General (Policies)

9 Months Ended

Sep. 30, 2021

General

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for the Company beginning in the first quarter of 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company can include, among other things, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company also makes estimates in relation to revenue recognition under Accounting Standard Codification 606 (“ASC 606”) which are explained in more detail in “Revenue Recognition” below. Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

Virtually all of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the three and nine months ended September 30, 2020 and 2021 by major service line, type of customer and timing of revenue recognition (in thousands):

	Three Months Ended September 30, 2020
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	352,442	$	—	$	(95)	$	352,347
EAP risk-based		74,703		—		—		74,703
ASO		62,306		11,631		(50)		73,887
PBM, including dispensing		—		540,615		(5,117)		535,498
Medicare Part D		—		65,931		—		65,931
PBA		—		35,068		—		35,068
Formulary management		—		31,327		—		31,327
Other		—		1,356		—		1,356
Total net revenue	$	489,451	$	685,928	$	(5,262)	$	1,170,117
Type of Customer
Government	$	240,845	$	210,040	$	—	$	450,885
Non-government		248,606		475,888		(5,262)		719,232
Total net revenue	$	489,451	$	685,928	$	(5,262)	$	1,170,117
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	606,546	$	(5,117)	$	601,429
Transferred over time		489,451		79,382		(145)		568,688
Total net revenue	$	489,451	$	685,928	$	(5,262)	$	1,170,117

	Three Months Ended September 30, 2021
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	437,809	$	—	$	(78)	$	437,731
EAP risk-based		75,369		—		—		75,369
ASO		67,100		11,834		(97)		78,837
PBM, including dispensing		—		587,622		(3,324)		584,298
Medicare Part D		—		1,229		—		1,229
PBA		—		39,206		—		39,206
Formulary management		—		34,734		—		34,734
Other		—		2,714		—		2,714
Total net revenue	$	580,278	$	677,339	$	(3,499)	$	1,254,118
Type of Customer
Government	$	235,636	$	142,642	$	—	$	378,278
Non-government		344,642		534,697		(3,499)		875,840
Total net revenue	$	580,278	$	677,339	$	(3,499)	$	1,254,118
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	588,851	$	(3,324)	$	585,527
Transferred over time		580,278		88,488		(175)		668,591
Total net revenue	$	580,278	$	677,339	$	(3,499)	$	1,254,118

	Nine Months Ended September 30, 2020
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	1,046,486	$	—	$	(277)	$	1,046,209
EAP risk-based		232,060		—		—		232,060
ASO		180,832		35,436		(218)		216,050
PBM, including dispensing		—		1,558,211		(14,515)		1,543,696
Medicare Part D		—		178,308		—		178,308
PBA		—		96,008		—		96,008
Formulary management		—		78,550		—		78,550
Other		—		1,690		—		1,690
Total net revenue	$	1,459,378	$	1,948,203	$	(15,010)	$	3,392,571
Type of Customer
Government	$	690,340	$	622,986	$	—	$	1,313,326
Non-government		769,038		1,325,217		(15,010)		2,079,245
Total net revenue	$	1,459,378	$	1,948,203	$	(15,010)	$	3,392,571
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	1,736,519	$	(14,515)	$	1,722,004
Transferred over time		1,459,378		211,684		(495)		1,670,567
Total net revenue	$	1,459,378	$	1,948,203	$	(15,010)	$	3,392,571

	Nine Months Ended September 30, 2021
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	1,240,540	$	—	$	(256)	$	1,240,284
EAP risk-based		245,634		—		—		245,634
ASO		212,253		36,004		(224)		248,033
PBM, including dispensing		—		1,673,245		(10,331)		1,662,914
Medicare Part D		—		2,913		—		2,913
PBA		—		132,558		—		132,558
Formulary management		—		96,979		—		96,979
Other		—		7,220		—		7,220
Total net revenue	$	1,698,427	$	1,948,919	$	(10,811)	$	3,636,535
Type of Customer
Government	$	741,252	$	453,050	$	—	$	1,194,302
Non-government		957,175		1,495,869		(10,811)		2,442,233
Total net revenue	$	1,698,427	$	1,948,919	$	(10,811)	$	3,636,535
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	1,676,158	$	(10,331)	$	1,665,827
Transferred over time		1,698,427		272,761		(480)		1,970,708
Total net revenue	$	1,698,427	$	1,948,919	$	(10,811)	$	3,636,535

Per Member Per Month (“PMPM”) Revenue.  Almost all of the Healthcare revenue and a small portion of the Pharmacy Management revenue is paid on a PMPM basis. PMPM revenue is inclusive of revenue from the Company’s risk, EAP and ASO contracts and primarily relates to managed care contracts for services such as the provision of behavioral healthcare, specialty healthcare or pharmacy management. PMPM contracts generally have a term of one year or longer, with the exception of government contracts where the customer can terminate with as little as 30 days’ notice for no significant penalty. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is entirely variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress.

Pharmacy Benefit Management Revenue. The Company’s customers for PBM business, including pharmaceutical dispensing operations, are generally comprised of MCOs, employer groups and health plans. PBM relationships generally have an expected term of one year or longer. A master services arrangement (“MSA”) is executed by the Company and the customer, which outlines the terms and conditions of the PBM services to be provided. When a member in the customer’s organization submits a prescription, a claim is created which is presented for approval. The acceptance of each individual claim creates enforceable rights and obligations for each party and represents a separate contract. For each individual claim, the performance obligations are limited to the processing and adjudication of the claim, or dispensing of the products purchased. Generally, the transaction price for PBM services is explicitly listed in each contract and does not represent variable consideration. The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co-payments and any associated administrative fees,

when claims are adjudicated or the drugs are shipped. The Company recognizes PBM revenue on a gross basis (i.e. including drug costs and co-payments) as it is acting as the principal in the arrangement, controls the underlying service, and is contractually obligated to its clients and network pharmacies, which is a primary indicator of gross reporting. In addition, the Company is solely responsible for the claims adjudication process, negotiating the prescription price for the pharmacy, collecting payments from the client for drugs dispensed by the pharmacy, and managing the total prescription drug relationship with the client’s members. If the Company enters into a contract where it is only an administrator, and does not assume any of the risks previously noted, revenue will be recognized on a net basis. For dispensing, at the time of shipment, the earnings process is complete; the obligation of the Company’s customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund.

Pharmacy Benefit Administration Revenue. The Company provides Medicaid pharmacy services to states and other government sponsored programs. PBA contracts are generally multi-year arrangements but include language regarding early termination for convenience without material penalty provisions that results in enforceable rights and obligations on a month-to-month basis. In PBA arrangements, the Company is generally paid a fixed fee per month to provide PBA services. In addition, some PBA contracts contain upfront fees that constitute a material right. For contracts without an upfront fee, there is a single performance obligation to stand ready to provide the PBA services required for the contracted period. The Company believes that the customer receives the PBA benefits each day from access to the claims processing activities, and has concluded that a time-based measure is appropriate for recognizing PBA revenue. For contracts with an upfront fee, the material right represents an additional performance obligation. Amounts allocated to the material right are initially recorded as a contract liability and recognized as revenue over the anticipated period of benefit of the material right, which generally ranges from 2 to 10 years.

Formulary Management Revenue. The Company administers formulary management programs for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Formulary management contracts generally have a term of one year or longer. All formulary management contracts have a single performance obligation that constitutes a series for the provision of rebate services for a drug, with utilization measured and settled on a quarterly basis, for the duration of the arrangement. The Company retains its administrative fee and/or a percentage of rebates that is included in its contract with the client from collecting the rebate from the manufacturer. While the administrative fee and/or the percentage of rebates retained is fixed, there is an unknown quantity of pharmaceutical purchases (utilization) during each quarter; therefore the transaction price itself is variable. The Company uses the expected value methodology to estimate the total rebates earned each quarter based on estimated volumes of pharmaceutical purchases by the Company’s clients during the quarter, as well as historical and/or anticipated retained rebate percentages. The Company does not record as rebate revenue any rebates that are passed through to its clients.

In relation to the Company’s PBM business, the Company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers. The Company recognizes rebates when the Company is entitled to them and when the amounts of the rebates are determinable. The amount recorded for rebates earned by the Company from the pharmaceutical manufacturers is recorded as a reduction of cost of goods sold.

Government EAP Risk-Based Revenue. The Company has certain contracts with federal customers for the provision of various managed care services, which are classified as EAP risk-based business. These contracts are generally multi-year arrangements. The Company’s federal contracts are reimbursed on either a fixed fee basis or a cost reimbursement basis. The performance obligation on a fixed fee contract is to stand ready to provide the staffing required for the contracted period. For fixed fee contracts, the Company believes the invoiced amount corresponds directly with the value to the customer of the Company’s performance completed to date; therefore, the Company is utilizing the “right to invoice” practical expedient, with revenue recognition in the amount for which the Company has the right to invoice.

The performance obligation on a cost reimbursement contract is to stand ready to provide the activity or services purchased by the customer, such as the operation of a counseling services group or call center. The performance obligation represents a series for the duration of the arrangement. The reimbursement rate is fixed per the contract; however, the level of activity (e.g., number of hours, number of counselors or number of units) is variable. A majority of

the Company’s cost reimbursement transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided (i.e. as the Company provides hours, counselors or units of service).

In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the contracts in the Company’s PBM business, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts primarily includes net PMPM fees associated with unspecified membership that fluctuates throughout the contract.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable, contract assets and contract liabilities consisted of the following (in thousands, except percentages):

	December 31,		September 30,
	2020		2021		$ Change		% Change
Accounts receivable	$	799,803	$	856,059	$	56,256		7.0%
Contract assets		3,566		8,114		4,548		127.5%
Contract liabilities - current		6,772		7,287		515		7.6%
Contract liabilities - long-term		11,073		11,290		217		2.0%

Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $56.3 million, mainly due to timing of receipts. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $4.5 million, mainly due to the timing of accrual of certain performance incentives. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $0.5 million, mainly due to certain revenue payments received in advance. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, increased by $0.2 million mainly due to payments received for which recognition will be long term partially offset by certain balances which became current.

During the three months ended September 30, 2021, the Company recognized revenue of $2.0 million that was included in current contract liabilities at June 30, 2021. During the nine months ended September 30, 2021, the Company recognized revenue of $5.9 million that was included in current contract liabilities at December 31, 2020. The estimated timing of recognition of amounts included in contract liabilities at September 30, 2021 are as follows: 2021—$2.1 million; 2022—$6.5 million; 2023—$4.2 million; 2024 and beyond—$5.8 million. During the three and nine months ended September 30, 2021, the revenue the Company recognized related to performance obligations that were satisfied, or partially satisfied, in previous periods was not material.

The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generates contract assets or contract liabilities; however, these amounts are immaterial.

The Company’s accounts receivable is net of an allowance for credit losses. The estimate of current expected

credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each platform given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type.

The Company leveraged historical write offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company’s customers.

Significant Customers

Customers exceeding ten percent of the consolidated Company’s net revenues

The Company had no customers that exceeded ten percent of the Company’s net revenues from continuing operations.

Customers exceeding ten percent of segment net revenues

The following customers generated in excess of ten percent of net revenues from continuing operations for the respective segment for the nine months ended September 30, 2020 and 2021 (in thousands):

Segment	Term Date	2020		2021
Healthcare
Customer A	December 31, 2021	$	259,286	$	283,373
Customer B	December 31, 2024		147,177		300,450
Pharmacy Management
Customer C	March 31, 2024		284,697		247,786

Concentration of Business

The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the “Pennsylvania Counties”) which are part of the Pennsylvania Medicaid program, with members under its contract with CMS and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $428.6 million and $448.1 million for the nine months ended September 30, 2020 and 2021, respectively. The contract for one of the Pennsylvania Counties, which represents net revenues of $93.7 million and $99.2 million for the nine months ended September 30, 2020 and 2021, respectively, is scheduled to terminate on December 31, 2021. Net revenues from members in relation to its contracts with CMS in aggregate totaled $178.3 million and $2.9 million for the nine months ended September 30, 2020 and 2021, respectively. As of December 31, 2020 and September 30, 2021, the Company had $69.6 million and $40.7 million, respectively, in net receivables associated with Medicare Part D from CMS and other parties related to this business. In May 2020, the Company announced its decision of the non-renewal of Pharmacy Management’s individual Part D PDP at the end of 2020. Net revenues from contracts with various agencies and departments of the United States federal government in aggregate totaled $200.1 million and $215.4 million for the nine months ended September 30, 2020 and 2021, respectively.

The Company’s contracts with customers typically have stated terms of one to three years, and in certain cases contain renewal provisions (at the customer’s option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company’s contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 30 and 180 days) or upon the occurrence of other specified events. In addition, the Company’s contracts with federal, state and local governmental agencies generally are

conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made.

Leases

Leases

The Company leases certain office space, distribution centers, land and equipment. We assess each contract to determine if it contains a lease. This assessment is based on (i) the right to control the use of an identified asset; (ii) the right to obtain substantially all of the economic benefits from the use of the identified asset; and (iii) the right to use the identified asset. The Company elected the short-term lease practical expedient; thus, leases with an initial term of twelve months or less are not capitalized and the expense is recognized on a straight-line basis. Most leases include one or more options to renew, with renewal terms that can extend the lease from one to ten years. The exercise of renewal options is at the sole discretion of the Company. Renewal options that the Company is reasonably certain to accept are recognized as part of the right-of-use (“ROU”) asset.

Operating leases are included in other long-term assets, accrued liabilities and deferred credits and other long-term liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, current debt, finance lease deferred financing obligations and long-term debt, finance lease and deferred financing obligations in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments per the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. As the rate implicit in most of our leases is not readily determinable, the Company used its incremental borrowing rate to determine the present value of lease payments.

The following table shows the components of lease expenses for the three and nine months ended September 30, 2021 (in thousands):

	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Operating lease cost	$	2,292	$	7,040
Finance lease cost:
Amortization of right-of-use asset		471		1,743
Interest on lease liabilities		144		465
Total finance lease cost		615		2,208
Short-term lease cost		42		123
Variable lease cost		527		1,290
Total lease cost		3,476		10,661
Sublease income		—		(7)
Net lease cost	$	3,476	$	10,654

The following table shows the components of the lease assets and liabilities as of September 30, 2021 (in thousands):

	September 30, 2021
Operating leases:
Other long-term assets	$	30,411
Accrued liabilities	$	10,994
Deferred credits and other long-term liabilities		32,063
Total operating lease liabilities	$	43,057
Finance leases:
Property and equipment, net	$	9,637
Current debt, finance lease and deferred financing obligations	$	4,493
Long-term debt, finance lease and deferred financing obligations		8,524
Total finance lease liabilities	$	13,017

The maturity dates of the Company’s leases as of September 30, 2021 are summarized below (in thousands):

	September 30, 2021
2021	$	4,334
2022		15,795
2023		13,178
2024		11,392
2025		6,085
2026 and beyond		6,171
Total lease payments		56,955
Less interest		(881)
Present value of lease liabilities	$	56,074

The following table shows the weighted average remaining lease term and discount rate as of September 30, 2021:

	September 30, 2021
Weighted average remaining lease term years
Operating leases		4.59
Finance leases		3.00
Weighted average discount rate
Operating leases		2.96%
Finance leases		4.41%

Supplemental cash flow information relating to leases is as follows (in thousands):

	Nine months ended September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10,483
Operating cash flows from finance leases		3,341
Financing cash flows from finance leases		465
Right-of-use asset obtained in exchange for new lease obligation
Operating leases		1,637
Finance leases		—

Fair Value Measurements

Fair Value Measurements

The Company has certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company’s data.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s assets that are required to be measured at fair value as of December 31, 2020 and September 30, 2021 (in thousands):

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (1)	$	—	$	679,554	$	—	$	679,554
Investments:
U.S. Government and agency securities		42,399		—		—		42,399
Corporate debt securities		—		99,749		—		99,749
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	42,399	$	780,614	$	—	$	823,013

	September 30, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (2)	$	—	$	999,520	$	—	$	999,520
Investments:
U.S. Government and agency securities		16,530		—		—		16,530
Corporate debt securities		—		125,389		—		125,389
Taxable municipal bonds		—		12,299				12,299
Certificates of deposit		—		1,300		—		1,300
Total assets held at fair value	$	16,530	$	1,138,508	$	—	$	1,155,038

(1) Excludes $464.9 million of cash held in bank accounts by the Company.

(2) Excludes $38.9 million of cash held in bank accounts by the Company.

For the nine months ended September 30, 2021, the Company has not transferred any assets between fair value measurement levels.

The carrying values of financial instruments, including accounts receivable and accounts payable, approximate their fair values due to their short-term maturities. The fair value of the Notes (as defined below) of $395.6 million as of September 30, 2021 was determined based on quoted market prices and would be classified within Level 1 of the fair value hierarchy. The estimated fair value of the Company’s term loan of $150.0 million as of September 30, 2021 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy. The estimated

fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.

All of the Company’s investments are classified as “available-for-sale” and are carried at fair value.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash equivalents are short-term, highly liquid interest-bearing investments with maturity dates of three months or less when purchased, consisting primarily of money market instruments. Book overdrafts are reflected within accounts payable on the balance sheets. At September 30, 2021, the Company had no book overdrafts. At September 30, 2021, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of approximately $37.5 million are included in cash and cash equivalents.

Investments

Investments

If a debt security is in an unrealized loss position and the Company has the intent to sell the debt security, or it is more likely than not that the Company will have to sell the debt security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in income in the consolidated statements of comprehensive income. For impaired debt securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses recognized in net income and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income in the consolidated statements of comprehensive income.

As of December 31, 2020 and September 30, 2021, there were no material unrealized losses that the Company determined to be other-than-temporary. No realized gains or losses were recorded for the three or nine months ended September 30, 2020 or 2021. The following is a summary of short-term and long-term investments at December 31, 2020 and September 30, 2021 (in thousands):

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	42,389	$	11	$	(1)	$	42,399
Corporate debt securities		99,861		3		(115)		99,749
Certificates of deposit		1,311		—		—		1,311
Total investments at December 31, 2020	$	143,561	$	14	$	(116)	$	143,459

	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	16,529	$	1	$	—	$	16,530
Corporate debt securities		125,452		—		(63)		125,389
Taxable municipal bonds		12,298		2		(1)		12,299
Certificates of deposit		1,300		—		—		1,300
Total investments at September 30, 2021	$	155,579	$	3	$	(64)	$	155,518

The maturity dates of the Company’s investments as of September 30, 2021 are summarized below (in thousands):

	Amortized		Estimated
	Cost		Fair Value
2021	$	63,482	$	63,473
2022		92,097		92,045
Total investments at September 30, 2021	$	155,579	$	155,518

Income Taxes

Income Taxes

The Company’s effective income tax rates from continuing operations were 791.9 percent and 32.5 percent for the nine months ended September 30, 2020 and 2021, respectively. These rates differ from the applicable federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income. The Company also accrues interest and penalties related to uncertain tax positions in its provision for income taxes. The significant effective income tax rate for the nine months ended September 30, 2020 is primarily due to discrete adjustments for the nonrecurring tax benefit related to the divestiture recognized in the prior year, relative to the pre-tax loss for the period.

The Company files a consolidated federal income tax return with its eighty-percent or more controlled subsidiaries. The Company and its subsidiaries also file income tax returns in various state and local jurisdictions.

The Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020 and The American Rescue Plan Act of 2021 was signed March 11, 2021. All three acts provide widespread emergency relief for the economy and aid to corporations including several significant provisions related to taxes. As of September 30, 2021, the Company has not utilized (nor does it anticipate utilizing) any of the provisions that would result in a material impact on its results.

Net Operating Loss Carryforwards

Net Operating Loss Carryforwards

The Company and its subsidiaries have $75.0 million of net operating loss carryforwards (“NOLs”) available to reduce state and local taxable income at certain subsidiaries in 2021 and subsequent years. Most of these NOLs will expire in 2021 and subsequent years if not used and are subject to examination and adjustment by the respective tax authorities. In addition, the Company’s utilization of certain of these NOLs is subject to limitations as to the timing and amount. Other than those considered in determining the valuation allowances discussed below, the Company does not believe these limitations will restrict the Company’s ability to use any of these state and local NOLs before they expire.

Deferred tax assets as of December 31, 2020 and September 30, 2021 are shown net of valuation allowances of $0.9 million and $0.9 million, respectively. These valuation allowances mainly relate to uncertainties regarding the eventual realization of certain state NOLs. Reversals of valuation allowances are recorded in the period they occur, typically as reductions to income tax expense. Determination of the amount of deferred tax assets considered realizable requires significant judgment and estimation regarding the forecasts of future taxable income which are consistent with the plans and estimates the Company uses to manage the underlying businesses. Although consideration is also given to potential tax planning strategies which might be available to improve the realization of deferred tax assets, none were identified which were both prudent and reasonable. The Company believes taxable income expected to be generated in the future will be sufficient to support realization of the Company’s deferred tax assets, as reduced by valuation allowances. This determination is based upon earnings history and future earnings expectations.

Stock Compensation

Stock Compensation

At December 31, 2020 and September 30, 2021, the Company had equity-based employee incentive plans, which are described more fully in Note 6 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021. The Company recorded stock compensation expense of $5.8 million and $18.8 million, of which $0.4 million and $1.0 million in included in discontinued operations, for the three and nine months ended September 30, 2020, respectively, and $6.0 million and $19.4 million for the three and nine months ended September 30, 2021, respectively. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three and nine months ended September 30, 2020 and 2021 has been reduced for forfeitures, estimated at between zero and four percent for all periods.

For the nine months ended September 30, 2020, tax expense on deficiencies (net of the tax deductions in excess of recognized stock compensation expense) was $2.2 million, which was included as an increase to income tax expense. For the nine months ended September 30, 2021, the benefit of tax deductions in excess of recognized stock compensation expense (net of deficiencies) was $2.0 million, which was included as a reduction of income tax expense.

Summarized information related to the Company’s stock options for the nine months ended September 30, 2021 is as follows:

		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	1,045,283	$	75.48
Granted	—		—
Forfeited	(34,683)		90.91
Exercised	(276,392)		64.25
Outstanding, end of period	734,208	$	78.98
Vested and expected to vest at end of period	733,266	$	79.00
Exercisable, end of period	650,420	$	80.71

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the nine months ended September 30, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	54,314	$	77.33
Awarded	6,312		94.56
Vested	—		—
Forfeited	—		—
Outstanding, ending of period	60,626		79.13

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the nine months ended September 30, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	428,362	$	65.83
Awarded	280,374		92.87
Vested	(160,092)		68.04
Forfeited	(18,188)		75.62
Outstanding, ending of period	530,456		79.12

Grants of RSAs vest on the anniversary of the grant. In general, RSUs vest ratably on each anniversary over the three years subsequent to grant.

Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the nine months ended September 30, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	278,945	$	99.80
Awarded	—		—
Vested	—		—
Forfeited	(63,324)		141.61
Outstanding, end of period	215,621		87.51

Health Care Reform

Health Care Reform

The Patient Protection and the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposed a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company obtained rate adjustments from customers to cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax

purposes. Congress repealed the HIF fee effective for plan years after December 31, 2020. For 2020 the HIF fee was $36.2 million, of which $12.4 related to continuing operations, and was paid in 2020.

Long Term Debt and Finance Lease Obligations

Long-Term Debt and Finance Lease Obligations

The following table shows the components of debt and finance lease obligations, including the current component, at December 31, 2020 and September 30, 2021 (in thousands):

	December 31,		September 30,
	2020		2021
Senior Notes	$	359,632	$	359,706
Term loan		263,125		150,000
Other loan		2,154		—
Finance leases - land and equipment		16,359		13,017
Finance leases - software as service arrangements		1,298		60
Deferred loan costs		(4,192)		(3,201)
Total debt and finance lease obligations	$	638,376	$	519,582

Senior Notes

On September 22, 2017, the Company completed the public offering of $400.0 million aggregate principal amount of its 4.400% Senior Notes due 2024 (the “Notes”). The Notes are governed by an indenture dated as of September 22, 2017 (the “Base Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee, and is supplemented by a first supplemental indenture dated as of September 22, 2017 (the “First Supplemental Indenture” together, with the Base Indenture, the “Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee. Since the public offering, the Company purchased and subsequently retired $40.0 million of its Notes, of which $28.9 million was purchased and subsequently retired in March 2020 that resulted in a loss on retirement of $0.7 million that is included in interest expense. The Notes were issued at a discount and had a carrying value of $359.6 million and $359.7 million at December 31, 2020 and September 30, 2021, respectively.

The Notes bear interest payable semiannually in cash in arrears on March 22 and September 22 of each year, commencing on March 22, 2018, which rate is subject to an interest rate adjustment upon the occurrence of certain credit rating events. The interest rate on the Notes on September 30, 2021 was 4.900%. The Notes mature on September 22, 2024. The Indenture provides that the Notes are redeemable at the Company’s option, in whole or in part, at any time on or after July 22, 2024, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.

The Indenture also contains certain covenants which restrict the Company’s ability to, among other things, create liens on its and its subsidiaries’ assets; engage in sale and lease-back transactions; and engage in a consolidation, merger or sale of assets.

Credit Agreement

On September 22, 2017, the Company entered into a credit agreement with various lenders that provides for a $400.0 million senior unsecured revolving credit facility and a $350.0 million senior unsecured term loan facility to the Company, as the borrower (the “2017 Credit Agreement”). On August 13, 2018, the Company entered into an amendment to the 2017 Credit Agreement, which extended the maturity date by one year. On February 27, 2019, the Company entered into a second amendment to the 2017 Credit Agreement, which amended the total leverage ratio covenant through December 31, 2019, and which was necessary in order for the Company to remain in compliance with the terms of the 2017 Credit Agreement. The 2017 Credit Agreement is scheduled to mature on September 22, 2023.

Under the 2017 Credit Agreement, the annual interest rate on the loan borrowing is equal to (i) in the case of base rate loans, the sum of an initial borrowing margin of 0.500 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.000 percent, or (ii) in the case of Eurodollar rate loans, the sum of an initial borrowing margin of 1.500 percent plus the Eurodollar rate for the selected interest period. The borrowing margin is subject to adjustment based on the Company’s debt rating as provided by certain rating agencies. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion. The Company has elected to borrow in Eurodollar rate loans that currently have a borrowing margin of 1.75 percent plus the Eurodollar rate for the selected interest period. For three and nine months ended September 30, 2021, the weighted average interest rate on the term loan facility was approximately 1.85 and 1.92 percent, respectively. The interest rate on the term loan facility was 1.84% on September 30, 2021. The term loan facility balance under the 2017 Credit Agreement totaled $263.1 million and $150.0 million as of December 31, 2020 and September 30, 2021, respectively.

In March 2021, the Company made voluntary term loan repayments of $100.0 million. As of September 30, 2021, the contractual maturities, totaling $150.0 million of the term loan under the 2017 Credit Agreement were as follows: 2021—$0.0 million; 2022—$0.0 million; and 2023—$150.0 million. Due to the timing of working capital needs, the Company will periodically borrow from the revolving loan under the 2017 Credit Agreement. At December 31, 2020 and September 30, 2021, the Company had no revolving loans, resulting in borrowing capacity of $400.0 million under the 2017 Credit Agreement. Included in long-term debt, finance lease and deferred financing obligations are deferred loan and bond issuance costs as of December 31, 2020 and September 30, 2021 of $4.2 million and $3.2 million, respectively.

Letter of Credit Agreement

On August 22, 2017, the Company entered into a Continuing Agreement for Standby Letters of Credit with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as issuer (the “L/C Agreement”), under which BTMU, at its sole discretion, may provide stand-by letter of credit to the Company. The Company had letters of credit outstanding under the L/C Agreement as of December 31, 2020 and September 30, 2021 of $32.1 million and $33.0 million, respectively.

Finance Lease and Deferred Financing Obligations

There were $16.4 million and $13.0 million of finance lease and deferred financing obligations at December 31, 2020 and September 30, 2021, respectively. The Company’s finance lease and deferred financing

obligations represent amounts due under leases for certain properties, computer software (acquired prior to the prospective adoption of ASU 2015-05 on January 1, 2016) and equipment. The recorded gross cost of finance lease assets was $43.0 million and $32.8 million at December 31, 2020 and September 30, 2021, respectively.

Redeemable Non-Controlling Interest

Redeemable Non-Controlling Interest

As of September 30, 2021, the Company held a 70% equity interest in Aurelia Health, LLC (“Aurelia”). The other shareholders of Aurelia have the right to exercise put options, requiring the Company to purchase up to 33.3% of the remaining shares during the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter. In addition, for the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter, the Company has the right to purchase 33.3% of the remaining shares (“call option”). The redemption price for these put and call options is based on a fixed multiple of the trailing twelve-month EBITDA at the redemption date. Non-controlling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable non-controlling interests. Redeemable non-controlling interest is considered to be temporary and is therefore reported in a mezzanine level between liabilities and stockholders’ equity on the Company’s consolidated balance sheet at the greater of the initial carrying amount adjusted for the non-controlling interest’s share of net income or loss or its redemption value. The carrying value of the non-controlling interest as of December 31, 2020 and September 30, 2021 was $33.1 million and $39.3 million, respectively. The Company evaluates the redemption value on a quarterly basis. If the redemption value is greater than the carrying value, the Company will adjust the carrying amount of the non-controlling interest to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the non-controlling interest. The Company will reflect redemption value adjustments in the earnings per share (“EPS”) calculation if redemption value is in excess of the carrying value of the non-controlling interest. As of September 30, 2021, the redemption value of the non-controlling interest exceeded the carrying value, therefore during the three months ended September 30, 2021, the Company recorded a $5.0 million adjustment to increase the carrying value.