Self-insured healthcare services expense increased approximately $3.4 million or 37.8% in 2006 as compared to 2005. This increase is attributable to both the increase in self-insured dental HMO membership and the provider fee schedule increase implemented at the beginning of 2006. Member utilization remained relatively constant between 2005 and 2006.
In most cases, the fees of our participating providers for covered dental services under the dental HMO are subject to a 10% withhold by us. Accordingly, our dental HMO network providers are paid 90% of the agreed fees for covered services as set forth on applicable fee schedule. The amounts withheld are not retained in a separate fund and we have no obligation to pay any portion of the amounts withheld to the providers. The dental providers have no vested rights in the amounts withheld unless our Board of Directors authorizes any amounts withheld to be paid to the providers, and then vesting is only to the extent of such amounts authorized to be paid. Once authorized for payment by the Board, such amounts are recorded as claims payable liabilities until paid.
Net unrealized investment gains in marketable securities (net of income tax effects) were $554 in the year ended December 31, 2006. Net unrealized investment losses in marketable securities (net of income tax effects) were $5,233 in the year ended December 31, 2005. There were no unrealized investment gains or losses in 2004.
The amount of the annual provider withhold payment authorized by our Board varies from year to year depending on, among other factors deemed relevant from time to time, the amount of pre-tax income projected for the year then ending, our estimated income tax liability for the year, the amount of retained earnings needed to satisfy the risk-based capital requirements of the Ohio Department of Insurance, factors impacting our financial strength rating with A.M. Best, such as the ratio of our projected fully insured premium revenue to our projected capital and surplus level, and the amount of capital needed for anticipated future capital expenditures. We began considering the A.M. Best financial strength rating factor in 2004.
The Company’s Class A and Class B Redeemable Common Shares are owned by participating providers and Company directors. Only participating providers in the original eight county area are eligible to own Class A voting Redeemable Common Shares (See Note 9). All participating providers, Company directors and Company
Premium revenue is recognized in the period during which dental or vision coverage is provided to the covered individuals. Payments received from customers in advance of the related period of coverage are reflected on the accompanying consolidated balance sheet as deferred premium revenue.
Dividends restrictions vary among the subsidiaries. DCP is restricted by regulatory requirements of the domiciliary state, which limit by reference to statutory net income and net worth the dividends that can be paid without prior regulatory approval. Dividends paid by DCP cannot, without prior approval of the Department, exceed in any one year the lesser of: (i) 10% of net worth (as of the preceding December 31), or (ii) net income for the prior year, and only if net worth exceeds $250,000 and only out of positive retained earnings. Under these restrictions, the total dividends that may be paid by DCP in 2007 without prior regulatory approval are approximately $175,000. DCP paid a dividend of $250,000 in 2005. There were no dividends declared or paid by any subsidiaries during 2006 or 2004.
At December 31, 2006, future required payments under the capital lease are as follows:
Leases - The Company leases certain equipment and office space under noncancellable operating leases. Rent expense under all operating leases was approximately $210,000, $86,000, and $29,000 for the years ended December 31, 2006, 2005, and 2004, respectively.
In 2004, the Company began to lease space in its building to unrelated parties under noncancellable leases. Income recorded by the Company under noncancellable leases amounted to approximately $92,000 and $74,000 for the years ended December 31, 2006 and 2005, respectively. Such amounts are recorded as other income in the accompanying financial statements. As of December 31, 2006, future minimum annual lease income under noncancellable leases are as follows: