts. Under risk-based contracts, claims are payable once incurred and cash disbursements are made to health care providers for services provided to members after the related claim has been submitted and adjudicated. Under capitated contracts, health care providers are prepaid on a fixed-fee per-member per-month basis, regardless of the services provided to members. The liabilities that arise for capitated contracts relate to timing issues primarily due to membership changes
Our financial and operating performance could be adversely affected by a reduction in revenue caused by membership losses, a failure to achieve expected membership levels in new products or products targeted for growth, or lower-than-expected premiums.
negative publicity and news coverage about us or litigation or threats of litigation against us;
state regulations that may increase the financial capital requirements of physicians and hospitals that contract with HMOs to accept financial risk for health services;
As of December 31 , 2002, we had approximately $840 million of outstanding indebtedness. Additionally, the total size of our committed revolving credit facility was $36 million, of which at least $35 million was available for borrowing. For the year ended December 31, 2002, our aggregate interest expense was approximately $75 million. Our debt service requirements will increase if interest rates increase because indebtedness under our senior credit facility, which represented $151 million of our debt as of December 31, 2002, bears interest at variable rates.