INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Components of income tax expense (benefit)

The provision (benefit) for income taxes consisted of the following (in thousands):



	Years ended December 31,
	2012		2011		2010
Current provision:
Federal	$	200,766	$	199,986	$	350,451
State	18,279		21,105		28,216
Deferred provision/(benefit):
Federal	62,643		86,483		(117,600		)
State	15,784		7,422		(13,149		)
Income tax expense	$	297,472	$	314,996	$	247,918

Reconciliation of effective tax rate

The Company’s effective tax rate differs from the federal statutory rate of 35% as a result of the following:



	Years ended December 31,
	2012		2011		2010
Statutory federal tax rate	35.00	%	35.00	%	35.00	%
Effect of:
State income taxes, net of federal benefit	3.08	%	2.64	%	1.56	%
Tax exempt investment income	(1.35	)%	(0.97	)%	(1.34	)%
Remuneration disallowed	1.35	%	0.51	%	0.55	%
Other	(0.16	)%	(0.47	)%	0.34	%
Effective tax rate	37.92	%	36.71	%	36.11	%

Deferred income tax assets and liabilities

The effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011 are presented below (in thousands):



	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforward	$	37,203		$	50,913
Deferred compensation	42,990			82,747
Deferred revenue	9,750			8,540
Medical liabilities	61,631			55,442
Accounts receivable	1,039			1,499
Other accrued liabilities	44,160			96,429
Unrealized capital losses	153			1,415
Other assets	12,361			14,435
Gross deferred tax assets	209,287			311,420
Less valuation allowance	(2,335		)	(4,168		)
Deferred tax asset	$	206,952		$	307,252
Deferred tax liabilities:
Unrealized gain on securities	$	(41,746	)	$	(36,226	)
Other liabilities	(4,798		)	(11,119		)
Depreciation	(10,127		)	(12,119		)
Intangibles	(169,243		)	(179,802		)
Internally developed software	(30,553		)	(28,744		)
Tax liability of limited partnership investment	(5,332		)	(11,719		)
Gross deferred tax liabilities	(261,799		)	(279,729		)
Net deferred tax (liability) asset ⁽¹⁾	$	(54,847	)	$	27,523


⁽¹⁾	Includes $132.5 million and $181.8 million classified as other current assets at December 31, 2012 and 2011, respectively, and $187.3 million and $154.2 million classified as other long-term liabilities at December 31, 2012 and 2011, respectively.

Summary of Deferred Tax Liability

A reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 is as follows (in thousands):



	2012			2011			2010
Gross unrecognized tax benefits - beginning balance	$	85,432		$	136,255		$	129,084
Gross increases to tax positions taken in the current period	53,308			46,949			100,426
Gross increases to tax positions taken in prior periods	3,568			2,985			7,128
Gross decreases to tax positions taken in prior periods	(49,413		)	(92,390		)	(94,712		)
Decrease due to settlements with tax authorities	(1,722		)	—			—
Decreases due to a lapse of statute of limitations	(3,674		)	(8,367		)	(5,671		)
Gross unrecognized tax benefits - ending balance	$	87,499		$	85,432		$	136,255

- Definition

Tabular disclosure of deferred tax liabilities not recognized because of the exceptions to comprehensive recognition of deferred taxes, including a description of the temporary differences, events that would cause the temporary differences to become taxable, the cumulative amounts of the temporary differences and the amounts not recognized as deferred tax liabilities or a statement that the determination of the deferred tax liabilities is not practicable.

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