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Definitions of Terms Used In PULSE

The following are terms used in PULSE. It is intended to answer the needs of users of PULSE for explanation of the terms and methodologies employed in our statistical tables.The "Find in Page" feature on your browser will also help you locate definitions. Please note that these definitions are our conventions. They may differ from other sources.

Please contact us here if we can clarify or expand on these definitions.


Ticker: This is the symbol used by stock markets to uniquely identify public companies.

Year End Data: Data from the most recent available fiscal year.

Interim (Int.): Refers to the most recent available quarterly period.

Current Market Capitalization (Cap.): Calculated as the number of shares outstanding times current stock price. This is what the market believes to be the value of a company's shareholder's equity.

Valuation Ratios: These provide indications of capital costs and factors for valuation of businesses. For valuation purposes, they are often applied to attributes of companies that a financial analyst wishes to value. Typically, these ratios are adjusted to reflect whether a controlling interest is being acquired, and whether the shares are liquid.

Price / Earnings (P/E): Stock Price divided by EPS (Earnings per Share). The market's appraisal of the health plan's net earnings. Usually, the higher the P/E multiple, the faster the market expects the company to grow. Earnings per Share is defined below.

P/E - Latest Year: The most recently completed fiscal year.

P/E - Estimated 20__: These are multiples based on EPS that are estimated by Wall Street securities analysts covering these stocks. EPS is defined above.

P/E - Last 12 Months (LTM): Pertains to the four quarters immediately preceding. In other words, if information on a company was available for the first quarter, Last 12 Months would be the second quarter of the previous year through the first quarter of this one. This adjustment applies valuation ratios to a companies ongoing attributes, rather than potentially distant historical ones. This also makes it easier to compare firms with differing fiscal years.

Price to Operating Income (Op. Income): Current Market Capitalization plus Long-Term Debt less Working Capital all divided by Operating Income. Operating Income, Long-term Debt and Working Capital are defined below.

Note on Adjustments to Price. This calculation (along with Price to Sales and Price per Member, below) makes two important adjustments to the Market Capitalization, designed to improve its validity, based on some common-sense notions of the way the world works. In other words, "Price" as used in these calculations means something different than stock price.

First, we assume that the securities markets understand that shareholders' claim on the operations of a company (as opposed to its net income) is shared with the company's long-term creditors. Thus, the total value of the enterprise (often called the enterprise value) is assumed to include both the Market Capitalization and the book value of its Long-term Debt.

Secondly, we assume that working capital, which we have arbitrarily deemed excess cash and investments, are valued by the market separately from the way the markets value a health plan's operations. That is because investments held by health plans have different risk and return characteristics than health plan operations and also can be readily valued separately. This is ultimately our arbitrary decision, and it does not directly address the effect of statutory reserves that in the real world tie up investments of health plans. (Since they vary by state and by product, a more precise adjustment would be hideously complex.) However the logic is compelling and is consistent with the behavior of stocks that issue significant dividends, which trade higher or lower based upon whether shareholders are eligible to receive an announced dividend.

Price to EBITDA: Similar to Price to Operating Income. The numerator is calculated in the same way. The denominator is Earnings Before Interest, Taxes, Depreciation and Amortization. It is also operating earnings plus depreciation and amortization. Note that the values for Price to EBITDA and Price to Operating Earnings are fairly similar, because this is not a business that is usually very capital intensive unlike, say, hospitals.

Many analysts prefer the EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) formulation because it eliminates expenses that may not necessarily be borne by an acquirer. For instance, a suitor may have a different view than an acquisition candidate about the need to make certain investments, the optimal capital structure or acquisition policies, and is likely to have a different consolidated tax picture. Thus, to value a business, it makes sense to eliminate such legacy decisions. We agree with the "I" and the "T" but to some degree EBITDA throws the baby out with the bath water. After all, it is probable that some investment will in fact be required to sustain the business, regardless of ownership, and Depreciation and Amortization is a not unreasonable reckoning of their expected annual cost. This is especially the case since, under FAS No. 142, amortization of goodwill and other indefinite-lived intangible assets, are no longer amortized.

Price to Sales: Current Market Value plus Long-Term Debt less Working Capital all divided by Sales during the last twelve months. See Note on Adjustments to Price. Sales means Revenues, defined below.

Price per Member: Current Market Value plus Long-Term Debt less Working Capital all divided by Members. See Note on Adjustments to Price. The value the market places on the operating assets or the franchise of the health plan. Member is defined below.

Risk Members: Enrollees at the end of the reporting period. For group accounts, the employee plus dependents. Excluded are ASO, also called ASC or self-insured members. These members have "comprehensive" hospital and physician benefits. Members must be "controlled" by the plan.

Total Members: This is the sum of Risk Members and Administrative Services Only Members.

Price to Net Worth: Current Market Value divided by Book Value. The ratio of the market's appraisal of shareholders' equity relative to reported book value. High values mean the market believes the book value of the equity understate the true value of the equity. Net Worth and Book Value are defined below.

Price to Tangible Book: Stock Price divided by Tangible Book per Share. A ratio of the market's appraisal of shareholders' equity, adjusted for intangible assets. High values mean that the market believes Tangible Book Value to understate the true equity value. Intangible assets include accounting goodwill, essentially the premium paid over the fair market value of each asset individually assumed in an acquisition.

Revenues: Consists of premiums, Administrative Service Only (ASO) fees and specialty revenue fees but not interest income.

Premiums Per Member Per Month: This is the monthly premiums per member, calculated as the premiums for the quarter divided by the members at the end of the quarter, times three. This is intended to capture trends in prices to insured members. Insured members include Medicare, Medicaid, Medicare Supplemental, and Commercial. Mixes will differ by plan. Those members insured under employer sponsored or individual health benefit programs for those under 65 years of age. Premiums will not tie neatly to Revenues (as we've displayed them). These calculations avoid the effects of ASO and specialty products in the calculation.

Net Income: Revenues less expenses including income taxes. Net income is calculated after minority interests and preferred dividends.

Previous Year: The year prior to the latest year.

Latest Year: The most recently available fiscal year.

Operating Income: Pretax income plus interest expense less interest income. A figure which marks the returns on operating revenues. Put in a different way, it is calculated as revenues less health benefits and administrative expenses. Captures the operating performance of the health plan.

Comparable (Comp.) Quarter: This means the same period last year as the Interim data in this year. Thus, if Interim data is as of the second quarter, the Comparable period will also be the second quarter, but last year's.

Operating Margin: Operating Income divided by Revenues, expressed as a percent. The higher the operating margin, the more financial resources are available to fund growth, enhance the solvency of the plan or return to shareholders.

Earnings per Share: Calculated as Net Income divided by Shares Outstanding. We use fully diluted shares to account for shares not yet issued, but under current market circumstances, likely would be. These would include in-the-money stock options used for executive compensation purposes.

Health Benefits Ratio: Medical Expenses as a percent of Premium Revenues. Generally, lower is better. One hundred percent minus the health benefits ratio could be considered the gross margin, as used in manufacturing contexts.

This is also commonly referred to as the Medical Loss Ratio, terminology based on a property - casualty conception of passivity that fails to square with the more active roll that health insurers have (compared with insurers of storm damage) in managing their claims exposure. The medical loss ratio also has a legal definition that may differ from the health benefit ratio due to its inclusion of health.

Change in Health Benefit Ratio: This quarter's Health Benefit Ratio minus that of the same period last year. Negative values indicate margin improvement.

Admin. to Prem. Int. Qtr. (Administration to Premium, Interim Quarter): Simply, this is Administrative expenses as a percent of Premium Revenues. It can be a gauge of administrative cost efficiency, although can reflect other factors as well. These additional factors include the mix of products (especially ASO, but also notably individual Medicare and Medicaid) and the extent to which administrative functions are delegated to capitated health care providers and the stage in the product life cycles that dominate the mix offered by the firm. Note especially the reasonable application of this ratio requires that all administration be associated with premium revenues.

Therefore to achieve comparability we have used the following modified formula: Members in Insured Products divided by Members in All Comprehensive Products times Administrative Expenses divided by Premiums. This adjustment attempts to achieve comparability between firms with and without ASO products by assuming that administrative expenses per member are the same regardless of whether the risk of the member's health variances are borne by the health plan or the plan sponsor in an ASO arrangement. It does not adjust for every specific factors and these calculations may differ from those disclosed by the health plan itself. We considered comparability, which we can independently develop, to be more important than disclosure of a ratio that we can not independently verify.

Long-Term Debt: Conventional Long-Term debt plus other professional liabilities. Does not include deferred taxes and is senior to shareholders' claim on the company.

Debt to Capital Ratio: Long-Term Debt divided by the sum of Long-Term Debt and Market Capitalization. This is a gauge of how leveraged the health plan is based upon what the market considers to be the value of shareholders' equity.

Net Worth: Net worth means the accounting value of shareholders' equity. It is also called Book Value and Total Shareholders' Equity. This is significant to creditors and regulators as a fundamentally conservative way of estimating the ability of a health plan to honor creditor and provider claims.

ROE (Return on Equity): Net Income in the trailing twelve months divided by ending Net Worth. A measure of the earnings per dollar of investment in shareholder's equity. Higher is usually better. In the absence of dividends, this is also referred to as the internal growth rate, and theoretically represents the speed with which the company can grow (assuming that its total equity turnover remains constant) without requiring external equity investment.

Intangibles: This refers to "soft" assets including accounting goodwill and capitalized development expenses. These are hard to realize in the event of a sale of such assets and are typically excluded from the health plans' calculations of statutory net worth.

Tangible Book Value: Net worth less intangible assets. This calculation emphasizes the value of the assets realizable in liquidation.

Tangible Book Per Share: Tangible Book Value divided by the total number of shares. A per share valuation of the assets realizable in liquidation.

Medical Expense Months of Tangible Book Value: Tangible Book Value divided by four times the Medical Expenses in the most recent quarter all times twelve. This is a rough gauge of the sufficiency of a plan to satisfy the claims of providers and creditors. One month was once considered satisfactory but the industry average is higher. Blue Cross Blue Shield Plans have benchmarks for this level that are substantially greater than this.

Working Capital: Current Assets, plus Long Term Investments, less Current Liabilities. Working Capital reflects value in excess of the value of operations. Long Term Investments are usually quite liquid and are therefore treated as cash.

Days of Claims Payable: Medical Claims Payable divided by four times Medical Expenses in the most recent quarter all times 365. Roughly, a measure of the length of time between the incurrence of a medical claim by a member and the payment of that claim by the health plan. This ratio is lower for plans that capitate or employ providers.

Change in Days of Claims Payable: Days of Claims of Payable in the most recent period minus Days of Claims Payable in the same period last year. Without a change in terms of trade, this is a measure of reserve trends. All things being equal, declines suggest that the quality of reported earnings may be suspect. However, there are reasonable alternative explanations including improvements in the speed and efficiency of the claims system, changes in the product mix and changes in the health plan model design that have the effect of accelerating payments say through capitation. Unfortunately, it is difficult to independently verify these explanations.

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