UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For this fiscal year ended December 31, 2018

Commission File Number: 000-51954

DCP HOLDING COMPANY

(Exact name of Registrant as specified in its Charter)

Ohio	20-1291244
(State or Other Jurisdiction of	(IRS Employer Identification No.)
Incorporation or Organization)

100 Crowne Point Place	45241
Sharonville, Ohio	(Zip Code)
(Address of Principal Executive Office)

Registrant’s telephone number, including area code: (513) 554-1100

Securities registered pursuant to section 12(b) of the Act:

TITLE OF EACH CLASS TO BE SO REGISTERED	NAME OF EACH EXCHANGE ON WHICH EACH CLASS IS TO BE REGISTERED
NOT APPLICABLE	NOT APPLICABLE

Securities registered pursuant to section 12(g) of the act:

Class A Redeemable Common Shares, no par value

Class B Redeemable Common Shares, no par value

Class C Redeemable Common Shares, no par value

 (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES  ☐    NO  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES  ☐    NO  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES  ☒    NO  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐  Accelerated filer ☐     Non-accelerated filer ☒   Smaller reporting Company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ☐    NO  ☒

As of June 30, 2018, the aggregate book value of the registrant’s Redeemable Common Shares, without par value, held by non-affiliates of the registrant was approximately $16.5 million. The value of a redeemable common share is based on the book value per share in accordance with the Company’s Articles of Incorporation and Code of Regulations. As of June 30, 2018, the number of Class A, Class B and Class C Redeemable Common Shares outstanding was 500; 8,653; and 3,771, respectively.

The number of Class A, Class B and Class C Redeemable Common Shares, without par value, outstanding as of March 22, 2019 was 491; 8,554; and 3,521, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

		PAGE
Part I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	12
ITEM 1B.	UNRESOLVED STAFF COMMENTS.	15
ITEM 2.	PROPERTIES	15
ITEM 3.	LEGAL PROCEEDINGS	16
ITEM 4.	MINE SAFETY DISCLOSURES	16
Part II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	16
ITEM 6.	SELECTED FINANCIAL DATA	17
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	32
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
ITEM 9A.	CONTROLS AND PROCEDURES	54
ITEM 9B.	OTHER INFORMATION	55
Part III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	55
ITEM 11.	EXECUTIVE COMPENSATION	60
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	75
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	75
Part IV
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	76
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	77
SIGNATURES		84
INDEX TO EXHIBITS		85

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can identify forward-looking statements by words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential,” “likely will result,” or the negative of such words or other similar expressions.

These forward-looking statements reflect our current expectations and views about future events and speak only as of the date of this report. The forward-looking statements are subject to risks, uncertainties and other factors that could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements, include, among others: claims costs exceeding our estimates, a downgrade in our financial strength rating, competitive pressures, changes in demand for dental benefits and other economic conditions, changes in existing laws or regulations, the loss of a significant customer or broker, the occurrence or non-occurrence of circumstances beyond our control, and those items contained in the section entitled “Item 1A. Risk Factors.” We do not undertake any obligation to update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this report.

PART I

ITEM 1. BUSINESS

Overview

Headquartered in Cincinnati, Ohio, DCP Holding Company, doing business as the Dental Care Plus Group (“DCPG” or the “Company”), offers to employer groups of all sizes health maintenance organization (“HMO”), participating provider organization (“PPO”) and indemnity plans for dental care services and vision benefit plans in Ohio, Kentucky, Indiana, Michigan and Tennessee. In 2018, the Company offered low cost dental PPO plans to individuals and small groups on the federally facilitated market exchanges in Ohio, Indiana, Georgia, Pennsylvania, Tennessee, Kentucky, Illinois, Virginia, Michigan, Missouri and Wisconsin (“the FFM exchanges”) and individual dental HMO and dental PPO plans in Ohio, Kentucky, Indiana, Michigan and Tennessee. As of December 31, 2018, we had approximately 366,700 members in our dental benefit plans and approximately 41,500 members in our vision benefit plans. We market our products through a network of independent brokers and consultants.

We had approximately 3,000 providers participating in our Dental Care Plus dental HMO network, approximately 3,200 providers participating in our DentaSelect dental PPO network and approximately 2,300 providers participating in our Balanced Value dental PPO network at December 31, 2018. The Company has a network access agreement with a national dental network management company that has one of the largest networks of providers under contract in the United States. With this network access agreement, our Company dental PPO members have access to approximately 2,800 additional providers in our operating territories and approximately 46,400 additional providers throughout the United States. The Company also has a network access arrangement with a national dental administration company for the dental PPO plans that it offered on the FFM exchanges in 2018. With this network access arrangement, FFM exchange members have access to approximately 12,700 providers across the eleven FFM exchange states.

DCP Holding Company is the parent holding company, which includes wholly-owned subsidiaries Dental Care Plus, Inc., or Dental Care Plus, an Ohio corporation, Insurance Associates Plus, Inc., or Insurance Associates Plus, an Ohio corporation, and Adenta, Inc., or Adenta, a Kentucky corporation. A majority of our Redeemable Common Shares are owned by providers who also participate in one or more of our networks.

As an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation, Dental Care Plus is able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health oriented products.

Business Segments

We manage our business with four reportable segments: fully-insured dental HMO and indemnity (“dental HMO/IND”), fully-insured dental PPO, self-insured dental, and corporate, all other. Corporate, all other consists of revenue associated with our dental PPO and vision products underwritten by third-party insurance carriers and certain corporate activities.

The results of our fully-insured dental HMO/IND, fully-insured dental PPO and self-insured dental segments are measured by gross profit. We do not measure the gross profit of our corporate, all other segment. We do not allocate investment and other income, interest expense, insurance expenses, assets or liabilities to our segments because these measures are not used to analyze the segments. See footnote 16 to our consolidated financial statements for financial information regarding our segments.

1

Managed Dental Benefits Market

The following table shows the estimated 2017 and 2016 dental enrollment statistics for the United States:

	Estimated					Estimated					%
	2017		% of			2016		% of			Change
	Enrollment		Total			Enrollment		Total			2016 to 2017
Dental HMO		10,860,624		6.5	%		11,405,719		6.9	%		-4.8	%
Dental EPO		1,333,151		0.8	%		1,049,140		0.6	%		27.1	%
Dental PPO		141,044,624		84.9	%		132,988,202		81.0	%		6.1	%
Dental Indemnity		4,561,646		2.7	%		10,494,506		6.4	%		-56.5	%
Discount Dental		7,882,162		4.7	%		7,763,854		4.7	%		1.5	%
Direct Reimbursement		489,218		0.3	%		504,831		0.3	%		-3.1	%
Total Commercial Dental		166,171,425		100.0	%		164,206,252		100.0	%		1.2	%
Medicaid / SCHIP		74,638,569					74,778,574					-0.2	%
Other Public		13,160,992					9,127,768					44.2	%
Total Publicly Funded Dental		87,799,561					83,906,342					4.6	%
Unassigned		-					1,013,187
Estimated Total Dental		253,970,986					249,125,781					1.9	%

Source: NADP & Delta Dental Association Joint Dental Benefits Report, September 2018

According to the National Association of Dental Plans (“NADP”), in 2017 approximately 254 million persons residing in the United States were covered by some form of dental benefit through employer-sponsored group plans, other group or individual plans, or publicly funded dental coverage. These enrolled members represent approximately 78% of the U.S. population. This enrollment level represents an increase of approximately 1.9% from the estimated 2016 enrollment level of 249 million persons. This enrollment increase is primarily due to a 4.6% increase in publicly funded dental enrollment and in part due to a 1.2% increase in commercial dental enrollment in 2017 resulting from increases in the dental EPO, PPO and discount dental product categories.

2

The following table shows the estimated 2017 and 2016 dental enrollment statistics for Ohio and Kentucky, the two primary states in which we had group dental business:

	Ohio
	Estimated					Estimated					%
	2017		% of			2016		% of			Change
	Enrollment		Total			Enrollment		Total			2016 to 2017
Dental HMO		349,389		3.9	%		283,392		3.2	%		23.3	%
Dental EPO		45,221		0.5	%		31,315		0.4	%		44.4	%
Dental PPO		5,363,202		60.6	%		5,006,914		56.2	%		7.1	%
Dental Indemnity		77,329		0.9	%		105,889		1.2	%		-27.0	%
Discount Dental		173,597		2.0	%		167,954		1.8	%		3.4	%
Individual Exchange		-		0.0	%		12,400		0.1	%		-100.0	%
Medicaid / SCHIP		2,845,785		32.1	%		2,910,351		32.7	%		-2.2	%
Other Public		-		0.0	%		389,787		4.4	%		-100.0	%
Total Dental		8,854,523		100.0	%		8,908,002		100.0	%		-0.6	%

	Kentucky
	Estimated					Estimated					%
	2017		% of			2016		% of			Change
	Enrollment		Total			Enrollment		Total			2016 to 2017
Dental HMO		147,790		4.5	%		134,492		3.9	%		9.9	%
Dental EPO		5,157		0.1	%		5,435		0.2	%		-5.1	%
Dental PPO		1,785,764		54.6	%		1,772,853		52.1	%		0.7	%
Dental Indemnity		14,958		0.5	%		80,515		2.4	%		-81.4	%
Discount Dental		41,235		1.3	%		36,332		1.1	%		13.5	%
Individual Exchange		-		0.0	%		14,613		0.4	%		-100.0	%
Medicaid / SCHIP		1,272,976		39.0	%		1,230,475		36.2	%		3.5	%
Other Public		-		0.0	%		124,905		3.7	%		-100.0	%
Total Dental		3,267,880		100.0	%		3,399,620		100.0	%		-3.9	%

Source: NADP & Delta Dental Association Joint Dental Benefits Reports dated September 2018 and August 2017

According to the NADP, total dental enrollment in Ohio decreased 0.6% in 2017 compared to 2016. Total dental HMO enrollment in Ohio increased 23.3% in 2017, whereas the national dental HMO enrollment decreased by approximately 4.8%. Total dental EPO enrollment in Ohio increased by 44.4% in 2017, compared to the national dental EPO enrollment increase of 27.1%. Total dental PPO enrollment in Ohio increased by 7.1% in 2017, compared to the national dental PPO enrollment increase of 6.1%. In Ohio, total dental indemnity enrollment decreased by 27%, compared to the national dental indemnity enrollment decrease of 56.5%. Total discount dental enrollment in Ohio increased by 3.4%, compared to the national discount dental enrollment increase of 1.5%. Medicaid / State Children’s Health Insurance Program (“SCHIP”) dental enrollment in Ohio decreased 2.2% in 2017, compared to the national Medicaid / SCHIP dental enrollment decrease of 0.2%.

Total dental enrollment in Kentucky decreased 3.9% in 2017 compared to 2016. Total dental HMO enrollment in Kentucky increased 9.9% in 2017, whereas dental HMO enrollment in the United States decreased by approximately 4.8%. Total dental EPO enrollment in Kentucky decreased by 5.1% in 2017, whereas the national dental EPO enrollment increased by approximately 27.1%. Total dental PPO enrollment in Kentucky increased by 0.7% in 2017, compared to the national dental PPO enrollment increase of 6.1%. In Kentucky, total dental indemnity enrollment decreased by 81.4%, which represents a larger percentage decrease than the national dental indemnity enrollment decrease of 56.5%. Total discount dental enrollment in Kentucky increased by 13.5% in 2017, compared to the total discount dental enrollment in the United States increase of approximately 1.5%. Medicaid / SCHIP dental enrollment in Kentucky increased by 3.5% in 2017, whereas the national Medicaid / SCHIP dental enrollment decreased by approximately 0.2%.

3

Our Products

The following table presents our product membership, premiums and administrative services only (“ASO”) fees in our respective business segments for the three years ended December 31:

2018	Membership		Premiums (000's)			Other Fees (000's)			Total Premium Revenue (000's)		Percent of Total Premium Revenue
Fully-Insured Dental HMO/IND		158,700	$	50,710					$	50,710		45.1	%
Fully-Insured Dental PPO		101,100		28,658						28,658		25.5	%
Self-Insured Dental		106,900		30,316	(1)	$	1,552	(2)		31,868		28.4	%
Other Products		41,500		-			1,078	(3)		1,078		1.0	%
Total		408,200	$	109,684		$	2,630		$	112,314		100.00	%

2017	Membership		Premiums (000's)			Other Fees (000's)			Total Premium Revenue (000's)		Percent of Total Premium Revenue
Fully-Insured Dental HMO/IND		159,500	$	51,419					$	51,419		47.8	%
Fully-Insured Dental PPO		89,800		25,936						25,936		24.1	%
Self-Insured Dental		97,000		28,002	(1)	$	1,425	(2)		29,427		27.3	%
Other Products		40,300		-			807	(3)		807		0.8	%
Total		386,600	$	105,357		$	2,232		$	107,589		100.00	%

2016	Membership		Premiums (000's)			Other Fees (000's)			Total Premium Revenue (000's)		Percent of Total Premium Revenue
Fully-Insured Dental HMO/IND		167,000	$	53,393					$	53,393		50.6	%
Fully-Insured Dental PPO		79,500		22,363						22,363		21.2	%
Self-Insured Dental		95,500		27,676	(1)	$	1,391	(2)		29,067		27.5	%
Other Products		40,100		-			771	(3)		771		0.7	%
Total		382,100	$	103,432		$	2,162		$	105,594		100.00	%

(1)	Self-insured dental premium revenue or premium equivalent revenue is based on the gross amount of claims incurred by self-insured members and is recognized as revenue when those claims are processed.
(2)	Self-insured ASO fees are the administrative fees we charge to self-insured employers to manage their provider network and to process and pay claims.  ASO fees are recognized as revenue when they are earned.
(3)	Other product fees are marketing and administrative fees we charge to third party insurance carriers that underwrite our vision benefit plan and one of our dental indemnity benefit plans.

Our products primarily consist of dental HMO, dental indemnity and dental PPO plans, with fully-insured products constituting 70.6% of our total premium revenues for 2018. Substantially all of our products are marketed to employer groups through brokers and consultants. In addition, our individual dental products are marketed on our website, sometimes with the assistance of brokers, and our exchange dental products are marketed on the government’s website at www.healthcare.gov. Our business model allows us to offer dental benefit products including broad networks of participating providers while at the same time promoting the use of private practice fee-for-service dentistry, a primary interest of our participating providers. The dental benefit products we offer currently vary depending on geographic markets.

We currently market our group dental products to employers in Ohio, Kentucky, Indiana, Michigan and Tennessee. Our products may be offered to employer groups as “bundles,” where the subscribers are offered a combination of dental HMO, dental PPO and dental indemnity options, with various employer contribution strategies as determined by the employer. Individuals may become subscribers of our group dental plans through their employers and qualified family members of these subscribers become members through such individuals. Employers may pay for all or part of the premiums, and make payroll deductions for any premiums payable by the employees.

4

In 2018, we offered fully insured individual and small group dental PPO plans on the FFM exchanges. This business is included in our fully insured dental PPO segment. In 2018, we offered fully insured individual dental HMO and dental PPO plans in Ohio and Kentucky and dental PPO plans in Indiana. This business is included in our fully insured dental HMO and fully insured dental PPO segments.

Fully-Insured Dental HMO and Indemnity

Our fully-insured dental HMO/IND products segment includes our Dental Care Plus dental HMO and our DentaPremier dental indemnity products.

Dental Care Plus- Under our group dental HMO, premiums are paid to Dental Care Plus by the employer, and members receive access to our HMO network. Plan designs range from full premium payments by the employer to shared contributions of varying proportions by the employer and its employees to full payment by the employees. Under our individual dental HMO, premiums are paid to Dental Care Plus by the individual subscriber, and the subscriber and his/her dependents receive access to our HMO network. Dental Care Plus offers a limited number of plan designs to the individual market.

DentaPremier- We offer DentaPremier, our dental indemnity product underwritten and administered by Dental Care Plus, to employers who participate in our Dental Care Plus HMO fully-insured plans with out-of-area members or members that require complete freedom of provider access. Plan designs range from full premium payments by the employer to shared contributions of varying proportions by the employer and its employees to full payment by the employees. Members are responsible for paying annual deductible amounts, co-payments and balance billings. Premium rates for DentaPremier are generally higher than premium rates for our dental HMO and PPO products.

For the year ended December 31, 2018, fully-insured dental HMO/IND premiums totaled approximately $50.7 million, or 45.1% of our total premiums and ASO fees.

Fully-Insured Dental PPO

Our fully-insured dental PPO product segment includes our DentaSelect, DentaTrust and DentaSpan dental PPO products.

DentaSelect- Our dental PPO product, DentaSelect, is underwritten and administered by Dental Care Plus. DentaSelect members have access to our proprietary PPO networks and the national provider network with which we have contracted. In addition, DentaSelect members have out-of-network benefits. DentaSelect includes some elements of managed health care; however, it includes more cost-sharing with the member. Plan designs range from full premium payments by the employer to shared contributions of varying proportions by the employer and its employees to full payment by the employees.

DentaTrust and DentaSpan– Our individual dental PPO product for the Ohio, Indiana, Pennsylvania, Georgia, Tennessee, Kentucky, Virginia, Illinois, Missouri, Michigan and Wisconsin exchanges (“the FFM exchanges”), DentaTrust, and our small group dental PPO product for the FFM exchanges, DentaSpan, are underwritten by Dental Care Plus and administered by two independent third party administrators (“TPAs”). Pediatric members under the age of 19 have pediatric oral health benefits that meet the requirements of the Affordable Care Act (“ACA”). Adult members have benefits that are subject to waiting periods on basic dental services and major dental services. All DentaTrust and DentaSpan members have out-of-network benefits.

For the year ended December 31, 2018, fully-insured dental PPO premiums totaled approximately $28.7 million, or 25.5% of our total premiums and ASO fees.

Self-Insured Dental

Our self-insured dental segment includes our ASO dental HMO, dental PPO and dental indemnity products, which we offer through Dental Care Plus to employers who self-insure their employee dental plans. These employers pay all claims from network providers according to our fee schedules. In the case of our dental PPO and dental indemnity products, employers pay claims from non-network providers based on a maximum allowed fee schedule. We provide administrative and claims processing services, benefit plan design, and access to our provider networks for an administrative fee, generally to self-insured groups. These products are offered only to employer groups that have chosen to bear the claims risk for the dental benefits of employees and their family members. Self-insured employers retain the risk of financing all of the cost of dental benefits. For the year ended December 31, 2018, self-insured revenue totaled approximately $31.9 million, or 28.4% of our total premiums and ASO fees.

Corporate, All Other

We offer dental PPO, dental indemnity and vision PPO benefit plans underwritten by third-party insurance carriers that are included in our corporate, all other segment. Our subsidiary, Insurance Associates Plus, is an insurance agency licensed in Ohio, Kentucky and Indiana that markets our third-party dental PPO, dental indemnity and vision benefit products. Insurance Associates Plus earns commissions and administrative fees based on members enrolled in the dental PPO and vision benefit plans. Our vision benefit PPO product is underwritten by a third-party insurance carrier and administered by an independent TPA. Members can access both network and out-of-network vision care providers and are subject to fixed co-payments and benefit limits. Premium cost is typically shared by employers and their participating employees in various contribution proportions.

5

The commission and administrative fee revenue that we earned related to the dental PPO, dental indemnity and vision benefit product lines underwritten by third-party insurance carriers totaled approximately $1.1 million, or 1% of total premiums and ASO fees, for the year ended December 31, 2018.

Seasonality of Dental Service Utilization

Based on our healthcare services expense on a per member per month (“PMPM”) basis that adjusts the quarterly healthcare services expense for membership volume changes, our dental plan members have historically used their dental plan benefits according to a seasonal pattern. In 2016, our quarterly healthcare services expense was above average in the first quarter, below average in the second quarter, above average in the third quarter and lowest in the fourth quarter. In 2017, our quarterly healthcare services expense was above average in the first quarter, below average in the second quarter, slightly higher than average in the third quarter and lowest in the fourth quarter. In 2018, our quarterly healthcare services expense was above average in the first, second and third quarters and below average in the fourth quarter. The following table shows these trends in tabular form:

	2018				2017				2016
	$000’s		$PMPM		$000’s		$PMPM		$000’s		$PMPM
First Quarter	$	21,498	$	19.41	$	21,425	$	20.23	$	21,047	$	20.66
Second Quarter		21,054		19.20		20,383		19.24		19,795		19.26
Third Quarter		21,369		19.48		20,402		19.39		20,312		19.79
Fourth Quarter		20,150		18.34		19,398		18.59		19,346		18.88
Calendar Year	$	84,071		19.11	$	81,608		19.37	$	80,500		19.65

Claims are generally higher in the first quarter because a significant portion of our employer-sponsored benefits reset on January 1. The third quarter claim level is generally higher primarily due to the high level of dental services used in July and August by student members prior to returning to school. Use of dental services is typically lowest in the fourth quarter due to the holiday season and the fact that a portion of our members have already reached their maximum annual benefit level for the year.

Business Strategy

Our objective is to become one of the leading providers of dental benefits in the Midwest. Our strategy is to continue increasing membership in all of our plans by gaining new employer groups and individual customers, acquiring other similar dental plans, adding more participating providers to our provider networks and increasing our product offerings. We intend to further develop the use of dental PPO products as a means to grow membership sufficient to recruit providers into our dental PPO provider networks. In order to pursue our acquisition strategy, we need access to additional capital.

Our Dental Care Plus HMO plans offer both the broad provider access ordinarily attributed to a dental PPO and the utilization review and cost control features of a dental HMO. The combination of a large provider network, competitive pricing and renewal practices, and an emphasis on outstanding customer service have allowed us to effectively compete with dental PPOs. Because we are majority owned by providers who participate in one or more of our networks we often have a competitive advantage in recruiting and retaining providers for our networks.

We offer low cost dental PPO plans on the various federally facilitated exchanges. These dental PPO plans include the pediatric oral health benefit that is one of the essential health benefits required by the ACA. The family plans also include dental coverage for adults. We currently offer these exchange certified dental PPO plans on the FFM exchanges.

Membership Retention- Employers generally contract with our dental plans for a period of one year. Continuous marketing and sales efforts are made to obtain contract renewals on an annual basis. The ability to obtain contract renewals depends on our premium rates, competitive bids received by employers from our competitors, and employee satisfaction with our plans, among other factors. The cost of replacing lost members is higher than retaining members. We strive for consistent employer and broker contracts and fair, justified renewal pricing in order to increase retention rates. We achieved a group dental retention rate of approximately 94.6% in 2018, compared to retention rates of 92.1% and 94.8% in 2017 and 2016, respectively.

Group Billing and Collection- We dedicate significant resources to achieving prompt and accurate billing for premiums, reimbursement for self-insured claims and ASO fees. We also have a structured process for monitoring and collecting our accounts receivable.

6

Customer Service- We provide customer service to employer group administrators, members, and providers. Customer service representatives respond promptly to employer, member and provider staff inquiries regarding member identification cards, benefit determinations, eligibility, benefit verification and claims payments. We strive to answer questions in one telephone call. We monitor key customer service statistics in order to maintain positive customer relationships with all constituencies.

Information Technology- Our dental plan administration system allows us to adapt to benefit changes sought by employer groups. Our system also allows for increased efficiencies and cost savings in the functional areas of enrollment, billing, collections, cash application, claims adjudication and claims payment by reducing manual processing and facilitating the development of electronic membership enrollment, group billing, payment and automated cash application. With this system, we have a high percentage of claims that can be electronically loaded and adjudicated. We are also focused on the importance of data integrity, security, ease of data extraction, and interfacing with banks, clearinghouses, and other business partners.

During 2017, the Board of Directors established a Special Committee to consider strategic alternatives available to the Company, including consideration of certain third party proposals made to the Company.  The significant amount of work by the Special Committee and advisors to the Special Committee resulted in increased director compensation expense and professional expense during 2017 and 2018.  As discussed on our Current Report on Form 8-K filed with the Commission on March 14, 2019, the Company entered into Agreement with DentaQuest, LLC dated March 12, 2019 pursuant to which the Company will be merged with a subsidiary of DentaQuest, LLC and our shareholders will receive cash in exchange for their Company commons shares (the “Merger”). The Merger is subject to approval of our shareholders, regulatory approval and other customary conditions.

Provider Networks

Our networks are important to the success of our dental HMO and dental PPO plans. We maintain networks comprised of providers who have contracted with our subsidiaries. As of December 31, 2018, we had contracts with approximately 3,000 providers operating out of 7,217 office locations in our dental HMO network. Of these participating provider office locations, there are 3,665 in Ohio, 2,729 in Kentucky, 734 in Indiana, and 89 in other states. As of December 31, 2018, we had provider contracts with approximately 3,200 providers operating out of 7,664 office locations in our DentaSelect dental PPO network. Of these participating provider office locations, there are 4,016 in Ohio, 2,776 in Kentucky, 753 in Indiana, and 119 in other states. As of December 31, 2018, we had provider contracts with approximately 2,300 providers operating out of 6,125 office locations in our Balanced Value dental PPO network. Of these participating provider office locations, there are 2,966 in Ohio, 2,348 in Kentucky, 716 in Indiana, and 95 in other states. We actively recruit providers in each of our markets. In some instances, we identify expansion area counties where additional providers are needed and locate providers in these expansion area counties by reviewing state dental licensure records. In other cases, new employer group customers request that we recruit specific providers to which their employees desire access.

Before a provider can become a participating provider, we engage in due diligence regarding the provider’s professional licenses, training and experience, and malpractice history. The provider must also be recommended by our Clinical Affairs Committee consisting of experienced providers who represent various dental specialties and some of whom are also members of our Board of Directors (the “Board”).

Our provider contracts require that participating providers participate in periodic fee surveys for the purpose of establishing our fee schedules, to participate in and be bound by our utilization review and credentialing plans (see “Utilization Review and Quality Assurance Policies” below), to maintain a state license in good standing to practice dentistry, to maintain professional liability insurance coverage in amounts determined by our Clinical Affairs Committee, and to maintain patient records in a confidential manner. Our provider contracts are for a term of one year and are automatically renewed for successive one year periods unless a written termination notice is given by either party on 30 days’ notice.

Participating providers are reimbursed for services provided to members of our dental plans on a “fee-for-service” basis based on maximum allowable fee schedules we have developed or the actual fee charged by the provider, whichever is less. In most cases, our reimbursement to our participating providers for covered dental services under the dental HMO and the dental PPO are subject to a 10% withhold by us. 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 Company has a network access agreement with a national dental network management company that has one of the largest networks of providers under contract in the United States. With this network access agreement, our dental PPO members have access to approximately 2,800 additional providers in our operating territories and approximately 46,400 additional providers throughout the United States. The Company also has a network access arrangement with another national dental administration company for the dental PPO plans that we offered on the FFM exchanges in 2018. With this network access arrangement, FFM exchange members have access to approximately 12,700 providers across the eleven FFM exchange states.

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Employees

At December 31, 2018, we had 96 employees. We have no collective bargaining agreements with any unions and believe that our overall relations with our employees are good.

Agencies, Brokers and Consultants

Many of our employer groups and individual customers are represented by agencies, brokers and consultants who assist these customers in the design and purchase of health care products. We generally pay agencies, brokers and consultants a commission based on premiums collected, with commissions varying by market and premium volume, pursuant to our standard agreement. In addition to commissions based directly on premium volume for sales to particular customers, we also have programs that pay agents and brokers on other criteria. These include commission bonuses based on sales that attain certain levels or involve particular products. During 2018, approximately 42% of our business was generated by five independent agencies, one of which was responsible for generating approximately 17% of our total premium revenue.

Utilization Review and Quality Assurance Policies

Utilization review and quality assurance policies are essential to our success. Our benefits structure limits the frequency of various procedures in order to control utilization of dental care by members of our fully-insured and self-insured dental plans.

Each provider in our networks is obligated to adhere to our utilization review program. Non-compliance or continued deviations from the utilization review program will result in sanctions against a provider. Such sanctions may include probation, suspension or expulsion as a participating provider, and may also affect the provider’s ability to receive compensation from the plan for services provided to members. We believe that a stringent utilization review program is necessary to provide adequate cost containment and quality care.

Our Board appoints a committee of providers to determine that the utilization review program is being adhered to and updated as appropriate. The Clinical Affairs Committee is charged with reviewing service patterns of providers and requests for pretreatment estimates that do not clearly meet Company standards.

The Clinical Affairs Committee is also charged with retrospective review of covered services provided by providers to determine whether the frequency and nature of the services are in compliance with standards adopted by the Clinical Affairs Committee. The Clinical Affairs Committee may recommend that the participating agreement of a provider who is not in compliance with these standards be terminated, suspended or not renewed, or that benefits paid to the provider for particular services rendered by him or her be reduced.

Credentialing

We have a dedicated provider credentialing department that communicates with network providers and performs credentialing and re-credentialing of each participating provider. The Clinical Affairs Committee also has oversight of the credentialing of new providers that apply to be participating providers in our provider networks. This committee also oversees the periodic re-credentialing of providers already in one or more of our existing provider networks and evaluates whether a provider should be terminated from one or more of the provider networks if an action is filed against the provider with a state dental board or other regulatory agency or the provider loses his/her medical malpractice insurance coverage due to an adverse claim. The Clinical Affairs Committee is also charged in part with determining whether all participating providers maintain good standing with regulatory agencies. The recommendations of the Clinical Affairs Committee are forwarded to our Board for consideration and appropriate action.

The national provider network management companies with which we have a network access agreement perform credentialing and re-credentialing of each of their participating providers according to accepted industry standards.

Risk Management

We assess risks that may affect the Company’s financial results, operational capability, delivery of service and products to employer groups and plan members, and other significant risks. We evaluate industry trends, information technology changes and our operating efficiencies and results. We perform ongoing risk assessments and implement various measures to manage and mitigate identified risks. The Board has delegated responsibility for risk oversight to the Audit Committee. Quarterly, the Audit Committee reviews the Company’s risk assessment and discusses with Company management, significant financial and non-financial risks (see Item 1A-Risk Factors for a discussion of certain identified risks) and the steps management has taken to monitor and mitigate such risks. On a semi-annual basis the Audit Committee reviews the Company’s risk assessment with the Board.

Competition

The marketing and sale of commercial fully-insured and self-insured dental benefit plans is highly competitive. Rising health care benefit premiums and changes in the economy have had an impact on the number of companies able to offer dental benefits to their employees. We primarily compete with medical and full-line ancillary carriers, other dental HMO carriers and national insurance companies that offer dental or vision coverage. Many of the companies with whom we compete are larger, have well-established local, regional, and/or national reputations, and have substantially greater brand recognition and financial and sales resources. It is possible that other competitors will emerge as the market for dental plans continues to develop. In group and individual dental insurance, our primary competitors are Guardian, MetLife, Humana and Anthem. These companies offer dental indemnity and dental PPO plans. Other competitors include Delta Dental of Ohio and Delta Dental of Kentucky that operate as dental HMOs, dental PPOs and dental POSs in which members receive certain benefit incentives to receive services from network providers. Most of these dental plans are similar to those offered by us in design, and they also pay providers on a fee-for-service basis. Dental indemnity plans lack the basic characteristics of a dental HMO plan, including contractually enforced utilization and quality assurance standards, limitations on providers’ fees, and members are not restricted to participating providers. Dental PPO plans include both in-network benefits similar to those of a dental HMO plan and out-of-network benefits like those associated with a dental indemnity plan.

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In the exchange dental business, our main competitors are Humana, Anthem, TruAssure, Dentegra and Best Life. Our main competitors in the fully-insured vision benefit area are Vision Service Plan and EyeMed, a subsidiary of Luxottica Group. We believe that our exchange dental plans and vision benefit plans are competitively priced and include sufficient benefits to compete effectively.

The Company believes the changing competitive dynamics will require significant additional capital for the Company to remain competitive. These dynamics include:

● The long-term trend in the industry that favors integrating our health/dentistry as a subspecialty of medicine and that trend has long-term implication to the competitive environment and dynamics in the industry;

● An increase in “bundling” of medical and dental benefits by large medical insurance providers and the pricing of the dental benefits portion at lower margins than stand-alone dental plans;

● If a unified administrative system for medical and dental benefits is achieved, the current competitive environment will be even more competitive.

Customers

During 2018, approximately 10% of our total premium revenue was generated by five fully-insured employer groups. Also during 2018, approximately 12% of our total revenue was generated by two self-insured employer groups.

Each of our group customers signs a standard form contract, which differs depending on whether the customer is fully-insured or self-insured. There are two standard form contracts for fully-insured customers – one for employer-sponsored plans, and one for voluntary employee plans. Most of our standard form contracts are for one year terms. Certain contracts extend for a two-year or three-year term. The employer group customers may terminate our fully-insured customer contracts by giving 30-days’ prior written notice, however, the fully-insured customer contracts are non-cancelable by the Company during the contract term unless the contract coverage terminates due to non-payment of premium when due. Our self-insured customer contracts can be canceled by the Company or employer group by giving 60-days’ prior written notice. The premium rates set forth in each fully-insured customer contract remain in effect during each term, and may only be increased at renewal.

Each of our individual subscribers outside of the FFM exchanges purchasing a policy selects a fully-insured dental HMO or PPO plan. These individual dental policies begin on an effective date and extend for 12 months. Individual subscribers may terminate their fully-insured policy with notice, however, the fully-insured individual policies are non-cancelable by the Company during the policy term unless the policy coverage terminates due to non-payment of premium when due.

Each of our individual subscribers on the FFM exchanges selects a fully-insured dental PPO plan. An individual dental policy purchased on the FFM exchanges will begin on an effective date in a calendar year and extend until December 31 of that calendar year. An individual subscriber may terminate his/her fully-insured policy by giving 14-days’ prior written notice. The Company may cancel a policy with 30-days’ prior written notice to the subscriber in the event (1) the subscriber submits a fraudulent claim or makes a material misrepresentation; (2) the subscriber does not pay the insurance premium subject to the Centers for Medicare & Medicaid Services (“CMS”) grace period rules; (3) the Company withdraws the dental product from the exchange; or (4) the Company withdraws from the exchange’s individual market.

Insurance Regulations

State insurance laws and other governmental regulations establish various licensing, operational, financial and other requirements relating to our business. State insurance departments in which we do business are empowered to interpret such laws of their respective states and promulgate regulations applicable to our business. The National Association of Insurance Commissioners (“NAIC”) is a voluntary association of all of the state insurance commissioners in the United States. The primary function of the NAIC is to develop model laws on key insurance regulatory issues that can be used as guidelines for individual states in adopting or enacting insurance legislation. While NAIC model laws are accorded substantial deference within the insurance industry, these laws are not binding and variations from the model laws from state to state exist.

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Dental Care Plus is dually licensed as a life and health insurance company and as a health insuring corporation providing specialty health care services under Ohio law, as a limited health service benefit plan in Kentucky, and as a life and health insurance company and a dental HMO in Indiana. Dental Care Plus is also licensed as a life, accident and health company in Pennsylvania, as a life, accident and sickness company in Georgia, as an accident and health company in Tennessee, as a life and health insurance company in Illinois and Missouri, as an accident and sickness insurance company and a managed care health insurance plan in Virginia and a disability insurance company in Wisconsin and Michigan. The regulations of each state insurance department include specific requirements with regard to such matters as minimum capital and surplus, reserves, permitted investments, contract terms, policy forms, claims processing requirements and annual reports. If Dental Care Plus fails to maintain compliance with all material regulations, regulatory authorities are empowered to take certain actions against it, such as revoking its license, imposing monetary penalties, taking over supervision of its operations, or seeking a court order for the rehabilitation, liquidation or conservation of Dental Care Plus.

DCP Holding Company is a licensed TPA in Ohio, Kentucky and Indiana. Insurance Associates Plus is licensed in Ohio, Kentucky, and Indiana as an insurance agency. As such, it is required to have at least one insurance agent licensed in each of those states. If Insurance Associates Plus fails to meet this requirement in Ohio, Kentucky, or Indiana, its license could be revoked by the state. Adenta is licensed as a life and health insurance agency in Kentucky and Indiana.

NAIC Accounting Principles- In 1998, the NAIC adopted the Codification of Statutory Accounting Principles (“Codification” or “SAP”) that became the NAIC’s primary guidance on statutory accounting. The Ohio Department of Insurance has adopted the Codification. SAP differs in some respects from accounting principles generally accepted in the United States (“GAAP”). For public reporting, we prepare consolidated financial statements in accordance with GAAP. However, certain data must also be calculated according to statutory accounting rules as defined in the NAIC’s Accounting Practices and Procedures Manual. While not a substitute for any GAAP measure of performance, quarterly and annual financial statements prepared in accordance with SAP is used by the Ohio Department of Insurance and other state regulators to monitor solvency and compliance with various state financial regulatory requirements. Statutory data also frequently is used by industry analysts and other recognized reporting sources to facilitate comparisons of the performance of insurance companies. For example, select significant differences for the Company under SAP are:

-Similar to GAAP, deferred income taxes are provided on temporary differences between the statutory and tax bases of assets and liabilities for SAP; however, statutory deferred tax assets are limited based upon tests that determine what is an admitted asset under SAP. Under SAP, the change in deferred taxes is recorded directly to surplus as opposed to GAAP where the change is recorded to current operations.

-Deferred acquisition costs are incremental direct costs that are essential to the contract transaction and would not have been incurred had the contract transaction not occurred. For GAAP purposes, the Company defers acquisition costs and amortizes them over the estimated lives of the contracts in proportion to premiums earned. Under SAP, these acquisition costs are expensed as incurred.

-For GAAP, capital leases are recorded on the balance sheet as property and equipment with a corresponding capital lease obligation. Subsequently, depreciation expense and interest expense are recorded in current operations. SAP requires that all leases are classified as operating leases and expensed over the lease term.

Risk Based Capital- The NAIC’s Risk-Based Capital for Life and/or Health Insurers Model Act (the “Model Act”) provides a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks and whether there is a need for possible regulatory action. The Model Act (or similar legislation or regulation) has been adopted in states where Dental Care Plus does business. The Model Act provides for four levels of regulatory action, varying with the ratio of the insurance company’s total adjusted capital (defined as the total of its statutory capital and surplus, asset valuation reserve and certain other adjustments) to its authorized control level risk-based capital (“RBC”):

-If a company’s total adjusted capital is less than or equal to 200 percent but greater than 150 percent of its RBC (the “Company Action Level”), the company must submit a comprehensive plan aimed at improving its capital position to the regulatory authority proposing corrective actions.

-If a company’s total adjusted capital is less than or equal to 150 percent but greater than 100 percent of its RBC (the “Regulatory Action Level”), the regulatory authority will perform a special examination of the company and issue an order specifying the corrective actions that must be followed.

-If a company’s total adjusted capital is less than or equal to 100 percent but greater than 70 percent of its RBC (the “Authorized Control Level”), the regulatory authority may place the company under the regulatory authority’s control.

-If a company’s total adjusted capital is less than or equal to 70 percent of its RBC (the “Mandatory Control Level”), the regulatory authority must place the company under the regulatory authority’s control.

In addition to the levels of regulatory action described above, the regulatory authority may impose restrictions, reporting or other requirements on companies whenever the regulatory authority determines that the financial condition of the company warrants such action, notwithstanding the fact that the company meets the requirements of the Model Act. A regulatory authority may also seek an order of the courts placing the company in rehabilitation, liquidation or conservation whenever the regulatory authority determines that the company’s financial condition is hazardous, notwithstanding the fact that the company may be in compliance with the requirements of the Model Act.

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Dental Care Plus’s statutory annual statements for the year ended December 31, 2018, filed with the Ohio Department of Insurance, reflected total adjusted capital in excess of Company Action Level RBC.

Government Regulations

Our management proactively monitors compliance with governmental laws and regulations affecting our Company. We are unable to predict how existing federal or state laws and regulations may be changed, what additional laws or regulations affecting our business may be enacted or proposed, when and which of the proposed laws will be adopted or the effect that any such new laws and regulations will have on our results of operations, financial position, or cash flows. For a description of material current activities in the federal and state legislative areas, see the “Item 1A – Risk Factors” in this report.

Executive Officers

Each of our executive officers is appointed to serve a one-year term. In 2018, Anthony A. Cook and Robert C. Hodgkins, Jr. were the only executive officers of the Company. Mr. Cook resigned as President and Chief Executive Officer of the Company in December 2018.

The name and age of each of the executive officers of the Company in 2018 and current executive officers of the Company follows along with a brief professional biography.

Anthony A. Cook, MS, MBA, 68, was President and Chief Executive Officer and a member of the Company’s Board of Directors. In 2018, Mr. Cook resigned as President and Chief Executive Officer in December 2018 and did not stand for re-election to the Board in 2018. Mr. Cook currently serves as an assistant to the President for corporate development and strategy on a part-time basis. Mr. Cook was President and Chief Executive Officer of Dental Care Plus from February 2001 through December 2018 and, upon reorganization of Dental Care Plus, also assumed the role of President and Chief Executive Officer for the Company from July 2004 through December 2018. Mr. Cook serves as a Director of the Company from November 2008 through October 2018. Mr. Cook has over 30 years of management experience in the health care industry. He has HMO experience as a Plan Administrator, the Director of Health Systems for the largest Blue Cross and Blue Shield HMO in Ohio, as well as the Executive Director of a provider owned health plan. Before arriving at Dental Care Plus, Mr. Cook consulted with executives of health care organizations in developing capabilities to succeed in a managed care environment. Mr. Cook has a bachelor’s degree in psychology and a master’s degree in guidance and counseling from Youngstown State University as well as a Master of Business Administration degree from Baldwin-Wallace College in Cleveland, Ohio.

Robert C. Hodgkins, Jr., MBA, CPA, 59, President, Chief Executive Officer and Chief Financial Officer. Effective January 1, 2019, Mr. Hodgkins became been President, Chief Executive Officer of the Company. From July 2003 through December 2018, Mr. Hodgkins served as Vice President-Chief Financial Officer of Dental Care Plus and, upon reorganization of Dental Care Plus, served as Vice President-Chief Financial Officer of the Company from July 2004 through December 2018. Previously, Mr. Hodgkins was a Senior Manager in the Cincinnati office of PriceWaterhouseCoopers LLP, specializing in financial management and consulting to the health care industry from 1997 through 2002. Mr. Hodgkins also was a Director in the Finance Division of Blue Cross Blue Shield of Massachusetts (BCBSMA) from 1995 through 1997. He is a Certified Public Accountant licensed in Ohio and a past President of the Southwestern Ohio Chapter of the Healthcare Financial Management Association. He holds a Bachelor of Science degree in Industrial Engineering from Northwestern University and a Master of Business Administration from the J.L. Kellogg Graduate School of Management at Northwestern University.

Jodi M. Fronczek, 47, Vice President and Chief Operations Officer. Ms. Fronczek has been employed by Dental Care Plus and then the Company since May 1990. She has served as the Chief Operations Officer for the Company since February 2010 and was promoted to as Vice President effective January 2019. Previously she served as the Director of Group Benefits and Product Development from 2006 through 2010, Director of Claims and Member Services from 1997 through 2006, and Claims Manager from 1991 through 1997. Ms. Fronczek is a graduate of the University of Cincinnati and holds an Associate degree in office administration. She actively represents the Company as a member of the National Association of Dental Plans (NADP) and the National Dental EDI Council (NDEDIC).

AVAILABLE INFORMATION

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and other filings with the Securities and Exchange Commission (“SEC”) are available on the SEC’s website (www.sec.gov). Copies of these documents will be available without charge to any shareholder upon request. Requests should be directed in writing to the Company at 100 Crowne Point Place, Sharonville, Ohio 45241.

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ITEM 1A. RISK FACTORS

If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected, and the value of our shares could decline. The risks and uncertainties described below are those that we currently believe may materially affect our Company.

Adverse changes in economic conditions could adversely affect the Company’s business and results of operations.

Any adverse changes in the market conditions could adversely affect our customers. As a result, our employer group customers may seek to control their employee benefit costs including their dental plan benefits, which may lead to limited rate increases, fewer new sales and the loss of some dental plan membership. These factors may affect the Company’s revenue in the short-term.

Our business is highly concentrated in a limited geographic area and adverse economic conditions within the markets in which we do business could impair or reverse our growth trends and have a negative effect on our premium revenue and net income.

The operations of our subsidiaries have concentrated premium revenue in the Southwestern Ohio, Central Ohio, Northern Kentucky and Southern Kentucky markets, although our primary operations are in Southwestern Ohio. A prolonged regional economic downturn could cause employers to stop offering dental coverage as an employee benefit or elect to offer dental on a voluntary, employee-funded basis as a means to reduce their operating costs. A decrease in employer groups offering dental coverage on an employer sponsored basis could lead to a decrease in our membership, premium revenue and net income.

Our business is dependent upon a limited number of customers, and the loss of any one such customer could result in a loss of substantial premium revenue.

During 2018, approximately 10% of our total premium revenue was generated by five fully-insured employer groups. Also during 2018, approximately 12% of our total revenue was generated by two self-insured employer groups. If our relationship with any one of these employers were to terminate, our dental membership and the related premium revenue would decrease, which could lead to lower net income.

A small number of independent brokers source a substantial portion of our business, and the loss of any one such broker could result in a loss of substantial premium revenue.

During 2018, approximately 42% of our business was generated by five independent brokers, one of which was responsible for generating approximately 16.9% of our total premium revenue. If our relationship with any of these brokers were to terminate, our premium revenue could decrease materially.

Because our premiums are fixed by contract, we are unable to increase our premiums during the contract term if our claims costs exceed our estimates due to higher than expected dental services utilization.

Dental services utilization by members of our fully-insured dental plans may be higher than expected, resulting in higher than anticipated healthcare services expense and a reduction in our net income. Dental costs are subject to a high rate of inflation due to many factors, including new higher priced technologies and dental procedures, new dental service techniques and therapies, an aging population, the tort liability system and government regulations. If our claims costs exceed our estimates, we will be unable to adjust the premiums we receive under our current contracts, which may result in a decrease in our net income.

Our customers’ decisions to transition from a fully-insured to a self-insured dental plan or from a self-insured to a fully-insured dental plan could result in lower gross margins and increased costs.

In recent years, a number of fully-insured dental members shifted to our self-insured dental products. Additionally, a number of self-insured members shifted to our fully-insured dental products. If our customers continue to shift from a fully-insured dental product to a self-insured dental product, our dental gross margin may decrease. If our customers shift from a self-insured dental product to a fully-insured dental product, our capital and surplus requirements will increase. In both instances, we may incur significant transitioning costs.

The financial strength rating assigned to Dental Care Plus may be downgraded, which could result in a loss of employer groups and brokers, which may, in turn, cause our premium revenue to decline.

A.M. Best assigns a rating to companies that have, in their opinion, an ability to meet their ongoing obligations to policyholders, but are financially vulnerable to adverse changes in underwriting and economic conditions. In July 2018, 2017, 2016 and 2015 A.M. Best affirmed our B+ (Good) rating. In July 2014, A.M. Best upgraded our rating to B+ (Good) with a stable outlook. In July 2013, A.M. Best upgraded our B (Fair) rating. Prior to July 2013, our B- (Fair) rating was annually affirmed in each year from 2006 through 2012. Our A.M. Best rating is a measure of our financial strength relative to other insurance companies and is not a recommendation to buy, sell or hold securities. The rating assigned by A.M. Best Company is based, in part, on the ratio of our fully-insured premium revenue to our statutory capital and surplus. If Dental Care Plus continues to experience growth in its fully-insured premium revenue but does not retain enough of its earnings or obtain new sources of capital, the rating assigned to Dental Care Plus may be downgraded. If a downgrade were to occur, employer groups may decline to renew their annual or multi-year contract with us, and brokers may refuse to market our dental products. In addition, a downgrade may make it difficult for us to contract with new employer groups and new brokers. The loss of existing employer groups, and the loss of brokers may lead to a loss of premium revenue.

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If we fail to maintain contracts with an adequate number of providers, it may be difficult to attract and retain employer groups, which may lead to a loss of premium revenue.

Our business strategy is dependent to a large extent upon our continued maintenance of our provider networks. Generally, our participating provider contracts allow either party to terminate on limited notice (generally 30 days’ prior to annual renewal). If we are unable to continue to establish and maintain contracts with an adequate number of providers in our networks, employer groups may not renew their contracts with us and it may be difficult to attract new employer groups, which may lead to a loss of premium revenue.

We encounter significant competition that may limit our ability to increase or maintain membership in the markets we serve, which may harm our growth and our operating results.

We operate in a highly competitive environment. We compete for employer groups principally on the basis of the size, location and quality of our provider networks, premium rates, benefits provided, quality of service and reputation. A number of these competitive elements are partially dependent upon and can be positively affected by financial resources available to a dental plan. Many other organizations with which we compete have substantially greater financial and other resources than we do. For example, our competitors include Delta Dental of Ohio, which has an A.M. Best rating of A (Excellent) and Delta Dental of Kentucky, which has an A.M. Best rating of A- (Excellent). We also compete with the dental divisions of the medical insurance carriers in our markets, such as Humana Dental Insurance Company, which has an A.M. Best rating of A- (Excellent) and Anthem Blue Cross Life and Health Insurance Company, which has an A.M. Best rating of A (Excellent). In addition, we compete with national insurance carriers such as Metropolitan Life Insurance Company and Guardian Life Insurance Company of America, which have A.M. Best ratings of A+ (Superior) and A++ (Superior), respectively. Given the higher ratings and financial strength of many of our competitors, we may encounter difficulty in increasing or maintaining our dental membership in the future.

Health insurance companies may continue to offer premium concessions if employer groups sign up for their medical, dental or vision plans, which could result in the loss of employer groups and a decrease in our premium revenue.

Many of the health insurance companies that operate in the Ohio, Kentucky, Indiana, Michigan and Tennessee markets offer combined medical, dental and vision plans to employer groups. If these companies offer a premium concession on the medical plan to an employer group that signs up for their dental or vision plan as well, employer groups may decide to purchase the bundled medical, dental and vision plans to save money on their medical premium. As a result, we could experience significant loss of premium revenues.

We are subject to substantial federal government regulation. New laws or regulations, changes in existing laws or regulations and changes in public policy could adversely affect the markets for our products and our profitability.

Public Policy - It is not possible to predict with certainty the effect of fundamental public policy changes that could adversely affect the Company.  On March 23, 2010, the ACA was passed into law. Thus far, in the states in which we operate, the provisions of the ACA have been inconsistently implemented which makes it difficult for a stand-alone dental plan to enroll and retain membership. In accordance with the provisions of the ACA of 2010, effective January 1, 2014, the federal government imposed an annual assessment on all U.S. health insurers of approximately $8 billion in 2014. This annual assessment increases each year and is expected to be $16.0 billion in 2019. This annual assessment is allocated to individual health insurers based on the ratio of the insurer’s net premiums written during the preceding calendar year to the total health insurance premiums for any U.S. risk premium written for that same year.

The uncertainty relative to the continuation of the federal premium tax assessment and the amount of such assessment affects our financial condition and our ability to accurately forecast our performance and financial condition, and can adversely impact or ability to compete with larger dental insurance companies. In addition, more employer groups may choose self-funding in order to avoid the federal premium tax, which could result in lower gross profit for the Company.

President Trump and Congress may legislate additional changes in health care policy that could materially affect our profitability and cash flow, our ability to retain or grow our business and our financial position. Finally, we are unable to predict how the cost to employers of complying with this law will affect decisions those employers make with respect to offering dental and/or vision benefits to employees. If the federal government eliminates the FFM exchanges, this would have a material impact on our premium revenue, gross profit and earnings. During 2018, approximately 5.9% of our total premium revenue was generated through the FFM exchanges, which equates to approximately 15.7% of our total gross profit.

Privacy and Security of Personal Information – The Company is subject to several federal laws which govern the privacy and security of personal information.

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HIPAA - The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) authorized the U.S. Department of Health and Human Services (“HHS”) to adopt a series of regulations designed to simplify the exchange of information electronically between health plans and health care providers and to promote efficiency within the health care industry, as well as to protect the confidentiality and security of individually identifiable health information. Pursuant to this authority, HHS has adopted a series of regulations which are applicable to “Covered Entities,” which include health care providers, health plans and health care clearinghouses (collectively the “HIPAA Regulations”). Failing to comply with these HIPAA Regulations could result in significant civil penalties.

ARRA - The American Recovery and Reinvestment Act of 2009 (“ARRA”) contained several changes to the privacy and security rules under HIPAA. These changes are contained in the Health Information Technology for Economic and Clinical Health Act (the “HITECH” Act) provisions of the ARRA, and apply to all entities subject to the HIPAA privacy rules, including group health plans sponsored by employers. First, the HITECH Act makes several provisions of the HIPAA privacy and security rules directly applicable to the business associates of a group health plan. In addition, the HITECH Act contains notification rules that apply when there is a breach of the privacy rules due to an improper disclosure of unsecured protected health information (“PHI”). Generally, if a Covered Entity such as a group health plan discovers that an improper disclosure of unsecured PHI has occurred, the Covered Entity must notify the affected individuals whose PHI was breached. Covered Entities must also notify the Department of Health and Human Services (“HHS”) of breaches and, if a breach affects more than 500 residents of a state or jurisdiction, the Covered Entity must provide notice of the breach to a prominent media outlet serving the state or jurisdiction. In addition, a business associate must notify a Covered Entity when it discovers a breach of unsecured PHI. Failing to comply with the breach notification rules could result in significant civil penalties.

GLBA- The Financial Services Modernization Act of 1999 (the “Gramm-Leach-Bliley Act,” or “GLBA”) contains privacy provisions and introduced new controls over the use of an individual’s nonpublic personal data by financial institutions, including insurance companies, insurance agents and brokers licensed by state insurance regulatory authorities. The privacy provisions of GLBA that became effective in July 2001 require a financial institution to provide written notice of its privacy practices to all of its customers. In addition, a financial institution is required to provide its customers with an opportunity to opt out of certain uses of their non-public personal information. Failing to comply with GLBA Regulations could result in significant civil penalties.

If we fail to comply with applicable privacy and security laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personal information on our behalf, or if we fail to address emerging security threats or detect and prevent privacy and security incidents, our business, reputation, financial position and cash flows could be materially and adversely affected.  

Our business is heavily regulated by the states in which we do business, and our failure to comply with regulatory requirements could lead to a loss of our authority to do business in such states.

Our business is subject to substantial government regulation, principally under the insurance laws of those states in which we do business. We will also become subject to the insurance laws and regulations of other states in which our subsidiaries may in the future conduct business. These laws, which vary from state to state, generally require our subsidiaries to be licensed by the relevant state insurance department. With respect to our fully-insured dental products, these laws and regulations also establish operational, financial and other requirements. Dental Care Plus is currently required to maintain a minimum capital and surplus of approximately $2.5 million according to the regulations for the state of Ohio. The ability of Dental Care Plus to maintain such minimum required capital and surplus is directly dependent on the ability of Dental Care Plus to maintain a profitable business. Dental Care Plus operates in states that regulate its payment of dividends and debt service on inter-company loans, as well as other inter-company cash transfers and require minimum levels of equity and limit investments to approved securities. The amount of dividends that may be paid by Dental Care Plus, without prior approval by state regulatory authorities, is limited based on statutory income and statutory capital and surplus. Failure to maintain compliance with the minimum required capital and surplus of each state could result in Dental Care Plus becoming subject to supervision by the insurance regulatory agencies in those states in which we do business, and could further result in the suspension or revocation of Dental Care Plus’s Certificate of Authority in states in which we operate, monetary penalties, or the rehabilitation or liquidation of Dental Care Plus.

Due to the restrictions on the eligible owners of our common shares, we are limited in how we can raise capital to support the continued growth of our business.

At the present time, the only eligible owners of our Class A common shares and Class B common shares are providers, employees and members of the Board of Directors. As of January 2014, non-provider individuals are eligible owners of our Class C voting common shares (with a limitation on the number of Class C shares that may be outstanding at any time as a percentage of Class A and Class B shares). We are able to offer non-voting preferred shares to institutional investors, but we believe that there are a limited number of institutional investors that will invest their capital with the Company without voting rights or some other means to have formal influence over the direction of the Company. Given the restriction on eligible owners of our common shares, we may not be successful in raising new capital, which would result in our need to retain our earnings, and this may limit our ability to continue our consistent trend of premium growth and payment of dividends.

14

As a result of the aging and retirements of our provider shareholders, we anticipate requests to redeem an increasing number of common shares each year resulting in a reduction in the level or amount of the redeemable common shares on our consolidated balance sheet.

As of December 31, 2018, approximately 295 of our network provider shareholders were 60 years old or older and these shareholders owned, in the aggregate, 5,245 of our Class A and Class B Redeemable Common Shares. Pursuant to the Company’s Second Amended and Restated Code of Regulations (the “Code of Regulations”), retiring providers have the right to require the Company to repurchase such provider’s common shares on the terms contained in the Code of Regulations. Generally, we will be required to purchase the shares for a price equal to the book value of his or her common shares at the time of the redemption request and the repurchase will typically occur within three months of the date the request is made. However, the Code of Regulations provides for other payment terms and timing in certain circumstances. We will need to fund these anticipated increased shareholder redemptions by retaining earnings or raising additional capital.

Our ability to achieve our performance objectives could be affected by changes in the financial, credit and capital markets.

We invest premiums received from policyholders and other available cash to generate investment income and capital appreciation, while also maintaining sufficient liquidity to pay covered claims and operating expenses, and service our debt obligations. Investment income is an important component of our revenues and net income. The ability to increase investment income and generate longer-term growth in book value is affected by factors beyond our control, such as inflation, economic growth, interest rates, world political conditions, changes in laws and regulations, market events leading to credit constriction, and other unpredictable events. These events may adversely affect the economy generally and could cause our investment income or the value of securities we own to decrease. A significant decline in our investment income could have an adverse effect on our net income and on our shareholders’ equity. For example, a significant increase in the general level of interest rates could lead to falling bond values. For a more detailed discussion of risks associated with our investments, please refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk.

Maintaining our information technology platforms, managing technology initiatives and meeting data security requirements are significant challenges.

We purchased a perpetual license to use our dental administration and claims payment software in 2005. Our software maintenance agreement with the licensor extends to December 31, 2019. The company that supports and maintains our dental administration software is migrating to a new platform. In 2018, we have signed an agreement with the licensor to obtain an upgrade to our license whereby we will be able to modify and maintain the software ourselves.

We necessarily collect, use and hold data concerning individuals and businesses with whom we have a relationship. Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing time constraints to secure our data in accordance with customer expectations and statutory and regulatory requirements.

 While we take all reasonable measures to keep our systems and data secure, it is difficult or impossible to defend against every risk being posed by changing technologies as well as criminal intent on committing cyber-crime. Increasing sophistication of cyber-criminals and terrorists make keeping up with new threats difficult and could result in a breach. We could also experience a breach by intentional or negligent conduct on the part of associates or other internal sources. Our systems may become vulnerable to damage or disruption due to circumstances beyond our control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, viruses and malware.

 A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs, and reputational damage.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None

ITEM 2. PROPERTIES

We currently maintain our principal place of business at 100 Crowne Point Place, Sharonville, Ohio 45241, which we own. We believe that our existing facility is adequate to support our business.

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ITEM 3. LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Redeemable Common Shares

There is no established public trading market for the Class A, Class B or Class C Redeemable Common Shares. In addition, there are significant restrictions contained in the Company’s Code of Regulations on the ability to transfer the Class A, Class B and Class C Redeemable Common Shares.

Holders

As of December 31, 2018, there were 491 holders of Class A Redeemable Common Shares, 520 holders of Class B Redeemable Common Shares and 39 holders of Class C Redeemable Common Shares.

Dividend Policy

On August 15, 2018, our Board of Directors declared a $45.00 per share dividend for all holders of Class A, Class B and Class C Redeemable Common Shares of record on September 4, 2018, paid on September 21, 2018. With the dividend, the holders of restricted share units received a cash dividend. The Board of Directors have sole discretion as to whether to declare a dividend.

See Item 12 under PART III for securities authorized for issuance under equity compensation plans.

Recent Sales of Unregistered Securities

In the fourth quarter of 2018 we did not have any sales of unregistered securities.

Performance of Redeemable Common Shares

Pursuant to our Code of Regulations, the Company’s Redeemable Common Shares are sold and repurchased by the Company at book value. The book value of a Company Redeemable Common Share was $1,355, $1,210, $1,110, $1,012 and $997 at December 31, 2018, 2017, 2016, 2015, and 2014, respectively.

Purchases of Equity Securities

We repurchased and retired 3 Class A and 33 Class B shares during the three months ended December 31, 2018 as follows:

Period	Total Class A shares purchased (a)	Total Class B shares purchased (a)	Total Class C shares purchased (a)	Average price paid per share	Total Number of Shares Purchased as Part of a Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 – October 31, 2018	0	0	0	N/A	0	N/A
November 1 – November 30, 2018	2	22	0	$1,302.17	0	N/A
December 1 – December 31, 2018	1	11	0	$1,305.60	0	N/A

(a) Repurchased from shareholder in accordance with the Company’s obligations under its Amended and Restated Code of Regulations.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial information for the Company and its subsidiaries for the years indicated. The financial information should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report.

	2018			2017		2016		2015		2014
Premium revenue	$	112,314		$	107,589	$	105,594	$	98,261	$	91,936
Investment income		333			265		274		252		222
Other income and realized (losses) gains, net		(126	)		-		128		3		92
Net income		2,557			1,829		1,989		958		1,341
Total assets		66,785			70,329		78,082		60,344		57,239
Mortgage loan payable and capital lease obligations		1,799			2,296		1,706		2,068		2,019
Redeemable institutional preferred shares		-			-		-		2,751		2,709
Cash dividends declared, common and preferred		570			547		510		481		425

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Headquartered in Cincinnati, Ohio, the Dental Care Plus Group offers to Ohio, Kentucky, Indiana, Michigan and Tennessee employer groups of all sizes dental HMO, dental PPO, dental indemnity and vision PPO benefit plans and related services. The Company also offers dental PPO plans to individuals and small groups on the FFM exchanges and individual dental HMO and PPO plans in Ohio, Kentucky and Indiana. As of December 31, 2018, we had approximately 408,200 members in our dental and vision benefit programs with approximately 3,000 providers participating in our Dental Care Plus dental HMO network, approximately 3,200 providers participating in our DentaSelect dental PPO network and approximately 2,300 in our Balanced Value dental PPO network. The Company has a network access agreement with a national dental network management company that has one of the largest PPO networks of providers under contract in the United States. With this network access agreement, our dental PPO members have access to approximately 46,400 additional providers throughout the United States. The Company also has a network access arrangement with a national dental administration company for the dental PPO plans that it offered on the FFM exchanges in 2018. With this network access arrangement, FFM exchange members have access to approximately 12,700 providers across the eleven FFM exchange states.

We manage our business with four reportable segments: fully-insured dental HMO and indemnity (“dental HMO/IND”), fully-insured dental PPO, self-insured dental, and corporate, all other. Self-insured dental consists of the self-insured dental HMO, self-insured dental PPO and self-insured dental indemnity products. Corporate, all other primarily consists of revenue associated with our dental PPO and vision products underwritten by third-party insurance carriers and certain other corporate activities. We believe that our ability to continue this growth strategy is dependent on our ability to access additional capital to enhance information technology and new market entry.

The results of our fully-insured dental HMO/IND, fully-insured dental PPO and self-insured dental segments are measured by gross profit. We do not measure the gross profit of our corporate, all other segment. We do not allocate investment and other income, interest expense, insurance expenses, assets or liabilities to our segments because these measures are not used to analyze the segments. Our segments do not share overhead costs or assets. We do, however, measure the contributions of each of our fully-insured and self-insured segments to costs retained in our corporate, all other segment.

During 2017, the Board of Directors established a Special Committee to consider strategic alternatives available to the Company, including consideration of certain third party proposals made to the Company.  The significant amount of work by the Special Committee and advisors to the Special Committee resulted in increased director compensation expense and professional expense during 2018 and 2017.  As discussed on our Current Report on Form 8-K filed with the Commission on March 14, 2019, the Company entered into Agreement with DentaQuest, LLC dated March 12, 2019 pursuant to which the Company will be merged with a subsidiary of DentaQuest, LLC and our shareholders will receive cash in exchange for their Company commons shares (the “Merger”). The Merger is subject to approval of our shareholders, regulatory approval and other customary conditions.

Profitability Strategy

Our strategy has focused on providing solutions to employers and individuals to manage the rising cost of dental care by leveraging our products. We give employer groups and members options that meet their needs. We strive to provide excellent customer service to our employer groups, members, brokers and providers. Additionally, we have increased the diversification of our membership base, not only through our newer products, but also by entering new geographic territories.

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In our original eight county service area, our non-exclusive dental HMO provider network includes approximately 95% of the dental providers in the market. This area, which we refer to as our original eight county service area, includes Butler, Clermont, Hamilton and Warren counties in Ohio, and Boone, Campbell, Kenton and Pendleton counties in Kentucky. In that market our dental HMO provides the broad provider access of a dental PPO along with effective utilization and cost control features. Because of the broad provider network and our professional support services to employers, our fully-insured dental HMO is priced higher than other dental HMOs and has premium rates more equivalent to competitor dental PPOs.

We have experienced steady growth in membership and revenue in our dental products during the last five years. We attribute this growth to our broad provider networks, competitive premium rates for our fully-insured business and ASO fees for our self-insured business, and our commitment to providing outstanding customer service to all of our constituencies (employer groups, members, brokers, and providers).

Historically, healthcare services expense has generally increased for both the fully-insured dental segment and the self-insured dental segment. We continue to review and adjust our provider fee schedules where appropriate. Other important factors that have an impact on our profitability are both the competitive pricing environment and market conditions. With respect to pricing, there is a tradeoff between sustaining or increasing underwriting margins versus increasing enrollment. With respect to market conditions, economies of scale have an impact on our administrative overhead. As a result of a decline in preference for more closely managed dental HMO products, dental costs have become increasingly comparable among our larger competitors. Product design and consumer involvement have become more important drivers of dental services consumption, and administrative expense efficiency is becoming a more significant driver of margin sustainability. Consequently, we continually evaluate our administrative expense structure and attempt to realize administrative expense savings principally through technology improvements.

Highlights

● Net income for the year ended December 31, 2018 was $2,557,000, an increase of $728,000, or 39.8%, from the year ended December 31, 2017. The increase in net income was primarily a result in lower income tax expense of approximately $1,057,000, an increase in premium revenue of approximately $4,725,000 and an increase in investment income of approximately $68,000. The increase in net income was offset by an increase in healthcare services expense of approximately $2,464,000, an increase in insurance expenses of $2,285,000 and an increase in realized losses on investments of approximately $374,000. Our ratio of insurance expense to total premium revenue (“insurance expense ratio”) increased to 22.2% in 2018 from 21.1% in 2017.

● Our ratio of healthcare services expense to premium revenue (“loss ratio”) decreased by approximately 1.0% from 75.9% in 2017 to 74.9% in 2018. The fully-insured dental HMO/IND and fully-insured dental PPO segments together represent approximately 70.6% of our total dental business.

● The annual federal premium tax assessment was suspended for calendar year 2017, but was reinstated in 2018. Operating costs associated with the federal premium tax was approximately $802,000 in 2018. This fee is not deductible for federal income tax purposes. The annual federal premium tax assessment is suspended for calendar year 2019.

● Our dental and vision products grew by approximately 21,600 members, or 5.6%, from 386,600 members at December 31, 2017 to 408,200 members at December 31, 2018. This membership increase from December 31, 2017 is due to an increase in fully-insured dental PPO membership of approximately 11,300 members, an increase in self-insured dental membership of approximately 9,900 members and an increase in corporate, all other membership of approximately 1,200 members. This was offset by a decrease in fully-insured dental HMO/IND membership of approximately 800 members.

● In September 2018, we paid a dividend of $45.00 per share to shareholders of record for our Redeemable Common Shares. In March 2017, we paid a dividend of $42.50 per share to holders of our Redeemable Common Shares.

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Comparison of Results of Operations for 2018 and 2017   

The following table shows membership totals and revenues and expenses for our four business segments for the years ended December 31, 2018 and 2017 (dollars in thousands):

	2018			2017		Change
Membership:
Fully-insured dental HMO/IND		158,700			159,500		(0.5	%)
Fully-insured dental PPO		101,100			89,800		12.6	%
Self-insured dental		106,900			97,000		10.2	%
Corporate, all other		41,500			40,300		3.0	%
Total membership		408,200			386,600		5.6	%
Premium revenue:
Fully-insured dental HMO /IND	$	50,710		$	51,419		(1.4	%)
Fully-insured dental PPO		28,658			25,936		10.5	%
Self-insured dental		31,868			29,427		8.3	%
Corporate, all other		1,078			807		33.6	%
Total premium revenue		112,314			107,589		4.4	%
Investment income:
Corporate, All Other		333			265		25.7	%
Other income and realized gains, net:
Corporate, All Other		(125	)		249		(150.2	%)
Total revenue		112,522			108,103		4.1	%
Healthcare services expense:
Fully-insured dental HMO/IND		37,785			38,522		(1.9	%)
Fully-insured dental PPO		18,844			17,721		6.3	%
Self-insured dental		27,442			25,365		8.2	%
Total healthcare services expense		84,071			81,608		3.0	%
Insurance expense
Corporate, All Other		24,980			22,695		10.1	%
Income tax expense
Corporate, All Other		914			1,971		(53.6	%)

Summary

Net income was approximately $2,557,000 and $1,829,000 for 2018 and 2017, respectively. The increase in net income was primarily a result in lower income tax expense of approximately $1,057,000, an increase in premium revenue of approximately $4,725,000 and an increase in investment income of approximately $68,000. These improvements were offset by an increase in healthcare services expense of approximately $2,464,000, an increase in insurance expenses of $2,285,000 and an increase in realized losses on investments of approximately $374,000.

Membership

Our fully-insured dental HMO/IND membership decreased by approximately 800 members, or 0.5%, in 2018. This membership decrease is a result of approximately 2,700 fully-insured dental HMO/IND members converting to our self-insured dental product in 2018 as well as a loss of approximately 11,200 members with employer groups that did not renew with the Company or reduced employee counts of retained employer groups. In addition, some of our fully-insured dental HMO/IND membership losses were the result of corporate consolidations and employer groups moving to medical or other ancillary carriers to take advantage of multi-line packaged savings. These decreases were offset by an increase of 11,100 members from new sales of employer groups and a net increase of 2,000 members from new sales of individual HMO products.

Our fully-insured dental PPO membership increased by approximately 11,300 members, or 12.6% in 2018. This membership increase is due to new sales in the Dayton and Central Ohio markets, the Southern Kentucky market and the Indiana market of approximately 10,400 members during 2018, offset by the loss of approximately 7,700 members with employer groups that did not renew with the Company or reduced employee counts of retained employer groups in these markets. The remaining increase of approximately 8,600 members is due to new sales of individual and on exchange dental PPO products in 2018.

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Our self-insured dental membership increased by approximately 9,900 members, or 10.2%, in 2018. This membership increase is due to new sales of approximately 5,300 members, growth in our existing self-insured employer groups of approximately 1,900 members and an increase of approximately 2,700 members due to the conversion of employer groups from our fully-insured dental HMO/IND and PPO products to our self-insured dental product.

Our corporate, all other membership increased by approximately 1,200 members, or 3.0%, in 2018 as a result of increased membership in our vision plan.

Revenue

	(Amounts in thousands)
	2018		2017		Total Dollar Change			Member Volume Change			Rate Change
Total Fully-Insured Dental HMO/IND Premium	$	50,710	$	51,419	$	(709	)	$	(975	)	$	266

Fully-insured dental HMO/IND premium revenue for 2018 decreased by approximately $709,000 compared to 2017. A decrease in fully-insured dental HMO/IND sales volume resulted in a decrease in fully-insured dental HMO/IND premium revenue of approximately $975,000 that was offset by an increase in fully-insured dental HMO/IND revenue of approximately $266,000 due to higher overall premium rates on a PMPM basis. The fully-insured dental HMO/IND segment represented approximately 45.1% of our total dental business in 2018.

	2018		2017		Total Dollar Change		Member Volume Change		Rate Change
Total Fully-Insured Dental PPO Premium	$	28,658	$	25,936	$	2,722	$	3,327	$	(605	)

Fully-insured dental PPO premium revenue for 2018 increased by approximately $2,722,000 compared to 2017. Fully-insured dental PPO revenue increased by approximately $3,327,000 due to an increase in fully-insured PPO group and individual membership in 2018, offset by a decrease of approximately $605,000 due to a decrease in overall premium rates on a PMPM basis. The fully-insured dental PPO segment represented approximately 25.5% of our total dental business in 2018.

	(Amounts in thousands)
	2018		2017		Total Dollar Change		Member Volume Change		Rate Change
Self-Insured Claim Revenue	$	30,316	$	28,002	$	2,314	$	1,922	$	392
Self-Insured ASO Fees		1,552		1,425		127		98		29
Total Self-Insured Revenue	$	31,868	$	29,427	$	2,441	$	2,020	$	421

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Self-insured dental revenue increased by approximately $2,441,000 due to new self-insured sales and an increase in membership for existing employer groups. Self-insured revenue increased by approximately $2,314,000 due to an increase in the self-insured claims revenue on a per member per month basis, as well as an increase of approximately $127,000 in self-insured administrative fee rates on a per member per month basis. The self-insured dental segment represented approximately 28.4% of our total dental business in 2018. The self-insured segment revenue has two components:

Self-Insured Claim Revenue - Self-insured claim revenue increased approximately $2,314,000 in 2018. The self-insured claim revenue increased by approximately $1,922,000 due to an increase in membership of the self-insured product as well as an increase of approximately $392,000 as a result of an increase in self-insured claim revenue on a PMPM basis in 2018.

Self-Insured ASO Fees - Self-insured ASO fees increased approximately $127,000 in 2018. Self-insured ASO fees increased by approximately $29,000 due to an increase in the average self-insured ASO fee rates on a PMPM basis in 2018. In addition, there was an increase of approximately $98,000 due to a net membership increase with existing employer groups.

Corporate, all other premium revenue is primarily derived from the non-DCP dental indemnity product, dental PPO product and vision product underwritten by third party insurance carriers. In the aggregate, corporate, all other premium revenue increased by approximately $271,000, to $1,078,000 in 2018 from $807,000 in 2017.

Investment Income

Investment income increased approximately $68,000, to $333,000 in 2018 from $265,000 in 2017.

Other Income and Realized (Losses) Gains on Investments, Net

Other income and realized (losses) gains on investments decreased approximately $374,000 to ($125,000) in 2018 from $249,000 in 2017. The decrease is primarily the result of realized losses from the deferred compensation equity mutual fund investments included in other assets in 2018. In addition, there were investments gains due to the sale of investments in 2017 that did not occur in 2018.

Healthcare Services Expenses

	(Amounts in thousands)
	2018		2017		Total Dollar Change			Member Volume Change			Utilization and Fee Schedule Change
Total Fully-Insured Dental HMO/IND Healthcare Service Expense	$	37,785	$	38,522	$	(737	)	$	(731	)	$	(6	)

Fully-insured dental HMO/IND healthcare services expense decreased $737,000 in 2018. Fully-insured dental HMO/IND healthcare services expense on a PMPM basis slightly decreased from $19.93 PMPM in 2017 to $19.92 PMPM in 2018. A decrease in fully-insured dental HMO/IND membership resulted in a decrease in fully-insured dental HMO/IND healthcare services expense of $731,000 and a slight decrease in healthcare services utilization resulting in an increase of approximately $6,000 in 2018 compared to 2017.

	(Amounts in thousands)
	2018		2017		Total Dollar Change		Member Volume Change		Utilization and Fee Schedule Change
Total Fully-Insured Dental PPO Healthcare Service Expense	$	18,844	$	17,721	$	1,123	$	2,273	$	(1,150	)

Fully-insured dental PPO healthcare services expense increased by $1,123,000 in 2018. Fully-insured dental PPO healthcare services expense on a PMPM basis decreased 5.7%, from $15.89 PMPM in 2017 to $14.98 PMPM in 2018. An increase in fully-insured dental PPO membership resulted in an increase in fully-insured dental PPO healthcare services expense of $2,273,000. These increases were offset by lower healthcare services utilization that resulted in a decrease of approximately $1,150,000 in 2018 compared to 2017.

	(Amounts in thousands)
	2018		2017		Total Dollar Change		Member Volume Change		Utilization and Fee Schedule Change
Self-Insured Healthcare Services Expense	$	27,442	$	25,365	$	2,077	$	1,741	$	336

Self-insured healthcare services expense increased by $2,077,000 in 2018. Self-insured healthcare services expense on a PMPM basis increased 1.2% from $21.77 PMPM in 2017 to $22.04 PMPM in 2018. An increase in self-insured healthcare services expense of $1,741,000 was due to an increase in membership in 2018 compared to 2017. In addition, an increase in healthcare services expense on a PMPM basis resulted in an increase in self-insured healthcare services expense of approximately $336,000 in 2018 compared to 2017.

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Corporate, all other healthcare services expense is not recognized by the Company due to the fact that our other dental indemnity, dental PPO and vision PPO products are underwritten by third party insurance carriers.

Insurance Expenses

Consolidated insurance expenses increased approximately $2,285,000 in 2018. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 22.2% for 2018, increasing 1.1% from the 2017 ratio of 21.1%. The higher consolidated insurance expense in 2018 was primarily due to the reinstatement of the federal premium tax as well as higher professional consulting expense, third party administration expense and various other expenses in 2018.

Income Taxes

Our effective tax rate for 2018 was 26.3% compared to the 51.9% effective tax rate in 2017. The decrease in federal income tax rate is the result of the U.S. government tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which reduced the corporate tax rate from 34% to 21%. This reduction is offset by the non-deductible federal premium tax in 2018. See Note 10 to the consolidated financial statements included in Item 8-Financial Statements and Supplementary Data for a complete reconciliation of the federal statutory rate to the effective tax rate.

Comparison of Results of Operations for 2017 and 2016   

The following table shows membership totals and revenues and expenses for our four business segments for the years ended December 31, 2017 and 2016 (dollars in thousands):

	2017		2016		Change
Membership:
Fully-insured dental HMO/IND		159,500		167,000		(4.5	%)
Fully-insured dental PPO		89,800		79,500		13.0	%
Self-insured dental		97,000		95,500		1.6	%
Corporate, all other		40,300		40,100		0.5	%
Total membership		386,600		382,100		1.2	%
Premium revenue:
Fully-insured dental HMO /IND	$	51,419	$	53,393		(3.7	%)
Fully-insured dental PPO		25,936		22,363		16.0	%
Self-insured dental		29,427		29,067		1.2	%
Corporate, all other		807		771		4.7	%
Total premium revenue		107,589		105,594		1.9	%
Investment income:
Corporate, All Other		265		274		(3.3	%)
Other income and realized gains, net:
Corporate, All Other		249		128		94.5	%
Total revenue		108,103		105,996		2.0	%
Healthcare services expense:
Fully-insured dental HMO/IND		38,522		39,995		(3.7	%)
Fully-insured dental PPO		17,721		15,391		15.1	%
Self-insured dental		25,365		25,114		1.0	%
Total healthcare services expense		81,608		80,500		1.4	%
Insurance expense
Corporate, All Other		22,695		22,143		2.5	%
Income tax expense
Corporate, All Other		1,971		1,363		44.6	%

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Summary

Net income was approximately $1,829,000 and $1,989,000 for 2017 and 2016, respectively. This decrease in net income is primarily the result of higher deferred tax expense as a result of the Tax Act which accounted for an approximate $692,000 increase in taxes, an increase in premium revenue of approximately $1,995,000 offset by an increase in healthcare services expense of approximately $1,108,000 in 2017. The increase in gross margin of approximately $887,000 was offset by an increase in insurance expenses of $552,000 in 2017. Our ratio of insurance expense to total premium revenue (“insurance expense ratio”) increased to 21.1% in 2017 from 21.0% in 2016.

Membership

Our fully-insured dental HMO/IND membership decreased by approximately 7,500 in 2017. This membership decrease is attributable to the reduction of approximately 10,000 fully-insured dental HMO members due to the conversion of one employer group from our fully-insured dental HMO/IND product to our self-insured dental product effective January 1, 2017. In addition, a decrease of approximately 9,900 members is the result of employer groups that did not renew with the Company or reduced employee counts of retained employer groups. These decreases were offset by an increase of 10,100 members from new sales with employer groups and 2,300 members from new sales of individual HMO products in 2017. Some of our fully-insured dental HMO/IND membership losses were the result of corporate consolidations and employer groups moving to medical carriers to take advantage of medical/dental packaged savings.

Our fully-insured dental PPO membership increased by approximately 10,300 members in 2017. This membership increase is due to new sales in the Dayton and Central Ohio markets, the Southern Kentucky market and the Indiana market of approximately 11,600 members during 2017, offset by the loss of approximately 6,900 members with employer groups that did not renew with the Company or reduced employee counts of retained employer groups in these markets. The remaining increase of approximately 5,600 members is due to new sales of individual and on exchange dental PPO products in 2017.

Our self-insured dental membership increased by approximately 1,500 members in 2017. During 2017, approximately 10,000 members of an employer group converted from our fully-insured dental HMO/IND product to our self-insured dental product effective January 1, 2017, which was offset by a decrease of 8,500 members as a result of employer groups that did not renew with the Company. Some of our self-insured dental HMO/IND membership losses were the result of corporate consolidation and employer groups moving to other carriers.

Our corporate, all other membership increased slightly as a result of increased membership in our vision plan.

Revenue

	(Amounts in thousands)
	2017		2016		Total Dollar Change			Member Volume Change			Rate Change
Total Fully-Insured Dental HMO/IND Premium	$	51,419	$	53,393	$	(1,974	)	$	(1,432	)	$	(542	)

Fully-insured dental HMO/IND premium revenue for 2017 decreased by approximately $1,974,000 compared to 2016. New fully-insured dental HMO/IND sales volume resulted in an increase in fully-insured dental HMO/IND premium revenue of approximately $1,813,000 that was offset by a decrease in fully-insured dental HMO/IND revenue of approximately $3,245,000 due to the conversion of an employer group to the self-insured product line in 2017. Fully-insured dental HMO/IND premium decreased by $542,000 due to lower overall premium rates on a PMPM basis. The conversion of an employer group from fully-insured to the self-insured product line resulted in $213,000 of this decrease. The fully-insured dental HMO/IND segment represented approximately 47.8% of our total dental business in 2017.

	(Amounts in thousands)
	2017		2016		Total Dollar Change		Member Volume Change		Rate Change
Total Fully-Insured Dental PPO Premium	$	25,936	$	22,363	$	3,573	$	3,966	$	(393	)

Fully-insured dental PPO premium revenue for 2017 increased by approximately $3,573,000 compared to 2016. Fully-insured dental PPO revenue increased by approximately $3,966,000 due to an increase in fully-insured PPO group and individual membership in 2017, offset by a decrease of approximately $393,000 due to a decrease in premium rates for the year. The fully-insured dental PPO segment represented approximately 24.1% of our total dental business in 2017.

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	(Amounts in thousands)
	2017		2016		Total Dollar Change		Member Volume Change		Rate Change
Self-Insured Claim Revenue	$	28,002	$	27,676	$	326	$	135	$	191
Self-Insured ASO Fees		1,425		1,391		34		7		27
Total Self-Insured Revenue	$	29,427	$	29,067	$	360	$	142	$	218

Self-insured dental revenue increased by approximately $360,000 due to new self-insured sales and an increase in membership for existing employer groups. Self-insured revenue increased by approximately $326,000 due to an increase in the self-insured claims revenue on a per member per month basis, as well as an increase of approximately $34,000 in self-insured administrative fee rates on a per member per month basis. The self-insured dental segment represented approximately 27.4% of our total dental business in 2017. The self-insured segment revenue has two components:

Self-Insured Claim Revenue - Self-insured claim revenue increased approximately $326,000 in 2017. The self-insured claim revenue increased by approximately $3,433,000 due to the conversion of fully-insured HMO/IND revenue to the self-insured product. This increase was offset by a decrease of approximately $3,298,000, as a result of the loss of employer groups in 2017. In addition, there was an increase in self-insured claim revenue of approximately $191,000 as a result of an increase in self-insured claim revenue on a PMPM basis in the 2017.

Self-Insured ASO Fees - Self-insured ASO fees increased approximately $34,000 in 2017. Self-insured ASO fees increased by approximately $27,000 due to an increase in the average self-insured ASO fee rates on a PMPM basis in 2017. In addition, there was an increase of approximately $7,000 due to a net membership increase with existing employer groups.

Corporate, all other premium revenue is primarily derived from the non-DCP dental indemnity product, dental PPO product and vision product underwritten by third party insurance carriers. In the aggregate, corporate, all other premium revenue increased by approximately $36,000, to $807,000 in 2017 from $771,000 in 2016.

Investment Income

Investment income decreased approximately $9,000, to $265,000 in 2017 from $274,000 in 2016.

Other Income and Realized (Losses) Gains on Investments, Net

Other income and realized (losses) gains on investments increased approximately $171,000 to $249,000 in 2017 from $128,000 in 2016. The increase is primarily the result of realized gains due to the sale of investments in 2017 that did not occur in 2016, offset by a decrease in other income.

Healthcare Services Expenses

	(Amounts in thousands)
	2017		2016		Total Dollar Change			Member Volume Change			Utilization and Fee Schedule Change
Total Fully-Insured Dental HMO/IND Healthcare Service Expense	$	38,522	$	39,995	$	(1,473	)	$	(1,073	)	$	(400	)

Fully-insured dental HMO/IND healthcare services expense decreased $1,473,000 in 2017. Fully-insured dental HMO/IND healthcare services expense on a PMPM basis decreased by 1.0% from, $20.13 PMPM in 2016 to $19.93 PMPM in 2017. A decrease in fully-insured dental HMO/IND membership due to the conversion of an employer group to our self-insured product resulted in a claim decrease of approximately $2,431,000, which was offset by a claim expense increase of approximately $1,358,000 due to new membership in the year. Lower healthcare services utilization resulted in a decrease in fully-insured dental HMO/IND healthcare services expense of approximately $828,000 in 2017 compared to 2016. This decrease was offset by an increase of approximately $428,000 attributable to fee schedule increases effective January 1, 2017.

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	2017		2016		Total Dollar Change		Member Volume Change		Utilization and Fee Schedule Change
Total Fully-Insured Dental PPO Healthcare Service Expense	$	17,721	$	15,391	$	2,330	$	2,730	$	(400	)

Fully-insured dental PPO healthcare services expense increased by $2,330,000 in 2017. Fully-insured dental PPO healthcare services expense on a PMPM basis decreased 2.2%, from $16.25 PMPM in 2016 to $15.89 PMPM in 2017. An increase in fully-insured dental PPO membership resulted in an increase in fully-insured dental PPO healthcare services expense of $2,730,000. In addition, an increase of $91,000 is attributable to fee schedule increases effective January 1, 2017. These increases were offset by lower healthcare services utilization that resulted in a decrease of approximately $491,000 in the 2017 period compared to the 2016 period.

	(Amounts in thousands)
	2017		2016		Total Dollar Change		Member Volume Change		Utilization and Fee Schedule Change
Self-Insured Healthcare Services Expense	$	25,365	$	25,114	$	251	$	123	$	128

Self-insured healthcare services expense increased by $251,000 in 2017. Self-insured healthcare services expense on a PMPM basis increased 0.5% from $21.66 PMPM in 2016 to $21.77 PMPM in 2017. An increase in self-insured dental membership due to the conversion of employer groups to our self-insured product resulted in an increase in claims expense of approximately $3,116,000. The increase was offset by a decrease of $2,993,000 due to the loss of self-insured groups in 2017. In addition, self-insured healthcare services expense increased approximately $252,000 attributable to fee schedule increases effective January 1, 2017. Lower healthcare services utilization resulted in a decrease in self-insured healthcare services expense of approximately $124,000 in 2017 compared to 2016.

Corporate, all other healthcare services expense is not recognized by the Company due to the fact that our other dental indemnity, dental PPO and vision PPO products are underwritten by third party insurance carriers.

Insurance Expenses

Consolidated insurance expenses increased approximately $552,000 in 2017. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 21.1% for 2017, increasing 0.1% from the 2016 ratio of 21.0%. Salaries and wages increased by approximately $184,000 in 2017 primarily due to increased medical premiums. Other insurance expense increased by approximately $411,000 due to an increase in expenses related to the launch of the individual dental PPO product in our new states for 2018 and an increase in professional fees attributable primarily to services provided to the Special Committee in considering strategic alternatives available to the Company. These increases were offset by a slight decrease in commissions expense.

Income Taxes

Our effective tax rate for 2017 was 51.9% compared to the 40.7% effective tax rate in 2016. The increase in the effective tax rate in 2017 compared to 2016 is primarily the result of the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code beginning in 2018, which will reduce the corporate tax rate from 34% to 21%. The rate reduction required a remeasurement of the Company’s net deferred tax asset. The Tax Act accounts for approximately 18.2% of the 2017 effective rate. This was offset by a decrease in nondeductible federal premium tax that was not required in 2017. See Note 10 to the consolidated financial statements included in Item 8-Financial Statements and Supplementary Data for a complete reconciliation of the federal statutory rate to the effective tax rate.

Liquidity and Capital Resources and Changes in Financial Condition

Our primary sources of cash are premiums, ASO fees, investment and other income, as well as the proceeds from the maturity or sale of our investment securities, from the sale of redeemable common and preferred shares, and from borrowings. Our primary uses of cash include disbursements for claims payments, insurance expense, interest expense, taxes, purchases of investment securities, capital expenditures, Redeemable Common and Preferred Share redemptions, dividends, and payments on borrowings. Because premiums are collected in advance of claims payments, our business should normally produce positive operating cash flows during a period of increasing enrollment. Conversely, cash flows would be negatively impacted during a period of shrinking enrollment.

Cash slightly increased $32,000, or 0.2%, for the year ended December 31, 2018 to approximately $13,209,000 at December 31, 2018 from approximately $13,177,000 at December 31, 2017. This cash increase is primarily the result of cash flow provided by operations of approximately $2,370,000. This increase was offset by a decrease in cash flow used in investing activities and financing activities of approximately $1,150,000 and $1,188,000, respectively.

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Cash increased $1,956,000, or 17.4%, for the year ended December 31, 2017 to approximately $13,177,000 at December 31, 2017 from approximately $11,221,000 at December 31, 2016. This cash increase is primarily the result of cash flow provided by operations of approximately $3,608,000. This increase was offset by a decrease in cash flow used in investing activities and financing activities of approximately $592,000 and $1,060,000, respectively. The change in cash for the years ended December 31, 2018, 2017 and 2016 is summarized as follows (in thousands):

	2018			2017			2016
Net cash provided by operating activities	$	2,370		$	3,608		$	3,682
Net cash used in investing activities		(1,150	)		(592	)		(2,209	)
Net cash used in financing activities		(1,188	)		(1,060	)		(1,908	)
Increase (decrease) in cash and cash equivalents	$	32		$	1,956		$	(435	)

Cash Flows from Operating Activities

In 2018, we had net income of approximately $2,557,000. A decrease in billed accounts receivable resulted in an increase in cash of approximately $3,891,000 in 2018. A reconciling difference to net income was our non-cash deferred compensation expense of approximately $427,000, which is primarily the result of the vesting of our cash and share awards in 2018. Deferred policy acquisition costs increased by approximately $203,000 as a result of the increase in the fully-insured business renewed in January 2018. Cash from operating activities also decreased approximately $802,000 as the result of the reinstatement of the federal premium tax in 2018. There was no federal premium tax in 2017. In future years after the 2019 moratorium, the federal premium tax increase will be based on a graduated year-over-year percentage increase of premium revenue earned as a result of the Affordable Care Act. Other payables and accrued expenses decreased, resulting in a net decrease in cash flow from operations of approximately $538,000. The remaining effects of changes in operating assets and liabilities that represent fluctuations are not significant and are consistent with 2017.

In 2017, approximately $3,608,000 was provided by operating activities. We had net income of approximately $1,829,000. A reconciling difference to net income was our non-cash deferred compensation expense of approximately $988,000, which is primarily the result of the vesting of our share awards in 2017. Deferred policy acquisition costs decreased by approximately $472,000 primarily as a result of the amortization of significant fully-insured multiyear contracts signed in 2016 offset by the increase in the fully-insured business renewed in January 2017. Other payables and accrued expenses decreased and resulted in a net decrease in cash flow from operating activities of approximately $163,000. A decrease in accounts receivable offset by a decrease in unearned premium revenue resulted in an increase of cash of approximately $168,000 in the 2017 period. We paid $1,376,000 of federal income taxes in the 2017 period that related to our 2016 extension payment and 2017 estimated tax payments. The remaining effects of changes in operating assets and liabilities that represent fluctuations are not significant and are consistent with 2016.

In 2016, approximately $3,682,000 was provided by operating activities. We had net income of approximately $1,989,000. A reconciling difference to net income was our non-cash deferred compensation expense of approximately $995,000, which is primarily the result of the vesting of our share awards in 2016. Deferred policy acquisition costs increased by approximately $1,096,000 primarily as a result of the increase in the fully-insured business renewed in January 2016. Other payables and accrued expenses increased and resulted in a net increase in cash flow from operating activities of approximately $1,848,000. An increase in accounts receivable offset by an increase in unearned premium revenue resulted in a decrease of cash of approximately $641,000 in the 2016 period. We paid $1,069,000 of federal income taxes in the 2016 period that related to our 2015 extension payment and 2016 estimated tax payments. The remaining effects of changes in operating assets and liabilities that represent fluctuations are not significant and are consistent with 2015.

Cash Flows from Investing Activities

During 2018, we made purchases totaling approximately $2,941,000 of investment grade and non-investment grade corporate bonds, money markets and certificates of deposit in order to improve investment income. Also during 2018, we sold investment grade and non-investment grade corporate bonds, and certificates of deposit and had maturities that together totaled approximately $2,678,000. The remaining net cash used in investing activities during 2018 was primarily due to purchases of computer equipment and internally developed software development costs.

During 2017, we made purchases totaling approximately $4,167,000 of investment grade and non-investment grade corporate bonds, money markets and certificates of deposit in order to improve investment income. Also during 2017, we sold investment grade and non-investment grade corporate bonds, and certificates of deposit and maturities that together totaled approximately $3,967,000. In addition, in September 2017, we sold certain office equipment and computer equipment with a value of approximately $921,000 to a leasing company and entered into a capital lease agreement to lease back these same assets over a four year period. The remaining net cash used in investing activities during 2017 was primarily due to purchases of computer equipment and internally developed software development costs.

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During 2016, we made purchases totaling approximately $5,336,000 of investment grade and non-investment grade corporate bonds, money markets and certificates of deposit in order to improve investment income. Also during 2016, we sold investment grade and non-investment grade corporate bonds, and certificates of deposit and maturities that together totaled approximately $3,676,000. The remaining net cash used in investing activities during 2016 was primarily due to purchases of computer equipment and internally developed software development costs.

Cash Flows from Financing Activities

In 2018, we made scheduled principal payments of approximately $55,000 related to our office building mortgage and scheduled payments of approximately $442,000 related to our capital leases. During 2018, we repurchased Redeemable Common Shares with a book value (purchase price) of approximately $120,000. We also paid dividends of approximately $570,000 to holders of our Redeemable Common Shares.

In 2017, we made scheduled principal payments of approximately $53,000 related to our office building mortgage and scheduled payments of approximately $278,000 related to our capital leases. During 2017, we repurchased Redeemable Common Shares with a book value (purchase price) of approximately $182,000. We also paid dividends of approximately $547,000 to holders of our Redeemable Common Shares.

In 2016, we made scheduled principal payments of approximately $50,000 related to our office building mortgage and scheduled payments of approximately $311,000 related to our capital leases. During 2016, we repurchased Redeemable Common Shares with a value of approximately $276,000. Also, we repurchased all of our Institutional Preferred Shares with a value of approximately $2,805,000, and including the 5% premium of approximately $119,000 paid to the holders of the 2012(A) and the 2013(A) series, the total price paid was approximately $2,924,000. We also paid dividends of approximately $442,000 to holders of our Redeemable Common Shares and approximately $68,000 to holders of our Redeemable Institutional Preferred Shares in 2016. During 2016, we issued approximately $2,280,000 of new Redeemable Common Shares.

Contractual Obligations and Other Commitments

A summary of our future commitments as of December 31, 2018 is as follows:

	Less than 1
Contractual Obligations	year		1-2 years		3-5 years		Total
Long-term debt and interest (1)	$	97,678	$	193,294	$	895,347	$	1,186,319
Capital lease and interest		354,552		445,002				799,554
Operating leases		326,403		171,945		53,650		551,998
Claims payable		2,612,817						2,612,817
Total	$	3,391,450	$	810,241	$	948,997	$	5,150,688

(1) Includes swap interest payments based on a fixed rate of 3.90%.

A mortgage note, secured by the land and the office building, accrues interest based on the 30-day LIBOR rate plus 1.95%. The note requires us to make principal payments of $4,800 per month in 2019 and higher principal payments in subsequent years through 2022 in accordance with the agreed upon loan amortization schedule. At the maturity date of the mortgage note in 2022, the expected outstanding balance of the note of approximately $804,000 must be repaid or refinanced. We also entered into an interest rate swap agreement that effectively changed the interest rate related to the $1,340,000 mortgage note with a commercial bank from a variable rate based on the 30-day LIBOR rate plus 1.95% to a fixed rate of approximately 3.90% for the 10-year period through December 2022. At December 31, 2018, the carrying value of the mortgage note approximates fair value. Under this mortgage, the Company is required to have a minimum tangible net worth equal to or greater than $3,500,000 at the end of each fiscal year and a debt service ratio of at least 1:1. The Company was in compliance with these covenants at December 31, 2018. The Company also entered into a capital lease agreement with a leasing company in 2017 that obligates the Company to pay lease payments over a four year period for each capital lease. Under these capital lease agreements, the Company is required to have a minimum tangible net worth equal to or greater than $2,500,000 at the end of each fiscal year. At December 31, 2018, the Company was in compliance with this minimum tangible net worth requirement.

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As of December 31, 2018, we believe our most significant other commitments are:

Deferred Compensation – We expect to pay our deferred compensation liability to the Company directors and employees as they retire or otherwise terminate their association with the Company in future years. However, the Merger Agreement requires that the Deferred Compensation plan be terminated in connection with closing. Therefore, if the merger is consummated, substantially all deferred compensation liabilities will be satisfied in connection with closing the merger.

Commissions – We expect commission payments to generally correspond to earned premium volume.

Redeemable Common Shares – Pursuant to the Company’s Code of Regulations, holders of Class A, Class B and Class C shares have the right to require the Company to repurchase such holder’s common shares on the terms contained in the Code of Regulations.

Federal and State Premium Taxes – We expect federal and state premium payments to generally correspond to earned premium volume.

Off-Balance Sheet Arrangements

None.

Financial Condition

Our consolidated cash and short term investments were approximately $14.1 million at December 31, 2018. Our consolidated cash and short term investments increased by approximately $0.2 million from approximately $13.9 million as of December 31, 2017. This increase in cash and short term investments from December 31, 2017 to December 31, 2018 is the result of cash provided by operating activities of approximately $2.4 million. This increase was offset by cash used for investing and financing activities of approximately $2.3 million.

We have an annually renewable agreement with a commercial bank for a $500,000 working capital line of credit. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense for the line of credit in 2018, 2017 or 2016. As of December 31, 2018 and 2017, there was no amount outstanding on this line of credit.

We have an annually renewable agreement with a commercial bank for a $1,000,000 working capital line of credit. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense for the line of credit in 2018, 2017 or 2016. As of December 31, 2018 and 2017, there was no amount outstanding on this line of credit.

We believe our cash, short term investments and working capital lines of credit together are sufficient to meet our short term and long term liquidity needs. We are obligated to make payments related to our contractual obligations such as our building mortgage and our operating leases and other commitments (see contractual obligations and other commitments). We will also be obligated in certain circumstances to repurchase the redeemable shares of our Class A, Class B and Class C shareholders who die and our Class A and Class B shareholders who become permanently disabled, or retire. Our Board considers limitations on the amount of share redemptions each year. While we are not able to estimate future redeemable share redemptions, we repurchased approximately $120,000, $182,000, and $276,000, of Redeemable Common Shares in the years ended December 31, 2018, 2017, and 2016, respectively. We believe our cash balances, available-for-sale investment securities, operating cash flows, and borrowing capacity, taken together, provide adequate resources to fund ongoing operating and regulatory requirements and fund future expansion opportunities and capital expenditures in the foreseeable future.

Regulatory Capital and Surplus Requirements

Our largest subsidiary, Dental Care Plus, operates in states that regulate its payment of dividends and debt service on inter-company loans, as well as other inter-company cash transfers and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid by Dental Care Plus, without prior approval by state regulatory authorities, is limited based on statutory income and statutory capital and surplus. Dividends cannot 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. In December 2018, Dental Care Plus declared a dividend payable to the DCP Holding Company in the amount of approximately $1,470,000, payable January 2019. There were no dividends declared or paid by Dental Care Plus in 2017 or 2016. Even if prior approval is not required, prior notification must be provided to state insurance departments before paying a dividend.

Dental Care Plus, an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation, is able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products in Ohio. The minimum required capital and surplus for Dental Care Plus licensed as a life and health insurance company in Ohio was $2.5 million at December 31, 2018.

We maintained aggregate statutory capital and surplus of approximately $14.4 million as of December 31, 2018 and were in compliance with applicable statutory requirements. Although the minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements can vary significantly from state to state. Given our anticipated premium growth in 2019 resulting from the expansion of our networks and membership, capital requirements will increase. We expect to fund these increased requirements through the retention of earnings and/or future capital raising activities.

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Most states rely on risk-based capital requirements, or RBC, to define the required levels of equity. RBC is a model developed by the NAIC to monitor an entity’s solvency. This calculation indicates recommended minimum levels of required capital and surplus and signals regulatory measures should actual surplus fall below these recommended levels. RBC has been adopted in the states in which we currently do business. We file our annual statement and RBC reporting with the Ohio Department of Insurance and the NAIC. Dental Care Plus’s statutory annual statements for the year ended December 31, 2018 filed with the Ohio Department of Insurance reflected total adjusted capital in excess of Company Action Level RBC.

Other Matters

The differences between our net income and comprehensive income include the changes in the unrealized gains or losses on marketable securities and changes in the fair value of our interest rate swap agreement. For the years ended December 31, 2018, 2017, and 2016, respectively, such changes increased or (decreased), net of related income tax effects, by the following amounts:

	For Years ended December 31,
	2018			2017			2016
Changes in:
Changes in fair value of interest rate swap, net of tax	$	7,885		$	9,043		$	7,471
Change in fair value of investments, net of tax		(214,684	)		43,866			33,373
Reclassification adjustment for (gains) losses included in net income, net of tax		8,562			(34,397	)		(19,433	)
Total	$	(198,237	)	$	18,512		$	21,411

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Application of those accounting principles includes the use of estimates and assumptions that are made by management, and that we believe are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses in the accompanying consolidated financial statements. We believe the most critical accounting policies used to prepare the accompanying consolidated financial statements are the following:

Liability for Claims Payable

Our estimated liability for claims payable and corresponding healthcare services expense includes claims incurred but not reported (“IBNR”), claims reported but not yet processed and paid and other healthcare services expenses incurred, including estimated costs of processing outstanding claims. Our estimated liability for claims payable is based primarily on the average historical lag time between the date of service and the date the related claim is paid, taking into account recent trends in payment rates and the average number of incurred claims per covered individual over a rolling 12 month period.

The following table shows our total claims payable liability as of December 31, and its three components. IBNR represents a substantial portion of our claims payable liability.

	2018				2017
IBNR	$	1,981,964	75.9	%	$	2,054,182	57.4	%
Reported claims in process		573,339	21.9	%		1,461,739	40.9	%
Other healthcare services expenses payable		57,514	2.2	%		60,264	1.7	%
Total claims payable liability	$	2,612,817	100	%	$	3,576,185	100	%

Between December 31, 2017 and December 31, 2018, our claims payable liability estimate decreased by approximately $963,400 or 26.9%, primarily due to lower reported claims in process in December 2018 compared to December 2017 offset by an increase in fully-insured dental PPO membership at December 31, 2018 compared to December 31, 2017.

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We estimate liabilities for both IBNR and reported claims in process by employing actuarial methods that are commonly used by health insurance actuaries and meet actuarial standards of practice. These actuarial standards of practice require that claim liabilities estimates be adequate under moderately adverse circumstances. The Company’s consulting actuary assists us in making these estimates.

Since our liability for claims payable is based on actuarial estimates, the amount of claims eventually paid for services provided prior to the balance sheet date could differ from the estimated liability. Any such differences are recognized in the consolidated statements of comprehensive income for the period in which the differences are identified.

We develop our estimate for claims payable liability using actuarial methodologies primarily based on historical claim payments and claim receipt patterns, as well as historical dental cost trends. Depending on the period for which incurred claims are estimated, we apply a different method in determining our estimate. Throughout the year, we use both the “completion factors” and the “claims trend factor” to estimate our claims payable liability. On a quarterly basis, for periods prior to the most recent month, we calculate “completion factors” which indicate the percentage of claims payable estimated for a prior period that have been paid as of the end of the current reporting period. We use the completion factors to determine historical patterns over a rolling 12-month period, made consistent period over period with making adjustments for known changes in claim inventory levels and known changes in claim payment processes. Then, for the most recent month, we calculate a “claims trend factor” that estimates incurred claims primarily from a trend analysis based upon per member per month claims trends developed from our historical experience in the preceding months, adjusted for known provider contracting changes, changes in benefit levels and seasonality. We have consistently applied the key actuarial methodologies to estimate the IBNR and reported claims in process components of our claims payable liability.

When developing our estimate for claims payable liability as of December 31, 2018, we considered actual paid claim data from January 2019. As a result, we are able to use the completion factors approach for all historical months in 2018, including December 2018. The table below illustrates how our operating results are impacted when there is a variance between estimated claims expense and actual claims expense. The table shows the sensitivity of the estimated fully-insured incurred claims payable liability to fluctuations in the expected completion factors that were used to estimate the claims payable liability as of December 31, 2018 within variance ranges historically experienced. Based on historical experience, the completion factors we use to estimate outstanding IBNR and reported claims in process are reliable for predicting actual claims paid at future times, with a variance range of approximately one-half of one percent, plus or minus.

Completion Factors (a)
		Estimated claims
(Decrease)		payable liability
Increase		as of
In Factor		12/31/2018
(0.50%)		$	2,868,347
0%	(estimate used)	$	2,612,817
0.50%		$	2,395,617

(a)     Reflects estimated potential changes in incurred claims payable liability caused by changes in completion factors for all months prior to December 31, 2018.

Recognition of Premium Revenue

Fully-Insured—Membership contracts are written on an annual basis and are subject to cancellation by the employer group upon thirty days written notice. The Company’s unearned premium revenue was approximately $33,149,000 and $36,818,000 at December 31, 2018 and 2017, respectively, and primarily relates to the estimated premium revenue associated with the remaining contract periods. Related amounts recorded in accounts receivable were approximately $31,151,000 and $35,281,000 at December 31, 2018 and 2017, respectively. Premiums are due monthly in advance and are recognized evenly as revenue during the period in which the Company is obligated to provide services to members. Any amounts not received by the end of a reporting period are recorded as accounts receivable by the Company. Any premiums received prior to the beginning of a reporting period are recognized as premiums received in advance and are included in unearned premium revenue in the accompanying consolidated balance sheets. Premiums received in advance were approximately $1,998,000 and $1,536,000 at December 31, 2018 and 2017, respectively. Management has determined that as of December 31, 2018 and 2017, respectively, no premium deficiency reserve is required. The Company’s premium deficiency reserve analysis includes an allocation of investment income.

30

Self-Insured—The Company provides administrative and claims processing services, benefit plan design, and access to the Company-managed provider networks for an administrative fee to self-insured groups. The Company has no underwriting risk arising from the provision or cost of any services provided to the self-insured groups. The Company recognizes and records self-insured premiums on a gross basis because it controls the services as evidenced by: (i) the Company is primarily responsible for fulfilling the service and (ii) the Company establishes the pricing for the services provided. The self-insured services constitute a series of distinct services accounted for as a single performance obligation.

Administration fee revenue (“ASO fees”) is recognized monthly when earned and is normally based on annual or multi-year contracts with the self-insured groups. ASO fees are charged to self-insured employer groups monthly on a per subscriber per month basis and included in premium revenue in the accompanying condensed consolidated statements of comprehensive income. Any unearned ASO fee revenue received prior to the beginning of a reporting period are recognized as premiums received in advance and are included in unearned premium revenue in the accompanying condensed consolidated balance sheets.

Self-insured premium revenue is recognized upon the adjudication of claims for self-insured members in accordance with agreements with self-insured employers and is included in premium revenue in the accompanying condensed consolidated statements of comprehensive income. Any self-insured premium amounts not received by the end of a reporting period are recorded as accounts receivable by the Company. Collection of the self-insured premium revenue occurs within the first month after the reporting period. In addition, the Company also holds deposits from self-insured groups which were approximately $127,000 at December 31, 2018. Self-insured deposits are recorded as other payables and accruals in the accompanying condensed consolidated balance sheet.

Third-party administration fee revenue (“ASO fees”) is recognized monthly when earned and is normally based on annual contracts with the self-insured groups. ASO fees are charged to self-insured employer groups monthly on a per subscriber per month basis. ASO fees also include the administrative fees the Company earns relative to the dental PPO, dental indemnity and vision products that are underwritten by third-party insurance carriers.

Healthcare Services Expense

Healthcare services expense is recognized on a monthly basis. In the case of the fully-insured dental segment, healthcare services expense is calculated by taking the paid claims associated with the fully-insured membership and adjusting this amount for the change in the claims payable liability determined using the actuarial estimates discussed above. For the self-insured dental segment, the healthcare services expense is based solely on the paid claims for the self-insured membership. In most cases, our reimbursement to our participating providers for covered dental services under the dental HMO and in-network dental PPO are subject to a 10% withhold. 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.

Income Taxes

Our accounting for income taxes requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that are recognized in our consolidated financial statements in different periods than those in which the events are recognized in our tax returns. The measurement of deferred tax liabilities and assets is based on current tax laws as of the balance sheet date. We record a valuation allowance related to deferred tax assets in the event that available evidence indicates that the future tax benefits related to deferred tax assets may not be realized. A valuation allowance is required when it is more likely than not that the deferred tax assets will not be realized. Our determination of whether a valuation allowance is required is subject to change based on future estimates of the recoverability of our net deferred tax assets.

Recently Issued Accounting Standards

Refer to Note 1 of the consolidated financial statements for further information on recently issued accounting standards.

Impact of Inflation

We do not consider the impact of changes in prices due to inflation to be material in the analysis of our overall operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk that we will incur investment losses or increased interest expense due to adverse changes in market rates and prices. Our market risk exposures are substantially related to our investment portfolio and the impact of interest rate changes on these securities. In addition, interest rate changes can impact future interest expense for debt obligations that have a variable rate of interest associated with them.

At December 31, 2018, our investment portfolio included approximately $454,000 of an institutional money market fund. Our portfolio also included approximately $8,201,000 of investment grade and non-investment grade corporate bonds and $901,000 of investments in FDIC-insured bank certificates of deposits. We have evaluated the impact on the invested portfolio’s fair value considering an immediate 100 basis point change in interest rates. A 100 basis point increase in interest rates would result in an approximate $255,000 decrease in fair value, whereas a 100 basis point decrease in interest rates would result in an approximate $257,000 increase in fair value. At December 31, 2018, the investment grade and non-investment grade corporate bonds and the certificates of deposit with amortized cost of approximately $8,453,000 and $900,000, respectively, are all classified as available for sale.

At December 31, 2018, we had a mortgage note with a bank with an outstanding principal balance of $1,040,000 with a variable rate based on LIBOR plus 1.95%. However, in December 2012, we entered into a variable to fixed interest rate swap contract that effectively eliminated the interest rate risk exposure on all of the outstanding loan principal. Management estimates that a 100 basis point increase in interest rates would not materially impact our annual pre-tax earnings.

31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of DCP Holding Company:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of DCP Holding Company and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of comprehensive income, redeemable shares and shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 /s/ Deloitte & Touche LLP

Cincinnati, OH

March 22, 2019

We have served as the Company’s auditor since 2002.

32

DCP HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 AND 2017

	2018		2017
ASSETS
INVESTMENTS:
Fixed maturities, available for sale at fair value, amortized cost of $8,953,000 and $8,790,000 at December 31, 2018 and 2017, respectively	$	8,701,197	$	8,810,056
Short-term investments, available for sale at fair value, amortized cost of $854,000 and $781,000 at December 31, 2018 and 2017, respectively		855,032		781,951
Total investments		9,556,229		9,592,007
CASH AND CASH EQUIVALENTS		13,209,144		13,177,193
ACCRUED INVESTMENT INCOME		95,700		80,904
ACCOUNTS RECEIVABLE, including uncollected premiums of $1,411,130 and $1,118,996, net of allowance of $104,181 and $45,809 at December 31, 2018 and 2017, respectively		32,562,280		36,400,634
DEFERRED ACQUISITION COSTS		2,433,666		2,636,858
PROPERTY AND EQUIPMENT, net of depreciation and amortization of $4,094,092 and $3,684,537 at December 31, 2018 and 2017, respectively		4,023,866		3,661,598
OTHER ASSETS		4,904,608		4,780,001
TOTAL ASSETS	$	66,785,493	$	70,329,195
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS’ EQUITY
CLAIMS PAYABLE	$	2,612,817	$	3,576,185
UNEARNED PREMIUM REVENUE		33,148,859		36,818,123
OTHER PAYABLES AND ACCRUALS		6,954,301		7,175,048
MORTGAGE LOAN PAYABLE		1,040,000		1,095,200
CAPITAL LEASE OBLIGATIONS		759,296		1,200,925
DEFERRED COMPENSATION		5,248,656		4,821,982
TOTAL LIABILITIES		49,763,929		54,687,463
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED AND COMMON SHARES:
Class A, Redeemable Common Shares, no par value—authorized, 7,500 shares; issued and outstanding, 491 and 500 shares at December 31, 2018 and 2017, respectively		665,095		605,143
Class B Redeemable Common Shares, no par value—authorized, 120,000 shares; issued and outstanding, 8,554 and 8,653 shares at December 31, 2018 and 2017 respectively		11,587,018		10,472,602
Class C Redeemable Common Shares, no par value—authorized, 80,000 shares; issued and outstanding, 3,521 and 3,771 shares at December 31, 2018 and 2017, respectively		4,769,451		4,563,987
Class D Redeemable Common Shares, no par value—authorized, 100,000 shares; issued none
Provider Preferred-2009 Series Redeemable Preferred Shares, no par value, cumulative 5% dividend—authorized, 5,000 shares; issued none
Total redeemable preferred and common shares		17,021,564		15,641,732
SHAREHOLDERS’ EQUITY—Preferred Shares; no par value—authorized, 92,700 shares; issued, none
TOTAL LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS’ EQUITY	$	66,785,493	$	70,329,195

See notes to consolidated financial statements.

33

DCP HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016 

	2018			2017			2016
REVENUES
Premium revenue	$	112,314,657		$	107,589,114		$	105,594,134
Investment income		332,946			264,891			274,220
Realized (losses) gains on investments, net		(125,549	)		249,300			75,849
Other income								51,920
Total revenues		112,522,054			108,103,305			105,996,123
EXPENSES
Healthcare services expense		84,071,208			81,607,541			80,500,160
Insurance expense:
Salaries and benefits expense		9,494,654			9,206,665			9,022,484
Commission expenses and other acquisition costs		6,680,944			5,495,576			5,538,688
Other insurance expense		8,804,540			7,992,967			7,582,136
Total insurance expense		24,980,138			22,695,208			22,143,308
Total expenses		109,051,346			104,302,749			102,643,468
INCOME BEFORE INCOME TAX		3,470,708			3,800,556			3,352,655
PROVISION (BENEFIT) FOR INCOME TAX:
Current		848,490			1,502,404			1,552,952
Deferred		65,146			468,718			(189,468	)
INCOME TAX EXPENSE		913,636			1,971,122			1,363,484
NET INCOME	$	2,557,072		$	1,829,434		$	1,989,171
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Change in the fair value of interest rate swap, net of income tax of $2,096, $4,659, and $3,848, respectively		7,885			9,043			7,471
Change in the fair value of investments, net of income tax of ($57,100), $22,599, and $17,193, respectively		(214,684	)		43,866			33,373
Reclassification adjustment for losses (gains) included in net income, net of income tax of $2,276, ($17,720), and ($10,011), respectively		8,562			(34,397	)		(19,433	)
Total other comprehensive (loss) income		(198,237	)		18,512			21,411
TOTAL COMPREHENSIVE INCOME	$	2,358,835		$	1,847,946		$	2,010,582

See notes to consolidated financial statements.

34

DCP HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF REDEEMABLE SHARES AND SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018, 2017, AND 2016

	Redeemable Common Shares																		Redeemable Preferred Shares																		Shareholders' Equity
																			Institutional Preferred						Institutional Preferred						Institutional Preferred									Accumulated
	Class A						Class B						Class C						2010-Series						2012-Series						2013-Series									Other
	Number  of						Number  of						Number  of						Number of						Number of						Number of						Retained			Comprehensive Income
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Earnings			(Loss)			Total
Balance at December 31, 2015		516			522,045			8,142			8,237,390			2,005			2,028,490			300			420,515			1,000			1,213,791			1,000			1,116,442
Net Income																																						1,989,171						1,989,171
Other comprehensive loss, net																																									21,411			21,411
Dividends declared and paid																																						(510,413	)					(510,413	)
Redeemable Shares issued								661			665,053			1,766			1,728,874
Redeemable Shares repurchased		(10	)		(10,294	)		(199	)		(206,321	)								(300	)		(428,819	)		(1,000	)		(1,237,758	)		(1,000	)		(1,138,487	)
Extinguishment cost of redeemable preferred shares																																						(118,800	)					(118,800	)
Accretion of shares to redemption value					49,688						850,564						426,801						8,304						23,967						22,045			(1,359,958	)		(21,411	)		(1,381,369	)
Balance at December 31, 2016		506			561,439			8,604			9,546,686			3,771			4,184,165
Net Income																																						1,829,434						1,829,434
Other comprehensive loss, net																																									18,513			18,513
Dividends declared and paid																																						(547,443	)					(547,443	)
Redeemable Shares issued								196			217,474
Redeemable Shares repurchased		(6	)		(6,547	)		(147	)		(161,989	)
Accretion of shares to redemption value					50,251						870,431						379,822																					(1,281,991	)		(18,513	)		(1,300,504	)
Balance at December 31, 2017		500		$	605,143			8,653		$	10,472,602			3,771		$	4,563,987					$						$						$			$			$			$
Net Income																																						2,557,072						2,557,072
Other comprehensive loss, net																																									(198,237	)		(198,237	)
Cumulative effect of change in accounting principle (ASU 2014-09)																																						52,695						-
Dividends declared and paid																																						(570,330	)					(570,330	)
Redeemable Shares repurchased		(9	)		(11,263	)		(99	)		(123,890	)		(250	)		(326,215	)
Accretion of shares to redemption value					71,215						1,238,306						531,679																					(2,039,437	)		198,237			(1,788,505	)
Balance at December 31, 2018		491		$	665,095			8,554		$	11,587,018			3,521		$	4,769,451					$						$						$			$			$			$

See notes to consolidated financial statements.

35

DCP HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016 

	2018			2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,557,072		$	1,829,434		$	1,989,171
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		501,187			460,612			504,302
Loss on disposal of property		16,990
Realized losses (gains) on investments, net		125,549			(249,300	)		(75,849	)
Deferred income tax (benefit)		65,146			468,718			(189,468	)
Deferred compensation		426,674			988,378			994,708
Effects of changes in operating assets and liabilities:
Accrued investment income		(14,796	)		(2,242	)		(3,405	)
Accounts receivable		3,891,051			10,304,536			(14,964,004	)
Deferred acquisition costs		203,192			472,259			(1,096,513	)
Other assets		(231,771	)		(197,913	)		(138,296	)
Claims payable		(963,368	)		(167,366	)		490,205
Unearned premium revenue		(3,669,264	)		(10,136,486	)		14,323,492
Other payables and accruals		(537,968	)		(162,548	)		1,847,987
Net cash provided by operating activities		2,369,694			3,608,082			3,682,330
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments		(2,940,971	)		(4,167,448	)		(5,335,774	)
Sales of investments		1,877,579			3,477,096			3,475,750
Maturities of investments		800,000			490,000			200,000
Acquisition of property and equipment		(886,745	)		(1,312,949	)		(549,083	)
Proceeds from the sale of property and equipment					920,752
Net cash used in investing activities		(1,150,137	)		(592,549	)		(2,209,107	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage loan repayments		(55,200	)		(52,800	)		(50,400	)
Repayment of capital lease		(441,629	)		(277,941	)		(311,342	)
Repurchase of redeemable common shares		(120,447	)		(182,107	)		(275,773	)
Repurchase of redeemable preferred shares								(2,805,064	)
Redeemable shares issued								2,280,066
Extinguishment cost of redeemable preferred shares								(118,800	)
Issuance cost of redeemable shares								(116,833	)
Dividends paid		(570,330	)		(547,443	)		(510,413	)
Net cash used in financing activities		(1,187,606	)		(1,060,291	)		(1,908,559	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		31,951			1,955,242			(435,336	)
CASH AND CASH EQUIVALENTS—Beginning of year		13,177,193			11,221,951			11,657,287
CASH AND CASH EQUIVALENTS—End of year	$	13,209,144		$	13,177,193		$	11,221,951
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	82,000		$	71,000		$	70,000
Cash paid for income taxes		1,112,000			1,376,000			1,429,000
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Redeemed common shares (in other payables and accruals)	$	352,792		$	11,871		$	25,443
Capital lease obligation					920,752
Purchased property and equipment (included in other payables and accruals)					23,700

See notes to consolidated financial statements.

36

DCP HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2018 AND 2017 AND FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DCP Holding Company (the “Company”) is the parent holding company of three wholly-owned subsidiaries which include Dental Care Plus, Inc., an Ohio corporation, Insurance Associates Plus, Inc., an Ohio corporation, and Adenta, Inc., a Kentucky corporation. Providers who participate in one or more of the Dental Care Plus networks own a majority of the Company’s Redeemable Common Shares. The Company’s Redeemable Common Shares are also owned by retired providers, Company board members, non-provider individuals and employees. The Company primarily offers to employer groups of all sizes dental health maintenance organization (“HMO”), participating provider organization (“PPO”) and indemnity plans for dental care services and vision benefit plans. As of December 31, 2018, we had approximately 366,700 members in our dental benefits plans and approximately 41,500 members in our vision benefit plans with approximately 3,000 providers participating in our dental HMO network, approximately 3,200 providers participating in our DentaSelect dental PPO network and approximately 2,300 in our Balanced Value dental PPO network. The Company has a network access agreement with a national dental network management company that has one of the largest PPO networks of providers under contract in the United States. With this network access agreement, our dental PPO members have access to approximately 46,400 additional providers throughout the United States. The Company also has a network access arrangement with a national dental administration company for the dental PPO plans that it offered on the FFM exchanges in 2018. With this network access arrangement, FFM exchange members have access to approximately 12,700 providers across the eleven FFM exchange states. Dental Care Plus Inc. is an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation and able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products.

The accounting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accompanying consolidated financial statements include estimates for items such as claims payable, deferred acquisition costs, income taxes and various other liability accounts. Actual results could differ from those estimates. Policies that affect the more significant elements of the consolidated financial statements are summarized below.

Basis of Presentation— The accompanying consolidated financial statements include the accounts of the Company and subsidiaries, each of which is wholly-owned, and have been prepared in conformity with GAAP. All intercompany accounts and balances have been eliminated in consolidation. The Company presents its financial statements to conform with Article 7 of the Securities and Exchange Commission Regulation S-X pursuant to Section 13-15(d) of the Securities Exchange Act of 1934.

Cash and Cash Equivalents— The Company defines cash as cash held in operating accounts at financial institutions. The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying consolidated financial statements. These investments are carried at cost, which approximates fair value.

Investments—The Company invests in certificates of deposit, corporate bonds and money market funds. The Company classifies all investments as available-for-sale. The Company engages a fixed income portfolio manager to manage the Company’s investment grade and non-investment grade corporate bonds, under the Company’s direction, in order to maximize investment returns. Such investments are recorded at fair value, with unrealized gains and losses recorded as a component of other comprehensive income. The Company recognizes gains and losses when these securities have other than temporary impairment, mature or are sold using the specific identification method.

Management follows a consistent and systematic process for recognizing impairments on securities that sustain other-than-temporary declines in value. The decision to record an other-than-temporary impairment for a security incorporates both quantitative criteria and qualitative information. The Company considers the severity of the loss on a security, duration of loss, duration of the investment, credit rating of the security, as well as payment performance and the Company’s intent or requirement to sell the investment before recovery when determining whether any impairment is other than temporary. The Company’s impairment policy for fixed-maturity securities states that other-than-temporary impairment is considered to have occurred if (1) the Company intends to sell the impaired fixed maturity security; (2) it is more likely than not that the Company will be required to sell the fixed maturity security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis.

37

Property and Equipment— Property and equipment is carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The building and the building improvements have useful lives of 27 years and 15 years, respectively. Furniture and fixtures have useful lives of 5 years, and computer equipment and software have useful lives of up to 5 years. Maintenance and repair costs are expensed as incurred. If an impairment exists, a loss is recorded as the amount by which the carrying value of the asset exceeds its fair value.

The Company capitalizes the costs of computer software developed or obtained for internal use in accordance generally accepted accounting principles. Capitalized computer software costs consist of purchased software licenses, implementation costs, development costs and payroll-related costs for certain projects that qualify for capitalization. The Company expenses costs related to preliminary project assessment, training and application maintenance as incurred, and amortizes the capitalized computer software costs on a straight-line basis over the estimated useful life of the software upon being placed in service.

The Company reviews property and equipment for impairment whenever events or changes in circumstances, such as significant decreases in market values of assets, changes in legal factors or in the business climate, and accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset, or other such factors indicate that the carrying amount may not be recoverable.

State Guarantee Fund Deposits— The Company maintains funds on deposit with state insurance departments in those states where the Company is licensed to do business. These funds amounted to approximately $1,849,000 and $1,838,000 at December 31, 2018 and 2017, respectively. These funds are restricted and not available to the Company for normal operations and are included in other assets in the accompanying consolidated balance sheets.

Goodwill and Intangible Assets— Goodwill arises in business combinations when the purchase price exceeds the fair value of identifiable assets acquired less liabilities assumed. As with tangible and other intangible assets, periodic impairment reviews are required, at least annually, as well as when events or circumstances change. Management uses judgment in assessing goodwill for impairment. Management reviews the recorded value of our goodwill annually, or sooner if events or changes in circumstances indicate that the carrying amount may exceed fair value. Professional judgment is exercised in determining future cash flows, timing and business valuation comparables or selecting discount rates to be used in any valuation assessments.

Business acquisitions often result in recording identifiable intangible assets. Identifiable intangible assets are recognized at the time of an acquisition, based upon their fair value. Similar to long-lived tangible assets, identifiable define-life intangible assets are subject to amortization and periodic impairment reviews whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review for impairment of the Company’s intangible assets requires management to predict the estimated cash flows that will be generated by the long-lived asset over its remaining estimated useful life.

Deferred Acquisition Costs— Deferred acquisition costs are those incremental direct costs related to the successful acquisition of new and renewal business. These incremental direct costs are those that are essential to the contract transaction and would not have been incurred had the contract transaction not occurred. Such incremental direct costs include commissions, costs of contract issuance and underwriting, state premium taxes and other costs the Company incurs to successfully acquire new business or renew existing business. The Company defers policy acquisition costs and amortizes them over the estimated life of the contracts, which are short-duration in nature, in proportion to premiums earned. The Company capitalized deferred acquisition costs of approximately $5,245,000, $4,508,000, and $5,877,000, and amortized approximately $5,448,000, $4,980,000, and $4,780,000 of these capitalized costs for the years ended December 31, 2018, 2017, and 2016, respectively. The amortization of these costs are recorded in commission expenses and other acquisition costs included in the consolidated statements of comprehensive income.

Redeemable Institutional Preferred Shares— In 2010, the Company entered into a Preferred Stock Purchase Agreement (the “2010 Stock Purchase Agreement”) with an investor. Pursuant to the 2010 Stock Purchase Agreement, the investor agreed to purchase 300 Redeemable Institutional Preferred Shares at a purchase price of $1,000 per share, with an aggregate purchase price of $300,000. The annual dividend payable on each share is 5% of the book value at the beginning of the dividend period.

In 2012, the Company entered into a Preferred Shares Purchase Agreement (the “2012 Stock Purchase Agreement”) with an investor. Pursuant to the 2012 Stock Purchase Agreement, the investor agreed to purchase 1,000 shares of Redeemable Institutional Preferred Shares at a purchase price of $1,000 per share, for an aggregate purchase price of $1,000,000. The annual dividend payable on each share is 5% of the book value at the beginning of the dividend period.

In 2013, the Company entered into a Preferred Shares Purchase Agreement (the “2013 Stock Purchase Agreement”) with an investor. Pursuant to the 2013 Stock Purchase Agreement, the investor agreed to purchase 1,000 shares of Redeemable Institutional Preferred Shares at a purchase price of $1,000 per share, for an aggregate purchase price of $1,000,000. The annual dividend payable on each share is 5% of the book value at the beginning of the dividend period.

On June 30, 2016, the Company delivered written notice to the holders of its (i) Redeemable Institutional Preferred Shares – 2010 Series, (ii) Redeemable Institutional Preferred Shares – 2012 Series, and (iii) Redeemable Institutional Preferred Shares – 2013 Series (collectively, the “Preferred Shares”), pursuant to which the Company exercised its right to redeem all of the Preferred Shares. The “Call Price” for each Preferred Share is 100% of the Adjusted Book Value per Preferred Share (as defined in the Company’s Articles of Incorporation), plus all accrued, but unpaid, dividends on each Preferred Share plus a 5% premium payable to holders of the 2012 Series and 2013 Series Preferred Shares. The holders of the Preferred Shares and the Company agreed to close the redemption on June 30, 2016, and on such date, the aggregate price paid for redemption of the Preferred Shares by the Company was approximately $2,924,000.          

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Redeemable Common Shares— The Company’s Class A, Class B, and Class C Redeemable Common Shares are owned by participating providers, Company directors, employees and accredited non-provider individuals. All participating providers, Company directors and Company employees are eligible to own the Class A and Class B voting redeemable common shares. Accredited non-provider individuals are eligible to own the Class C voting redeemable common shares. The maximum percentage of Class C Common Shares outstanding at any time as a proportion of all voting Common Shares is 40%. The Company’s Class A, Class B and Class C common shares are considered to be redeemable common shares due to the fact that the shareholders have the option to require the Company to repurchase these shares under certain circumstances. The Company records Class A, Class B and Class C common shares as Redeemable Common Shares in the consolidated balance sheets outside of shareholders’ equity at the redemption value of the common shares. Accordingly, the Company records total comprehensive income as a change to the redemption value of the Redeemable Common Shares to accrete (dilute) the carrying value of the Redeemable Common Shares to the redemption value at the end of each reporting period.  Under this method, the end of the reporting period is treated as if it were also the redemption date for the securities.

Premium Revenue—

Fully-Insured—Membership contracts are written on an annual or multi-year basis and are subject to cancellation by the employer group upon thirty days written notice. The Company’s unearned premium revenue was approximately $33,149,000 and $36,818,000 at December 31, 2018 and 2017, respectively, and primarily relates to the estimated premium revenue associated with the remaining contract periods. Related unbilled amounts recorded in accounts receivable were approximately $31,151,000 and $35,281,000 at December 31, 2018 and 2017, respectively. Premiums are due monthly in advance and are recognized evenly as revenue during the period in which the Company is obligated to provide services to members. Any amounts not received by the end of a reporting period are recorded as accounts receivable by the Company. Any premiums received prior to the beginning of a reporting period are recognized as premiums received in advance and are included in unearned premium revenue in the accompanying consolidated balance sheets. Premiums received in advance were approximately $1,998,000 and $1,537,000 at December 31, 2018 and 2017, respectively. Management has determined that as of December 31, 2018 and 2017, respectively, no premium deficiency reserve is required. The Company’s premium deficiency reserve analysis includes an allocation of investment income.

Self-Insured—The Company provides administrative and claims processing services, benefit plan design, and access to the Company-managed provider networks for an administrative fee to self-insured groups. The Company has no underwriting risk arising from the provision or cost of any services provided to the self-insured groups. The Company recognizes and records self-insured premiums on a gross basis because it controls the services as evidenced by: (i) the Company is primarily responsible for fulfilling the service and (ii) the Company establishes the pricing for the services provided. The self-insured services constitute a series of distinct services accounted for as a single performance obligation.

Administration fee revenue (“ASO fees”) is recognized monthly when earned and is normally based on annual or multi-year contracts with the self-insured groups. ASO fees are charged to self-insured employer groups monthly on a per subscriber per month basis and included in premium revenue in the accompanying condensed consolidated statements of comprehensive income. Any unearned ASO fee revenue received prior to the beginning of a reporting period are recognized as premiums received in advance and are included in unearned premium revenue in the accompanying condensed consolidated balance sheets.

Self-insured premium revenue is recognized upon the adjudication of claims for self-insured members in accordance with agreements with self-insured employers and is included in premium revenue in the accompanying condensed consolidated statements of comprehensive income. Any self-insured premium amounts not received by the end of a reporting period are recorded as accounts receivable by the Company. Collection of the self-insured premium revenue occurs within the first month after the reporting period. In addition, the Company also holds deposits from self-insured groups which were approximately $127,000 at December 31, 2018. Self-insured deposits are recorded as other payables and accruals in the accompanying condensed consolidated balance sheet.

Investment Income— Investment income is comprised of interest income primarily earned from the Company’s certificates of deposit, investment grade corporate bonds, non-investment grade corporate bonds, and money market investments.

Other Income and Realized Gains (Losses) On Investments, Net — Other income is comprised primarily of rental income from the rental of space in the building owned and partially occupied by the Company (See Note 14). Realized gains (losses) on investments is primarily made up of realized investment gains, losses and other than temporary impairments of investment grade and non-investment grade corporate bonds.

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Healthcare Services Expense— Healthcare services expense is recognized on a monthly basis. In the case of the fully-insured dental HMO and indemnity (“dental HMO/IND”) and dental PPO segments, healthcare services expense is calculated by taking the paid claims associated with the fully-insured membership and adjusting this amount for the change in the claims payable liability determined using actuarial estimates. For the self-insured dental segment, the healthcare services expense is based solely on the paid claims for the self-insured membership. The Company incurred claim costs related to dental care providers amounting to approximately $84,071,000, $81,608,000, and $80,500,000, for the years ended December 31, 2018, 2017, and 2016, respectively.

Claims Payable— The Company estimates liabilities for both incurred but not reported (“IBNR”) and reported claims in process by employing actuarial methods that are commonly used by health insurance actuaries. These estimates meet actuarial standards of practice and are also recorded in accordance with GAAP. Management’s estimates of dental services provided are based on the Company’s historical experience and current trends, with assistance from the Company’s consulting actuary. Estimated dental claims payable are reviewed monthly by management and are adjusted based on current information, actual paid claims data, dental utilization statistics and other pertinent information. However, final claim payments may differ from the established reserves. Any resulting adjustments are reflected in current operations in the condensed consolidated statements of comprehensive income.

Derivative Instruments— All derivative financial instruments are recorded on the consolidated balance sheet at fair value. The changes in fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other comprehensive income, with subsequent reclassification to earnings when the hedged transaction asset or liability impacts earnings. Any ineffectiveness is recognized in earnings immediately. The Company’s risk management policy is to not enter into derivatives for speculative purposes.

Federal Income Tax— Deferred federal income tax is provided for in the accompanying consolidated financial statements for the tax effects of temporary differences between the carrying values and tax bases of assets and liabilities. Differences result primarily from items such as accrued commissions, deferred compensation, unearned premiums, property and equipment, deferred acquisition costs and unrealized appreciation (depreciation) on investments.

The Company reviews the deferred tax assets to determine the necessity of a valuation allowance. Valuation allowances are provided to the extent it is more likely than not that deferred tax assets will not be realized. The Company files a consolidated federal income tax return which includes all subsidiaries.

Concentrations of Credit Risk— Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of premiums receivable. Other than as discussed below, concentrations of credit risk with respect to premiums receivable are limited because of the large number of employer groups comprising the Company’s client base and contracts are cancelled if premiums are not paid within 90 days.

During 2018, 2017, and 2016, five fully-insured customers accounted for approximately 10%, of the Company’s total premium revenue. Additionally, two self-insured customers accounted for approximately 12%, 11% and 11% of the Company’s total revenue during each of the years 2018, 2017, and 2016, respectively.

The Company had one customer that had a balance of approximately 17% and 25% of the uncollected premium receivable balance at December 31, 2018 and 2017, respectively.

The Company maintains its cash in bank deposit accounts, which at times exceed federally insured limits. The Company has not experienced any losses in such accounts. 

Fair Value of Financial Instruments— Certain financial instruments are required to be recorded at fair value. The Company primarily bases fair value for investments in fixed-maturity securities (including federally-insured certificates of deposits, investment grade corporate bonds and non-investment grade corporate bonds) on quoted market prices or on prices from a pricing vendor, an outside resource that supplies securities pricing, dividend, corporate action and descriptive information to support pricing, securities operations, research and portfolio management. The Company obtains and reviews the pricing service’s valuation methodologies and validates these prices using various inputs, including quotes from other independent regulatory sources. When deemed necessary, the Company validates prices by replicating a sample using a discounted cash flow model. Changes in assumptions or estimation methods could affect the fair value estimates.

New Accounting Guidance— In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers. The new guidance requires that an entity recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The new guidance also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. Insurance contracts are not included in the scope of this new guidance and therefore our fully-insured dental HMO/IND and fully-insured dental PPO segments are not impacted. The effective date of ASU 2014-09 is for annual reporting periods beginning after December 15, 2017. We adopted the standard on January 1, 2018 using the modified retrospective approach. The adoption increased retained earnings as of January 1, 2018 by $53,000 as a result of an increase of $548,000 in premium revenue and $495,000 of healthcare services expense. For the year ended December 31, 2018, application of the new standard resulted in premium revenues that were $548,000 lower and healthcare services expense that were $495,000 lower than amounts that would have been recognized under the previous standard.

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In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The effective date of ASU 2016-01 is for interim and annual reporting periods beginning after December 15, 2017. The Company adopted the requirements of ASU 2016-01 on January 1, 2018. The adoption of these standards did not have a material impact on the Company’s consolidated financial position, cash flows and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 introduces new guidance that requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or operating leases and both types of leases will be recognized on the balance sheet. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 and ASU 2018-11, Targeted Improvements to Topic 842. ASU 2018-10 makes narrow-scope amendments to certain aspects of the new leasing standard while ASU 2018-11 provides relief from costs of implementing certain aspects of the new leasing standard. The new guidance will also require new qualitative and quantitative disclosures. The effective date of ASU 2016-02 is for interim and annual reporting periods beginning after December 15, 2018. The Company will adopt the ASU on January 1, 2019. The impact of the adopted ASU is not expected to be material on the Company’s consolidated financial position, cash flows and results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends previous guidance on the impairment of financial instruments by adding an impairment model that allows an entity to recognize expected credit losses as an allowance rather than impairing as they are incurred. The new guidance is intended to reduce complexity of credit impairment models and result in a more timely recognition of expected credit losses. The effective date of ASU 2016-13 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted by the Company. Management is currently evaluating the impact on our Company’s consolidated financial position, cash flows and results of operations, but it is not expected to have a significant impact.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 amends guidance on the amortization period of premiums on certain purchased callable debt securities. The amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment to beginning retained earnings. The effective date of ASU 2017-08 is for interim and annual reporting periods beginning after December 15, 2018. The Company will adopt the ASU on January 1, 2019. The adoption of these standards is not expected to have a material impact on the Company’s consolidated financial position, cash flows and results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 clarifies the fair value measurement disclosure requirements of ASC 820 by adding, eliminating and modifying disclosures. The effective date of ASU 2018-13 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted by the Company. Management is currently evaluating the impact on the Company’s consolidated financial position, cash flows and results of operations, but it is not expected to have a significant impact.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 amends ASC 350 to include implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is considered a service contract. The effective date of ASU 2018-15 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, cash flows and results of operations.

2. INVESTMENTS

The Company owned certificates of deposit insured by the Federal Deposit Insurance Corporation (“FDIC”) with an amortized cost of $900,000 and $1,150,000 at December 31, 2018 and 2017. The certificates of deposit included in short-term and fixed maturities investments are classified as available-for-sale and are carried at fair value. The Company also invests in money market funds included in short-term investments and are classified as available-for-sale, with a cost and fair value of approximately $454,000 and $181,000 at December 31, 2018 and 2017, respectively. The Company invested in corporate bonds with an amortized cost of approximately $8,453,000 and $8,240,000 at December 31, 2018 and 2017, respectively. The investment and non-investment grade corporate bonds included in fixed maturity investments are classified as available-for-sale and are carried at fair value.

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The Company owned corporate bonds at December 31, 2018, which consist primarily of investment grade securities. At December 31, 2018, total bond fair value was approximately $8,201,000, which consists of approximately $7,484,000 with a credit rating of BBB- or better. The remaining securities, totaling approximately $717,000, had a credit rating of between BB+ and B. The weighted average yield-to-cost of the Company’s corporate bonds was approximately 3.38% at December 31, 2018. The weighted average maturity of the Company’s corporate bonds was 4.74 years at December 31, 2018.

At December 31, 2018 and, 2017, maturity dates for fixed maturities and short-term investments (excluding the money market funds) were:

	Available-for-Sale
	Amortized		Fair		% of Total
December 31, 2018	Cost		Value		Fair Value
Maturity dates occurring:
Less than 1 year	$	400,000	$	400,898		4.4	%
Years 1-5		6,122,513		5,986,448		65.8	%
Years 5-10		2,731,661		2,620,761		28.8	%
Due after ten years		98,468		93,898		1.0	%
Total	$	9,352,642	$	9,102,005		100.0	%

	Available-for-Sale
	Amortized		Fair		% of Total
December 31, 2017	Cost		Value		Fair Value
Maturity dates occurring:
Less than 1 year	$	600,000	$	600,767		6.4	%
Years 1-5		5,326,884		5,320,683		56.5	%
Years 5-10		3,313,024		3,340,138		35.5	%
Due after ten years		150,374		149,236		1.6	%
Total	$	9,390,282	$	9,410,824		100.0	%

Investments classified as fixed maturities and short-term investments at December 31, 2018 and 2017 were as follows:

	Available-for-Sale
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2018	Cost		Gain		Loss			Value
Money market fund	$	454,224						$	454,224
Certificates of deposit, short term		400,000	$	808					400,808
Certificates of deposit, fixed maturities		499,941							499,941
Corporate bonds, fixed maturities		8,452,701		10,556	$	(262,001	)		8,201,256
Total investments	$	9,806,866	$	11,364	$	(262,001	)	$	9,556,229

	Available-for-Sale
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2017	Cost		Gain		Loss			Value
Money market fund	$	181,183						$	181,183
Certificates of deposit, short term		600,000	$	782	$	(15	)		600,767
Certificates of deposit, fixed maturities		550,000		983					550,983
Corporate bonds, fixed maturities		8,240,282		73,769		(54,977	)		8,259,074
Total investments	$	9,571,465	$	75,534	$	(54,992	)	$	9,592,007

Unrealized losses at December 31, 2018 and 2017 on investments were generally due to higher current market yields relative to the yields of the investments at their amortized cost. Unrealized losses due to credit risk associated with the underlying investments, if any, are not material. All investments with unrealized losses are reviewed quarterly to determine if any impairment is other than temporary, requiring a charge to earnings. The Company considers the severity of the loss on a security, duration of loss, duration of the investment, credit rating of the security, as well as payment performance and the Company’s intent or requirement to sell the investment before recovery when determining whether any impairment is other than temporary. The Company had no other-than-temporary impairment charges for the year ended December 31, 2018, 2017 and 2016. The Company had no investments in a material unrealized loss position for greater than one year as of December 31, 2018 and 2017.

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The following table provides realized investments gains and losses for the years ended December 31, 2018, 2017 and 2016:

	2018			2017			2016
Gross realized gains	$	2,554		$	249,831		$	147,513
Gross realized losses		(128,103	)		(531	)		(71,664	)
Other than temporary impairments
Total realized gains (losses) on investments, net	$	(125,549	)	$	249,300		$	75,849

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31 were summarized as follows:

	2018			2017
Land	$	364,000		$	364,000
Building and building improvements		2,702,296			2,712,196
Furniture and equipment		5,051,662			4,269,939
Total property and equipment		8,117,958			7,346,135
Less accumulated depreciation and amortization	$	(4,094,092	)	$	(3,684,537	)
Total property and equipment - net	$	4,023,866		$	3,661,598

The Company had depreciation expense of approximately $484,000, $432,000, and $484,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

4. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets were recorded as a result of the acquisition of Adenta, Inc. in 2005 related to goodwill, an acquired contract, memberships and a provider network. Goodwill amounted to approximately $136,000 at December 31, 2018 and 2017. There has not been any impairment on goodwill. Identifiable and amortizable intangible assets amounted to approximately $35,000 net of approximately $205,000 of accumulated amortization at December 31, 2018 and to approximately $41,000 net of approximately $199,000 of accumulated amortization at December 31, 2017. Amortization expense was approximately $6,000, $9,000 and $15,000 for each of the three years ended December 31, 2018, 2017 and 2016. The provider network intangible asset of approximately $35,000 at December 31, 2018 is being amortized over a period of 20 years, a period during which the Company expects that all of these providers will have retired from the network. The membership intangible assets (net of individual memberships written-off in the year of acquisition) has been fully amortized over its 11 year useful life at December 31, 2018. The remaining weighted-average amortization period for these intangible assets is approximately 8 years. Goodwill and intangible assets are included in other assets in the accompanying consolidated balance sheets at December 31, 2018 and 2017.

5. DEFERRED COMPENSATION PLAN

In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the “Plans”), Company directors and certain key employees elected to defer portions of their director fees and employee compensation, as applicable.

The Company recorded expense of approximately $59,000, $56,000, and $61,000, related to deferred director fees and deferred employee compensation for the years ended December 31, 2018, 2017 and 2016, respectively. Directors and key employees who elect to defer cash compensation may request that the Company invest this compensation in mutual fund investments or phantom shares of the Company. The deferred cash compensation is included in the deferred compensation liability at December 31, 2018 and 2017.

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The Plans also provide for the directors and key employees to receive cash retention awards or share awards. Share awards are based on the book value of the Redeemable Common Shares. In 2018, key employees were granted cash retention awards. The cash retention awards may be subject to deferral elections upon vesting. Prior to 2018, key employees received share based awards and from 2010 until 2018, directors received Class B Redeemable Common Shares upon vesting of these share awards. A key employee may elect to defer receiving such amounts until termination of employment and vesting requirements are met. If a key employee does not elect to defer receiving his or her share awards, the individual will receive a cash payment for the cash retention award or Class B Redeemable Common Shares for the share based awards, upon vesting. If the cash retention or share awards are deferred, these deferred amounts will be paid in cash when deferred obligations are payable. An individual director’s award vests 100% at the end of each year if the director meets certain attendance requirements. The key employee awards vest 10%, 20%, 30% and 40% at the end of each respective year in a four-year period following the grant date. There are no performance criteria associated with the vesting of the awards for key employees and the only requirement for vesting is that the individual is an employee of the Company at the end of the vesting year in question. There were approximately 72 and 183 of these non-vested share awards outstanding at December 31, 2018 and 2017, respectively. The number of share awards expected to vest approximates the total non-vested awards outstanding.     

The deferred compensation expense related to the cash retention and share awards are recorded ratably during the applicable vesting period. The Company recorded deferred compensation expense of approximately $394,000, $956,000, and $710,000, with a deferred tax benefit of approximately $83,000, $325,000, and $241,000, related to cash retention awards, deferred share awards and the change in the value of phantom shares for the years ended December 31, 2018, 2017, and 2016, respectively. As of December 31, 2018, there is approximately $94,000 of total unrecognized compensation cost related to non-vested share awards under the Plans. That cost is expected to be recognized over a weighted average period of 1.35 years.

Share-based compensation cost is measured at the grant date based on the fair value of the awards and is recognized as expense over the vesting periods and is included in total insurance expense in the condensed consolidated statements of comprehensive income. The fair value of employee awards is remeasured at the end of each reporting period with the change in fair value recognized in earnings.

In 2018 and 2017, the Board declared a per share cash dividend for all Redeemable Common Shares in the amounts of $45.00 and $42.50 per share, respectively. With the 2018 dividend, the holders of restricted share units and phantom shares received a cash dividend that resulted in an increase in the deferred compensation liability of approximately $129,000. With the 2017 dividend, the holders of restricted share units and phantom shares received an equivalent share based dividend that resulted in an increase in the deferred compensation liability of approximately $115,000. At December 31, 2018 and 2017, the deferred compensation liability was approximately $5,249,000 and $4,822,000, respectively.

The maximum aggregate number of share based awards that may be issued under the Plans are 15,000 Class B Common Shares. As of December 31, 2018, the Company has granted a total of 4,936 share awards, net of share based dividends, forfeitures and rescinded share awards of which 3,059 are outstanding.

The following is a summary of activity of non-vested awards for the years ended December 31, 2018 and 2017:

	Key Employee Share Awards			Fair Value at December 31, 2018
Non-vested awards at January 1, 2018		182.6
Vested		(68.0	)
Forfeited		(42.2	)
Non-vested awards at December 31, 2018		72.4		$	1,355

	Individual Director's Share Awards			Weighted Average Grant Date Fair Value		Key Employee Share Awards			Fair Value at December 31, 2017
Non-vested awards at January 1, 2017							169.7
Granted		196.0		$	1,110		99.0
Vested		(196.0	)		1,110		(80.9	)
Forfeited							(5.2	)
Non-vested awards at December 31, 2017							182.6		$	1,247

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The following is a summary of activity of vested awards for the years ended December 31, 2018 and 2017:

	Individual Director's Awards		Weighted Average Vested price		Key Employee Awards			Fair Value at December 31, 2018
Vested awards at January 1, 2018		941.1	$	1,247		1,479.5
Vested during the year						68.0
Redeemed vested awards						(3.9	)
Vested awards at December 31, 2018		941.1		1,355		1,543.7		$	1,355

	Individual Director's Awards			Weighted Average Vested price		Key Employee Awards			Fair Value at December 31, 2017
Vested awards at January 1, 2017		906.3		$	1,131		1,347.9
Share based dividend		34.8			1,126		51.6
Vested during the year		196.0			1,247		80.9
Redeemed vested awards							(0.9	)
Converted to Redeemable Common Shares		(196.0	)		1,247
Vested awards at December 31, 2017		941.1			1,247		1,479.5		$	1,247

6. LIABILITY FOR CLAIMS PAYABLE

Activity in the liability for claims payable for members is summarized as follows:

	2018			2017			2016
Balance—January 1	$	3,576,185		$	3,743,551		$	3,253,346
Net incurred claims related to:
Current year		56,716,033			56,312,068			55,449,347
Prior years		(87,070	)		(69,607	)		(63,522	)
Net incurred claims		56,628,963			56,242,461			55,385,825
Net paid claims related to:
Current year		54,118,971			52,778,058			51,721,965
Prior years		3,473,360			3,631,769			3,173,655
Net paid claims		57,592,331			56,409,827			54,895,620
Balance—December 31	$	2,612,817		$	3,576,185		$	3,743,551

Reconciliation of claims payable liability to unpaid claims and claim adjustment expenses are as follows:

	2018		2017
Net outstanding liabilities
Dental HMO claims payable	$	1,558,644	$	2,321,842
Dental PPO claims payable		996,659		1,194,079
Unallocated claims adjustment expenses		57,514		60,264
Total gross liability for unpaid claims and claim adjustment expense	$	2,612,817	$	3,576,185

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Substantially all of the incurred but not reported (“IBNR”) balance for dental HMO and dental PPO as of December 31, 2018 relates to the current year. At December 31, 2018 and 2017, the IBNR balance included in the total claims payable liability was approximately $1,982,000 and $2,054,000, respectively. The following is information about fully insured dental healthcare expense incurred and fully insured healthcare expense paid as of December 31, 2018:

Cumulative Fully-Insured Dental HMO Claims Incurred
	(Unaudited)		(Unaudited)				Claim
Dental Claim Year	2016		2017		2018		Frequency
2016	$	39,921,664	$	39,891,781	$	40,021,191		253,331
2017				38,546,241		38,555,013		255,905
2018						37,794,674		245,077
			Total		$	116,370,878

Cumulative Fully-Insured Dental HMO Claims Paid
	(Unaudited)		(Unaudited)
Dental Claim Year	2016		2017		2018
2016	$	37,336,962	$	39,892,167	$	40,021,191
2017				36,247,144		38,553,179
2018						36,237,864
			Total		$	114,812,234
	Liabilities for dental HMO claims payable				$	1,558,644

Cumulative Fully-Insured Dental PPO Claims Incurred
	(Unaudited)		(Unaudited)				Claim
Dental Claim Year	2016		2017		2018		Frequency
2016	$	15,463,744	$	15,462,523	$	15,516,498		99,840
2017				17,737,537		17,692,806		120,641
2018						18,863,847		125,695
			Total		$	52,073,151

Cumulative Fully-Insured Dental PPO Claims Paid
	(Unaudited)		(Unaudited)
Dental Claim Year	2016		2017		2018
2016	$	14,385,000	$	15,460,775	$	15,516,498
2017				16,545,206		17,692,575
2018						17,867,419
			Total		$	51,076,492
	Liabilities for dental PPO claims payable				$	996,659

7. DEBT

The Company has a mortgage note with a bank, secured by the land and the office building with interest payable based on the 30-day LIBOR rate plus 1.95%. As a result of the mortgage note having a variable interest rate that adjusts monthly with the 30-day LIBOR rate, the carrying value of the mortgage note of $1,040,000 approximates fair value. The Company also entered into an interest rate swap agreement that effectively changed the interest rate related to the mortgage note with a commercial bank from a variable rate based on the 30-day LIBOR rate plus 1.95% to a fixed rate of 3.90% for the 10-year period through December 22, 2022. Under this mortgage, the Company is required to have a minimum tangible net worth equal to or greater than $3,500,000 at the end of each fiscal year and a debt service ratio of at least 1:1. The mortgage note fair value disclosure is classified as Level 2 in the fair-value hierarchy.

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Required principal repayments under the mortgage loan payable are as follows:

Years Ending
December 31
2019	$	57,600
2020		58,800
2021		61,200
2022		862,400
Total mortgage payable	$	1,040,000

The Company enters into sale-leaseback transactions with a leasing company for the sale of certain fixed assets. There is no gain or loss on any sales. The Company does not retain the benefits and risk to the property sold and risk of ownership is transferred to the leasing company. The Company sold certain fixed assets for approximately $921,000 in 2017. The Company simultaneously enters into capital lease agreements with the leasing company that obligates the Company to pay lease payments related to the respective assets sold. The Company entered into lease payments for sold assets totaling approximately $999,000 in 2017. Under this capital lease agreement, the Company is required to have a minimum tangible net worth equal to or greater than $2,500,000 at the end of each fiscal year.

At December 31, 2018, future required payments under all outstanding capital leases are as follows:

2019	$	354,552
2020		257,616
2021		187,386
Total		799,554
Less imputed interest		(40,258	)
Present value of minimum lease payments	$	759,296

8. DERIVATIVE

The Company entered into an interest rate swap agreement (cash flow hedge) used to manage the Company’s interest rate risk. The swap agreement effectively changed the interest rate related to the Company’s mortgage note with a commercial bank from a variable rate based on the 30-day LIBOR rate plus 1.95% to a fixed rate of 3.90% for the 10-year period through December 22, 2022. The Company’s risk management policy is to not enter into derivatives for speculative purposes. The notional amount decreases in direct correlation to the principal reduction of the mortgage and was approximately $1,040,000 and $1,095,000 at December 31, 2018 and 2017, respectively. The Company believes that the risk of nonperformance by the counter party to this agreement is not material to the financial statements. At December 31, 2018 and 2017, the fair value of this agreement was approximately $17,000 and $7,000 respectively and is included in other assets in the consolidated balance sheets. The agreement will terminate upon maturity of the mortgage loan payable (Note 7).

The amounts included in other comprehensive income related to the interest rate swap was $7,885, $9,043, and $7,471, net of income tax expense of $2,096, $4,659, and $3,848, during 2018, 2017 and 2016, respectively.

9. LINES OF CREDIT

The Company has an annually renewable agreement with a commercial bank for a $500,000 working capital line of credit. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense or significant fees for the line of credit for each of the three years ended December 31, 2018. As of December 31, 2018 and 2017, there was no amount outstanding on this line of credit. The $500,000 working capital line of credit expires in August 2019. The Company expects to renew this line of credit at its maturity.

The Company has an additional annually renewable working capital line of credit for $1,000,000. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense or significant fees for the line of credit for each of the three years ended December 31, 2018. At December 31, 2018 and 2017, there was no amount outstanding on this line of credit. The $1,000,000 working capital line of credit expires in August 2019. The Company expects to renew this line of credit at its maturity.

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10. FEDERAL INCOME TAXES

The components of the provision for income taxes are summarized as follows for the years ended December 31, 2018, 2017 and 2016, respectively:

	2018			2017			2016
Current tax expense:
Federal	$	816,895		$	1,464,411		$	1,520,374
State and local		31,595			37,993			32,578
Total current tax expense		848,490			1,502,404			1,552,952
Deferred tax expense (benefit)
Federal		78,084			477,341			(180,068	)
State and local		(12,938	)		(8,623	)		(9,400	)
Total deferred tax expense (benefit)		65,146			468,718			(189,468	)
Total provision for income taxes	$	913,636		$	1,971,122		$	1,363,484

Deferred tax assets and liabilities are comprised of the following:

	2018			2017
Deferred tax assets:
Unearned premiums	$	83,904		$	64,532
Net operating loss		10,537			13,061
Recapitalization intangible		29,792			29,792
Accrued vacation		57,583			62,170
Accrued commissions		223,663			192,291
Deferred compensation		1,074,744			961,463
Legal Fees		15,937			81,364
Accrued professional fees		49,717			38,784
Unrealized loss on investments		74,010			21,308
Other, net		103,645			75,898
Gross deferred tax assets		1,723,532			1,540,663
Valuation Allowance		(29,792	)		(29,792	)
Gross deferred tax assets, net of valuation allowance		1,693,740			1,510,871
Deferred tax liabilities:
Deferred policy acquisition costs		91,090			96,483
Prepaid insurance		86,337			74,503
Property and equipment		390,745			200,739
Identifiable intangible assets		7,411			8,566
Gross deferred tax liabilities		575,583			380,291
Net deferred tax asset	$	1,118,157		$	1,130,580

Management believes it is more likely than not that deferred tax assets, net of valuation allowance will reduce future income tax payments. Significant factors considered by management in its determination of the probability of the realization of the deferred tax benefits include the historical operating results and the expectations of future earnings. The Company had $50,176, $38,415, and $74,209, of net operating loss carry forwards to utilize in future years at December 31, 2018, 2017, and 2016, respectively. These losses will expire between 2019 and 2025. Net deferred tax assets are included in other assets in the accompanying consolidated balance sheets at December 31, 2018 and 2017.

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The Company’s effective tax rate was different from the U.S statutory rate due to the following:

										2018			2017			2016
										Effective Tax			Effective Tax			Effective Tax
	2018			2017			2016			Rate			Rate			Rate
Provision computed at statutory rate	$	728,849		$	1,292,189		$	1,139,903			21.0	%		34.0	%		34.0	%
State and local taxes		18,621			29,323			23,101			0.5			0.8			0.7
Nondeductible meals, entertainment and legal expense		12,147			11,143			26,899			0.4			0.3			0.8
Tax Act adoption impact					691,921									18.2
Nondeductible federal premium tax		168,120						189,558			4.8						5.7
Other—net		(14,101	)		(53,454	)		(15,977	)		(0.4	)		(1.4	)		(0.5	)
Provision for income taxes	$	913,636		$	1,971,122		$	1,363,484			26.3	%		51.9	%		40.7	%

In December 2017, the Company estimated the effects on deferred tax balances in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”) made broad and complex changes to the U.S. tax code beginning in 2018. These changes to the tax code reduced the corporate tax rate from 34% to 21%. The rate reduction required a remeasurement of the Company’s net deferred tax asset and these items resulted in an estimated increase in our 2017 tax expense of approximately $692,000.    Additional clarification of the Tax Act during 2018 did not have a material impact on the Company’s effective tax rate. As a result, the Company’s implementation in relation to the Tax Reconciliation Act is complete as of December 31, 2018.

11. ACCOUNTING FOR UNCERTAIN TAX POSITIONS

For the years ended December 31, 2018, 2017, and 2016, the Company did not have any significant uncertain tax positions. The Company is primarily subject to U.S. federal and various U.S. state and local tax authorities. Tax years subsequent to 2014 remain open to examination by the Internal Revenue Service (“IRS”), and tax years subsequent to 2013 remain open to other state and local tax authorities.

12. RETIREMENT PLAN

Employees of the Company are covered by a defined contribution 401(k) plan sponsored by the Company. Discretionary contributions of a certain percentage of each employee’s contribution, which may not exceed a limit set annually by the Internal Revenue Service, are contributed by the Company each year and vest ratably over a five-year period. Company contributions, including administration fees paid by the Company, amounted to approximately $90,000, $91,000, and $89,000, for the years ended December 31, 2018, 2017 and 2016, respectively.

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13. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income includes changes in unrealized gains and losses on available for sale and other invested assets as follows:

	2018									2017
	Before Tax			Income Tax			Net			Before Tax			Income Tax			Net
Accumulated unrealized (loss), net on investments available for sale, beginning of period	$	972		$	335		$	637		$	(13,376	)	$	(4,544	)	$	(8,832	)
Other comprehensive (loss) income before reclassification		(271,784	)		(57,100	)		(214,684	)		66,465			22,599			43,866
Reclassification adjustment for realized investment losses (gains), net included in realized gains on investments, net		10,838			2,276			8,562			(52,117	)		(17,720	)		(34,397	)
Effect on other comprehensive (loss) income		(260,946	)		(54,824	)		(206,122	)		14,348			4,879			9,469
Accumulated unrealized gains (loss), net, on investments available for sale, end of period	$	(259,974	)	$	(54,489	)	$	(205,485	)	$	972		$	335		$	637
Accumulated unrealized (losses), net, on interest rate swap, beginning of period	$	7,005		$	2,381		$	4,624		$	(6,697	)	$	(2,278	)	$	(4,419	)
Other comprehensive income before reclassification		9,981			2,096			7,885			13,702			4,659			9,043
Effect on other comprehensive income		9,981			2,096			7,885			13,702			4,659			9,043
Accumulated unrealized gains (losses), net, on interest rate swap, end of period	$	16,986		$	4,477		$	12,509		$	7,005		$	2,381		$	4,624
Accumulated other comprehensive (loss), beginning of period	$	7,977		$	2,716		$	5,261		$	(20,073	)	$	(6,822	)	$	(13,251	)
Change in unrealized gains, net, on investments available for sale		(260,946	)		(54,824	)		(206,122	)		14,348			4,879			9,469
Change in unrealized gains, net, on interest rate swap		9,981			2,096			7,885			13,702			4,659			9,043
Effect on other comprehensive income		(250,965	)		(52,728	)		(198,237	)		28,050			9,538			18,512
Accumulated other comprehensive income (loss), end of period	$	(242,988	)	$	(50,012	)	$	(192,976	)	$	7,977		$	2,716		$	5,261

	2016
	Before Tax			Income Tax			Net
Accumulated unrealized (loss), net on investments available for sale, beginning of period	$	(34,498	)	$	(11,726	)	$	(22,772	)
Other comprehensive income before reclassification		50,566			17,193			33,373
Reclassification adjustment for realized investment losses, net included in realized gains on investments, net		(29,444	)		(10,011	)		(19,433	)
Effect on other comprehensive income		21,122			7,182			13,940
Accumulated unrealized (loss), net, on investments available for sale, end of period	$	(13,376	)	$	(4,544	)	$	(8,832	)
Accumulated unrealized (losses), net, on interest rate swap, beginning of period	$	(18,016	)	$	(6,126	)	$	(11,890	)
Other comprehensive income before reclassification		11,319			3,848			7,471
Effect on other comprehensive income		11,319			3,848			7,471
Accumulated unrealized (losses), net, on interest rate swap, end of period	$	(6,697	)	$	(2,278	)	$	(4,419	)
Accumulated other comprehensive loss beginning of period	$	(52,514	)	$	(17,852	)	$	(34,662	)
Change in unrealized gains, net, on investments available for sale		21,122			7,182			13,940
Change in unrealized gains, net, on interest rate swap		11,319			3,848			7,471
Effect on other comprehensive income		32,441			11,030			21,411
Accumulated other comprehensive (loss), end of period	$	(20,073	)	$	(6,822	)	$	(13,251	)

14. LEASE INCOME

The Company leased space in its building to unrelated parties under non-cancelable leases. The Company did not have any lease income for the year ended December 31, 2018 and 2017. Income recorded by the Company under non-cancelable leases amounted to approximately $52,000 for the year ended December 31, 2016. Such amount is recorded as other income in the accompanying consolidated statements of comprehensive income.

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15. COMMITMENTS AND CONTINGENCIES

Leases—The Company leases certain software, equipment and office space under non-cancelable operating leases. Rent expense under all operating leases was approximately $389,000, $324,000, and $206,000, for the years ended December 31, 2018, 2017 and 2016, respectively.

At December 31, 2018, future approximate minimum annual lease payments under non-cancelable operating leases are as follows:

2019	$	326,000
2020		106,000
2021		66,000
2022		34,000
2023 and thereafter		20,000
Total	$	552,000

Litigation—In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters. In the opinion of the Company’s management, we are not aware of any matters which are more than remote in possibility, and the eventual resolution of such matters for amounts above those reflected in the consolidated financial statements would not have a material adverse effect on the financial condition or results of operations of the Company.

16. SEGMENT INFORMATION

The Company manages its business with four segments: fully-insured dental HMO and indemnity, fully-insured dental PPO, self-insured dental and corporate, all other. Self-insured dental consists of the self-insured dental HMO, self-insured dental PPO and self-insured dental indemnity products. Corporate, all other consists of revenue associated with the Company’s dental indemnity, dental PPO, and vision products underwritten by third-party insurance carriers and certain other corporate activities. These segments are consistent with information used by the Chief Executive Officer (the chief operating decision maker) in managing the business.

The results of the fully-insured dental HMO and indemnity, fully-insured dental PPO and self-insured dental segments are measured by gross profit. The Company does not allocate insurance expense, investment and other income, assets or liabilities to these segments because the Company does not use these measures to analyze the segments. These items are assigned to the remainder of the Company’s business, which it identifies as corporate, all other. The Company’s gross profit was approximately $28,243,000, $25,981,000, and $25,094,000, for the years ended December 31, 2018, 2017 and 2016, respectively.

Listed below is financial information required for each reportable segment for the years ended December 31, 2018, 2017 and 2016 (amounts in thousands):

	Fiscal Year Ended							Fiscal Year Ended
	December 31, 2018							December 31, 2017
	Revenues-		Healthcare					Revenues-		Healthcare
	External		Services					External		Services
	Customers		Expense		Total			Customers		Expense		Total
Reportable segments:
Fully-insured dental HMO/Indemnity	$	50,710	$	37,785	$	12,925		$	51,419	$	38,522	$	12,897
Fully-insured dental PPO		28,658		18,844		9,814			25,936		17,721		8,215
Self-insured dental		31,868		27,442		4,426			29,427		25,365		4,062
Corporate, all other		1,078				1,078			807				807
Total	$	112,314	$	84,071		28,243		$	107,589	$	81,608		25,981
Investment income						333							265
Realized (losses) gains on investments, net						(125	)						249
Insurance expense						24,980							22,695
Income before income tax					$	3,471						$	3,800
Total assets-corporate					$	66,785						$	70,329

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	Fiscal Year Ended
	December 31, 2016
	Revenues-		Healthcare
	External		Services
	Customers		Expense		Total
Reportable segments:
Fully-insured dental HMO/Indemnity	$	53,393	$	39,995	$	13,398
Fully-insured dental PPO		22,363		15,391		6,972
Self-insured dental		29,067		25,114		3,953
Corporate, all other		771				771
Total	$	105,594	$	80,500		25,094
Investment income						274
Realized losses on investments, net						76
Other income						52
Insurance expense						22,143
Income before income tax					$	3,353
					$	78,082

Inter-segment revenues were not significant for 2018, 2017, or 2016.

17. RELATED PARTIES

All of the Company’s Class A and Class B shareholders are related parties, either as a participating provider, director or an employee of the Company.

The Company’s providers, who are also shareholders, submitted claims of approximately $33,893,000, $33,291,000, and $38,256,000, in 2018, 2017, and 2016, respectively. The Company had claims payable liability to related party providers of approximately $1,081,000 and $1,487,000 at December 31, 2018 and 2017, respectively.

In 2018, four of our Board members are also participating providers and as a group received approximately $190,000, in directors’ fees for the year ended December 31, 2018. In 2017 and 2016, seven of our Board members were also participating providers and as a group received approximately $183,000, and $201,000, in directors’ fees for the years ended December 31, 2017, and 2016, respectively.

18. FAIR VALUE MEASUREMENTS

The Company classifies the assets and liabilities that require measurement of fair value based on the priority of the observable and market-based sources of data into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:

● Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

● Level 2 – Valuations based on significant other observable inputs other than those included in Level 1 such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

● Level 3 – Valuations based on unobservable inputs such as when observable inputs are not available or inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The following table presents for each of the fair value levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2018 and 2017 (amounts in thousands):

	December 31, 2018						December 31, 2017
	Level 1		Level 2		Total Balance		Level 1		Level 2		Total Balance
Assets
Fixed maturities
Federally-Insured certificates of deposit			$	500	$	500			$	551	$	551
Investment grade corporate bonds				7,484		7,484				7,588		7,588
Non-investment grade corporate bonds				717		717				671		671
Short-term investments
Money market funds	$	454				454	$	181				181
Federally-Insured certificates of deposit				401		401				601		601
Deferred compensation investments (a)
Equity mutual fund investments		1,246				1,246		1,194				1,194
State guarantee fund deposits (b)
Government securities		1,774				1,774		1,763				1,763
Federally-Insured certificates of deposit				75		75				75		75
Interest rate swap (b)				17		17				7		7
Total	$	3,474	$	9,194	$	12,668	$	3,138	$	9,493	$	12,631

(a) Included as a trading security in other assets

(b) Included in other assets

The Company measures fair value using the following valuation methodologies. The Company uses quoted market prices to determine the fair value of the money market funds, deferred compensation investments and certain state fund guarantee deposits; such items are classified as Level 1 of the fair value hierarchy. Examples include government securities and mutual fund equity securities. The Company primarily bases fair value for investments in fixed-maturity securities on prices from a pricing vendor, an outside resource that supplies independent securities pricing, dividend, corporate action and descriptive information to support fund pricing, securities operations, research and portfolio management. The Company obtains and reviews the pricing service’s valuation methodologies and validates these prices using various inputs including quotes from other independent regulatory sources. When deemed necessary, the Company validates prices by replicating a sample using a discounted cash flow model. Such items are classified as Level 2 of the fair value hierarchy. The Company obtains a price from an independent vendor to determine the fair value of the interest rate swap. The independent vendor uses a discounted cash flow method whereby the significant observable inputs include the replacement interest rates of similar swap instruments in the market and swap curves; such items are classified as Level 2 of the fair value hierarchy.

At December 31, 2018 and 2017, there were no assets or liabilities that were required to be measured at fair value on a non-recurring basis. The Company did not have any transfers between fair value hierarchy levels during years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, the Company did not have any assets or liabilities classified as Level 3 of the fair value hierarchy.

19. REDEEMABLE SHARES, SHAREHOLDERS’ EQUITY AND DIVIDEND RESTRICTIONS

Participating providers along with Company directors and employees have the option to purchase one or more voting Class B Redeemable Common Shares of the Company, when offered. Non-provider individuals are eligible to purchase Class C voting Redeemable Common Shares, when offered. The maximum percentage of Class C Common Shares outstanding at any time as a proportion of all voting Common Shares is 40%. The book value of a Common Share was approximately $1,355 and $1,210 at December 31, 2018 and 2017, respectively. In 2018, 2017, and 2016, the Board declared a per share cash dividend for all Class A, Class B and Class C Redeemable Common Shares in the amounts of $45.00, $42.50, and $40.47, respectively.

The Company has 100,000 authorized Class D Redeemable Common Shares, without par value. The Class D Redeemable Common Shares are non-voting redeemable common shares that Preferred Shares may be converted into under certain circumstances. As of December 31, 2018 and 2017, no Class D Redeemable Common Shares were issued or are outstanding.

In 2010, the Company entered into a Preferred Stock Purchase Agreement with an investor for 300 Redeemable Institutional Preferred Shares at a purchase price of $1,000 per share. In 2012 and 2013, the Company entered into additional Stock Purchase Agreements with an investor for the sale of 1,000 Redeemable Institutional Preferred Shares each year at a purchase price of $1,000 per share. In June 2016, Company exercised its right to redeem all of the Preferred Shares and as of December 31, 2018 and 2017 there were no issued or outstanding Preferred Shares.

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Redeemable Provider Preferred Shares-2009 Series are entitled to a cumulative cash dividend equal to 5% of the year end book value of the Redeemable Provider Preferred Shares. As of December 31, 2018 and 2017, no Provider Preferred Shares were issued or are outstanding.

Dividend restrictions vary among the subsidiaries. Dental Care Plus is restricted by regulatory requirements of its 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 Dental Care Plus cannot, without prior approval of the Ohio Department of Insurance, 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 unassigned surplus. In December 2018, Dental Care Plus declared a dividend payable to the DCP Holding Company in the amount of approximately $1,470,000, payable January 2019. There were no dividends declared or paid by Dental Care Plus in 2017 or 2016.

GAAP differs in certain respects from the accounting practices prescribed or permitted by state insurance regulatory authorities (“statutory-basis”), a non-GAAP basis of accounting. The statutory-basis net income for Dental Care Plus was approximately $1,677,000, $2,108,000, and $1,653,000 for the years ended December 31, 2018, 2017 and 2016, respectively. Statutory-basis equity was approximately $14,449,000, and $14,800,000 at December 31, 2018 and 2017, respectively.

20. QUARTERLY DATA (UNAUDITED)

A summary of our unaudited quarterly results of operations for the years ended December 31, 2018 and 2017 is as follows (amounts in thousands):

	2018
	March 31		June 30		September 30		December 31		Total
Premium revenue	$	28,225	$	27,890	$	28,711	$	27,488	$	112,314
Gross profit		6,726		6,836		7,342		7,339		28,243
Income before income taxes		798		589		1,207		877		3,471

	2017
	March 31		June 30		September 30		December 31		Total
Premium revenue	$	27,098	$	26,789	$	27,339	$	26,363	$	107,589
Gross profit		5,673		6,407		6,937		6,964		25,981
Income before income taxes		239		786		1,583		1,192		3,800

21. SUBSEQUENT EVENTS

As discussed on the Company’s Current Report on Form 8-K filed with the Commission on March 14, 2019, the Company entered into Agreement with DentaQuest, LLC dated March 12, 2019 pursuant to which the Company will be merged with a subsidiary of DentaQuest, LLC and our shareholders will receive cash in exchange for their Company commons shares (the “Merger”). The Merger is subject to approval of our shareholders, regulatory approval and other customary conditions.
     

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2018. Based on such evaluation, the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), concluded that the Company’s disclosure controls and procedures were effective.

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Changes in Internal Control over Financial Reporting

The Chief Executive Officer and Chief Financial Officer also have concluded that in the fourth quarter of the fiscal year ended December 31, 2018, there were no changes in the Company’s internal controls that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). In evaluating the Company’s internal control over financial reporting, management has adopted the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018. Based on our evaluation under the framework in Internal Control-Integrated Framework, our management has concluded that our internal control over financial reporting was effective.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. However, because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about our Board of Directors

The following sets forth information about our directors as of March 15, 2019.

Name	Age	Position/Office Held With the Company
Stephen T. Schuler, DMD	71	Director and Chairman of the Board
Ronald L. Poulos, DDS	53	Director and Vice Chairman of the Board
James E. Kroeger, MBA, CPA	63	Director
Donald J. Peak, CPA	65	Director
Michael J. Carl, DDS	59	Director
Fred H. Peck, DDS	58	Director
Molly M. Rogers, MBA, CPA	61	Director
Jack M. Cook, MHA	74	Director
David A. Kreyling, DMD	65	Director
James T. Foley	73	Director

Dr. Stephen T. Schuler, DMD was engaged in oral and maxillofacial surgery in the Northern Kentucky area from 1974 through 2016. Dr. Schuler retired from active practice on December 31, 2016. He is the founder and past President of Oral Facial Surgery Associates, PSC in Crestview Hills, Kentucky. He is also a past President of the Kentucky Board of Dentistry, a past President of the Kentucky Society of Oral and Maxillofacial Surgery and a past Chairman of the Board of Kentucky Dental Association. Dr. Schuler is presently the Chairman of the Board of Directors of the Company and serves on the Finance and Corporate Affairs Committees. Dr. Schuler was the Vice Chairman of Dental Care Plus from 2001 to 2005 and the Vice Chairman of the Company from the reorganization of Dental Care Plus through 2005. He became the Chairman of the Board of the Company effective January 2006. In addition to his industry experience and qualifications described above, the Company believes Dr. Schuler should continue to serve as a director because he is a licensed, practicing oral and maxillofacial surgeon with many years of relevant experience and a strong working knowledge of the dental benefits industry. He works on a daily basis with many dental providers and member patients of the Company and understands the specific needs and concerns of both dental providers and members. Since his nomination to the Company’s Board of Directors in 1998, Dr. Schuler has served on nearly every board committee. He has a thorough knowledge of all facets of the Company’s business.

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Ronald L. Poulos, DDS has been engaged in the private practice of pediatric dentistry in Cincinnati, Ohio since 1998. Dr. Poulos became a board certified pediatric dentist in 2001. He is an active member of the American Academy of Pediatric Dentistry, the American Dental Association, the Ohio Dental Association and the Cincinnati Dental Society. In addition, Dr. Poulos has been the Treasurer of the Cincinnati east side dental study club since 2005 and was a board member of the Childrens’ Dental Care Foundation from 2006 through 2012. Dr. Poulos currently serves as Vice Chairman of the Board and on the Corporate Affairs and Clinical Affairs Committees. In addition to his industry experience and qualifications described above, the Company believes Dr. Poulos should continue to serve as a director because he represents the pediatric dental specialty and because he is well known to many of the dentist shareholders on the east side of Cincinnati.

James E. Kroeger, MBA, CPA served as the Head of Internal Audit at American Modern Insurance Group from 2004 through August 2018, at which time he became Senior Advisor of Financial Compliance until his retirement in January 2019. Prior to joining American Modern Insurance Group, he was a Firm Director in the Audit and Assurance practice of Deloitte & Touche LLP in Cincinnati, Ohio. He was with Deloitte for approximately 25 years, specializing in auditing insurance and health care entities, and developed a deep technical expertise in the insurance industry. Mr. Kroeger currently is the Chairman of the Audit Committee and serves on the Special Strategy Committee. Mr. Kroeger was recruited to serve on the Company’s Board of Directors in 2006 when the Company filed its initial Form 10 with the U.S. Securities and Exchange Commission and has been designated as the Audit Committee’s financial expert in accordance with SEC regulations. In addition to his industry experience and qualifications described above, the Company believes Mr. Kroeger should continue to serve as a director because of his extensive experience in auditing publicly-traded insurance companies, his technical expertise in the insurance industry and his significant experience with SEC regulations and financial reporting requirements. Since becoming a Board member in 2006, Mr. Kroeger has been instrumental in the establishment of a strong internal audit function for the Company. He possesses the requisite experience and skill to continue to serve as the Chairman of the Company’s Audit Committee.

Donald J. Peak, CPA has been the Director of Operations for BLOC Ministries, Inc. since June 2016. Prior to that Mr. Peak was the Director of Operations - Finance for UC Health from July 2011 until May 2016. In addition, Mr. Peak was the Director of Reimbursement and Financial Analysis for Deaconess Long Term Care from 2009 to 2011. Before 2009, he was a shareholder, board member and President / CEO of D.J. Peak Consulting, Inc. and PDMB, Inc., two closely held corporations. Mr. Peak was also previously employed by Deloitte & Touche and Ernst & Whinney. Mr. Peak received a Bachelor of Science degree from Indiana State University. He is currently a member of the American Institute of Certified Public Accountants and the Healthcare Financial Management Association. Mr. Peak is presently Chairman of the Board’s Finance Committee. In addition to his industry experience and qualifications described above, the Company believes Mr. Peak should continue to serve as a director because he has over 15 years of experience as an owner, board member and officer of privately held companies and has over 30 years of experience with healthcare finance. He is also very knowledgeable in the area of information technology that is a key success factor for the Company as we strive to use information technology to increase productivity and reduce administrative costs.     

Michael J. Carl, DDS has been engaged in the private practice of general dentistry in Cincinnati, Ohio since 1986. He has served as Vice President and President of the Cincinnati Dental Society. Previously he was also a member of the Cincinnati Dental Society Nominating and Peer Review Committees. Previously Dr. Carl has been a delegate with the Ohio Dental Association. He is a member of the American and International College of Dentists and the Pierre Fauchard Society. He is also a member of the Alpha Omega Dental Fraternity and served as its President in 2001. Dr. Carl graduated from Ohio State University in 1985, which was followed by a general practice residency at Mt. Sinai Hospital in Cleveland, Ohio in 1985 and 1986. He is a member of the Cincinnati Dental Association, Ohio Dental Association and the American Dental Association. Dr. Carl currently provides dental services to the residents of four local area nursing homes and participates in the Ohio Dental Options program. He has served on the Company’s Board of Directors since 2004, has served as Treasurer since 2012 and currently serves on the Company’s Audit and Clinical Affairs Committees. In addition to his industry experience and qualifications described above, the Company believes Dr. Carl should continue to serve as a director because of the perspective he brings to the Board as a Cincinnati-based general dentist who has been highly active in many key Cincinnati and Ohio dental organizations and associations.

Dr. Fred H. Peck, DDS has been engaged in the private practice of general dentistry in the Cincinnati, Ohio area since 1986. Dr. Peck was first nominated to serve on the Board of Directors of Dental Care Plus in 1988 and has been a director of Dental Care Plus and the Company continuously since that time. He was also the Treasurer of Dental Care Plus from 1990 to 2012 and the Treasurer of the Company from 2004 to 2012. Dr. Peck was the Chairman of the Company’s Utilization Review and Quality Assurance Committee from 1989 through 2009 and became the Chairman of the Board’s Clinical Affairs Committee in July 2009. In addition to his industry experience and qualifications described above, the Company believes Dr. Peck should continue to serve as a director because he brings to the Board an exceptional level of clinical expertise. He is a long standing member of the Cincinnati Dental Society Scientific Program Committee and served as Chairman of this committee in 2001, 2008, 2011 and 2011. He is an Accredited Member of the American Academy of Cosmetic Dentistry and is a lecturer for the University of Cincinnati Medical Center dental residents in cosmetic dentistry and the University of Cincinnati, Blue Ash Dental Hygiene Program in cosmetic dentistry.

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Ms. Molly M. Rogers, MBA, CPA has been an Assistant Professor of Accounting at the Carl H. Lindner College of Business at the University of Cincinnati since 2012. She has also served as the Director of Reimbursement at St. Elizabeth Healthcare (SEH) from 2000 to 2013. Before joining SEH, she served as a consultant to SEH, as well as Johnson & Johnson and other local health care agencies. From 1987 to 1998, she was an Assistant Professor of Finance in the Masters of Health Administration Program at Xavier University. Ms. Rogers was employed by the accounting firm of Ernst & Whinney for eight years previous to her position with Xavier University. She is a Board member of the Carmel Manor Nursing Home and the Treasurer of the Indoor Clay Tennis Club. She has also served on several community boards and is a licensed Certified Public Accountant. Ms. Rogers currently serves on the Board’s Audit and Finance Committees. In addition to her industry experience and qualifications described above, the Company believes Ms. Rogers should continue to serve as a director because she brings to the Board of Directors an excellent background in accounting and finance in the health care industry and a unique perspective relative to provider fee schedule and reimbursement issues. She is an effective member of the Company’s Finance and Audit Committees.

Mr. Jack M. Cook, MHA is a retired health care executive. He was a senior consultant with the Compass Group in Cincinnati from 2001 through 2009. Mr. Cook served as President and Chief Executive Officer of The Health Alliance of Greater Cincinnati, President of The Christ Hospital and founding president of the managed care network Healthspan since his recruitment to Cincinnati in 1983 until 2001. He also served on the Board and the Audit Committee of a local bank from 1992 through 2004. He attended the University of North Carolina and Duke University, earning a B.S. degree in Business and a Master’s degree in Hospital Administration. Mr. Cook is presently Chairman of the Board’s Corporate Affairs Committee. In addition to his industry experience and qualifications described above, the Company believes Mr. Cook should continue to serve as a director because of his experience as the CEO of a local hospital / hospital system for over 25 years where he developed strong skills and experience in organizational governance and management, board relations, and financial and marketing management.

David A. Kreyling, DMD has been engaged in the private practice of general dentistry in the Florence, Kentucky area since 1980 and has served as President of the Northern Kentucky Dental Society. Dr. Kreyling currently serves on the Finance and Corporate Affairs Committees. In addition to his industry experience and qualifications described above, the Company believes Dr. Kreyling should continue to serve as a director because he is a representative of our Northern Kentucky area dentists. Dr. Kreyling has also developed strong finance and benefits and compensation skills and experience during his prior terms as a Director.

James T. Foley is the Founder and CEO of The Foley Group, a private business consulting firm. From 2011 through 2013, Mr. Foley was President of PIVOTek, a manufacturer of prefabricated bathrooms units for hospitals, which was a Joint Venture company involving Grote Enterprises. Prior to assuming the role at PIVOTek, Mr. Foley was President of Grote Enterprises from 2003 to 2011. Grote operates a family of businesses and joint ventures including CINFAB, T.J. Dyer Company, Commercial HVAC and Grote Construction Services. Mr. Foley was President of CINFAB, Inc. from 2002 through 2003, where he was responsible for the operations and financial performance of this sheet metal fabrication business. From 2000 to the beginning of 2002, Mr. Foley was the President and owner of Moraine Molded Plastics, Inc., a custom plastic injection molding and assembly business. From 1994 to 1998, Mr. Foley was a Vice President at Computer Technology Corporation, a company specialized in the development, manufacturing and marketing of sophisticated computer software and hardware for factory automation control. In addition, Mr. Foley was Vice President of Marketing, Sales and Operations for Mutual Manufacturing & Supply Company from 1987 through 1994 and worked for Aim Packaging, Inc. and Anchor Hocking Corporation in various positions from 1970 through 1987. Mr. Foley has a Bachelor’s degree in Economics from Xavier University and served in the United States Army for two years. Mr. Foley currently serves on the Company’s Finance and Corporate Affairs Committees. The Company believes Mr. Foley should continue to serve as a director because of his extensive business experience in a variety of industries and his success and effectiveness as an executive focused on strategic planning, product planning and development, product and market segment management, sales and marketing management and operations management.

Board Leadership Structure and Risk Oversight

Our Board of Directors consists of five dentist directors and five non-dentist directors. The Chairman of the Board is required to be a dentist director. Company risk management is the responsibility of the CEO and the CFO. The Board of Directors has delegated the responsibility for risk oversight to the Audit Committee.

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Meetings and Committees

Our Board of Directors held a total of twelve meetings during 2018 and also took certain actions by written consent. All incumbent directors during the last year attended 75% or more of the aggregate of (i) the total number of meetings of the Board of Directors (held during the period for which she or he has been a director) and (ii) the total number of meetings held by all committees on which he or she served. We invite, but do not require, our directors to attend the Annual Meeting. All of our directors attended the 2018 Annual Meeting of Shareholders.

Our Board appoints committees to help carry out its duties. In particular, Board committees work on key issues in greater detail than would be possible at full Board meetings. Each committee reviews the results of its meetings with the full Board. Our Board of Directors had four standing committees during 2018: Audit, Finance, Clinical Affairs and Corporate Affairs.

Audit Committee. The Audit Committee’s members are James E. Kroeger, MBA, CPA, Chairman, Molly M. Rogers, MBA, CPA, and Michael J. Carl, DDS. The Committee met six times in 2018 and conducted an Audit Committee educational session focused on the new revenue recognition accounting standards and revenue auditing and testing. The Audit Committee is responsible for facilitating the Board of Directors’ financial oversight responsibilities for DCP Holding Company. The Committee is also responsible for appointing, retaining, compensating, overseeing, evaluating and terminating the Company’s independent auditors. The Audit Committee alone has the authority to approve all audit engagement fees and terms, as well as all non-audit engagements with the independent auditors. The independent auditors report directly to the Audit Committee. The Audit Committee also prepares the Audit Committee Report as it appears in this Proxy Statement. The Board of Directors has determined that Mr. Kroeger is an “audit committee financial expert”, as defined under Regulation S-K Item 407(d)(5). In addition, Mr. Kroeger meets the independence standards applicable to Audit Committee members under the SEC’s rules for companies listed on The Nasdaq Stock Market. Mr. Kroeger and Ms. Rogers are “independent” as such term is defined for audit committee members by the listing standards of The Nasdaq Stock Market. The Audit Committee has a charter that includes its risk assessment duties and responsibilities. Periodically the Audit Committee discusses with senior management the Company’s significant financial and non-financial risks and the steps management has taken to monitor and mitigate such risks. A copy of the charter is attached as an Appendix to this document. The charter is not available on the Company’s website.

Finance Committee. The Finance Committee’s members are Donald J. Peak, CPA, Chairman, Stephen T. Schuler, DMD, David A. Kreyling, DMD, James T. Foley, and Molly M. Rogers, MBA, CPA. The Committee met twelve times in 2018. The Finance Committee is responsible for assisting the Board of Directors in fulfilling its responsibilities for reviewing and monitoring financial performance, budget development and strategic financial planning of the Company and its subsidiaries. The Finance Committee also: (a) provides advice and counsel as requested by management in the review of opportunities for investment in businesses anticipated to contribute to the Company’s growth and profit objectives; (b) provides advice and counsel as requested by management in the review of decisions on significant investment in the Company’s business, such as real estate, buildings, equipment and technology; and (c) reviews and makes a recommendation to the full Board regarding the Company’s investment to the extent a business or investment opportunity is financially or strategically material to the Company.

Clinical Affairs Committee. The Clinical Affairs Committee’s members are Fred H. Peck, DDS, Chairman, Michael Carl, DDS, and Ronald L. Poulos, DDS. The Committee met twelve times during 2018. The Clinical Affairs Committee is charged with reviewing service patterns of providers and requests for pretreatment estimates that do not clearly meet Company standards. The Clinical Affairs Committee is also charged with retrospective review of covered services provided by dentists to determine whether the frequency and nature of the services are in compliance with standards adopted by the Clinical Affairs Committee. The Clinical Affairs Committee may recommend that the participating agreement of a dentist who is not in compliance with these standards be terminated, suspended or not renewed, or that benefits paid to the provider for particular services rendered by him or her be reduced. The Clinical Affairs Committee also has oversight over the credentialing of new dentist providers that apply to be participating providers in our provider networks. This committee oversees the periodic re-credentialing of dentist providers already in one of our existing provider networks and evaluates whether a dentist should be terminated from one of the provider networks if an action is filed against the dentist with a state department of insurance or other regulatory agency or the provider loses his medical malpractice insurance coverage due to an adverse claim. The Clinical Affairs Committee is also charged in part with determining whether all participating dentists maintain good standing with regulatory agencies. The recommendations of the Clinical Affairs Committee are forwarded to our Board of Directors for consideration and appropriate action.

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Corporate Affairs Committee. The Corporate Affairs Committee’s (the “Committee”) members are Jack M. Cook, MHA, Chairman, James T. Foley, David A. Kreyling, DMD, Ronald L. Poulos, DDS, and Stephen T. Schuler, DMD. Jack M. Cook and James T. Foley are “independent” as such term is defined by the listing standards of The Nasdaq Stock Market. The Committee met six times during 2018. The Corporate Affairs Committee is responsible for the following functions:

1) Benefits and Compensation - The Committee is responsible for discharging the responsibilities of the Board with respect to the compensation of our executive officers. The Committee sets performance goals and objectives for the chief executive officer and the other executive officers, evaluates their performance with respect to those goals and sets their compensation based upon the evaluation of their performance. In evaluating executive officer pay, the Committee periodically retains the services of a compensation consultant and considers recommendations from the Chief Executive Officer and the Chairman of the Board with respect to goals and compensation of the other executive officers. The Committee also periodically reviews director compensation. All decisions with respect to executive and director compensation are approved by the Committee. The Committee is responsible for administering our management equity incentive plans. The Committee also periodically reviews compensation and equity-based plans and makes its recommendations to the Board with respect to those plans.

The Committee: (a) reviews and establishes the compensation and benefits for the Company’s Named Executive Officers (defined below) and reports these decisions to the Board of Directors; (b) reviews the compensation and benefits for the Company’s other senior executive officers; (c) reviews the design of and administers, as appropriate, the Company’s broad-based incentive plans; (d) determines and establishes the appropriate retirement and severance packages and benefits to be given by the Company to our Named Executive Officers; (e) monitors the conformity of the aforementioned compensation and incentive packages with various laws and regulatory considerations pertaining to compensation matters; and (f) prepares the Report of the Corporate Affairs Committee for inclusion in this Proxy Statement.

2) Corporate Governance - The Corporate Affairs Committee: (a) reviews the independence and other qualifications of Board members; (b) considers questions of possible conflicts of interest among Board members or management and DCP Holding Company and its subsidiaries; (c) monitors all other activities of Board members or management that could interfere with such individuals’ duties to DCP Holding Company; (d) provides periodic review of Board performance and compensation and reports its findings to the Board; and (e) makes recommendations to the Board concerning the composition, size, structure and activities of the Board and its committees.

3) Nominating - Another function of the Corporate Affairs Committee is to recommend to the full Board of Directors persons to be nominated for election as directors. The Corporate Affairs Committee considers nominees recommended by holders of Common Shares (each an “Eligible Nominating Shareholder”), provided that such nominations are submitted in writing to Stephen T. Schuler, DMD, 100 Crowne Point Place, Sharonville, Ohio 45241, not later than February 1 preceding the Annual Meeting. In its evaluation, the Committee does not distinguish between nominees identified by the Committee and nominees recommended by shareholders.

Director Nomination Process

The Corporate Affairs Committee has adopted a policy regarding director nominations (the “Policy”). The Policy establishes qualifications and factors for selection of persons to be nominated to serve as directors. Those factors reflect the Corporate Affairs Committee’s belief that a candidate for the Board should demonstrate experience or expertise needed to offer meaningful and relevant advice and guidance to management, possess the proven ability to exercise sound business judgment, and have consistently demonstrated the highest personal integrity and ethics. The Corporate Affairs Committee evaluates candidates taking into consideration, among other things, the current composition of the Board, the Company’s operations and its plan for the future, long-term interests of the Company and its shareholders, and the need to maintain a balance of knowledge, experience, and capabilities. The Policy is subject to periodic review and amendment by the Corporate Affairs Committee in consultation with other independent directors serving on the Company’s Board.

The Policy provides that the Corporate Affairs Committee will consider candidates who are duly recommended in writing by Eligible Nominating Shareholders. Each such submission must include a statement of the qualifications of the nominee, a consent signed by the nominee evidencing a willingness to serve as a director if elected, and a commitment by the nominee to meet personally with the Corporate Affairs Committee. In addition, in order for a recommendation to be considered by the Corporate Affairs Committee, the recommendation notice must contain, at a minimum, the following: the name, address, and telephone number of the Eligible Nominating Shareholder making the recommendation; the full legal name, address and telephone number of the individual being recommended, together with a reasonably detailed description of the background, experience and qualifications of that individual; a written acknowledgment by the individual being recommended that he or she has consented to that recommendation and consents to the Company’s undertaking of an investigation into that individual’s background, experience and qualifications in the event that the Committee desires to do so; any information not already provided about the person’s background, experience and qualifications necessary for the Company to prepare the disclosure required to be included in the Company’s proxy statement about the individual being recommended; the disclosure of any relationship of the individual being recommended with the Company or any of its subsidiaries or affiliates, whether direct or indirect; the disclosure of any relation of the individual being recommended with the Eligible Nominating Shareholder, whether direct or indirect; and, if known to the Eligible Nominating Shareholder, any material interest of such Eligible Nominating Shareholder or individual being recommended in any proposals or other business to be presented at the Company’s Annual Meeting of Shareholders (or a statement to the effect that no material interest is known to such Eligible Nominating Shareholder).

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 The Corporate Affairs Committee determines, and reviews with the Board of Directors on an annual basis, the desired skills and characteristics for directors as well as the composition of the Board of Directors as a whole. This assessment considers the directors’ qualifications and independence, as well as diversity, age, skill and experience in the context of the needs of the Board of Directors. With respect to diversity considerations, the Committee seeks representation from general dentistry, dental specialists and oral surgeons for the dentist director seats on the Board. For the non-dentist director positions, the Committee looks for experience with key business areas such as corporate governance, financial reporting, risk management, insurance regulation, health care reimbursement and information technology. The Committee assesses the current directors relative to these diversity criteria and determines the qualifications needed from a new director candidate. In addition, the Committee periodically assesses the Board diversity criteria relative to the Company’s current needs and business environment.

At a minimum, directors should share the values of the Company and should possess the following characteristics: high personal and professional integrity; the ability to exercise sound business judgment; an inquiring mind; and the time available to devote to Board of Directors’ activities and the willingness to do so. In addition to the foregoing considerations, generally with respect to nominees recommended by shareholders, the Corporate Affairs Committee will evaluate such recommended nominees considering the additional information regarding them contained in the recommendation notices. When seeking candidates for the Board of Directors, the Committee may solicit suggestions from incumbent directors and management. Ultimately, the Corporate Affairs Committee will recommend to the Board of Directors prospective nominees who the Corporate Affairs Committee believes will be effective, in conjunction with the other members of the Board of Directors, in collectively serving the long-term interests of the Company’s shareholders.

 Communications with the Board of Directors

If you wish to communicate with the Board of Directors, you should mail a written statement of the purpose and substance of your desired communication to: DCP Holding Company, 100 Crowne Point Place, Cincinnati, Ohio 45241, Attention: Corporate Secretary. Your communication will be reviewed to determine its appropriateness by our Corporate Secretary. Our Corporate Secretary reserves the right not to forward to directors any abusive, threatening or otherwise inappropriate materials.

Section 16(a) Beneficial Ownership Report Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own more than 10% of DCP Holding Company’s Common Shares to file initial reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. These executive officers, directors and 10% shareholders are also required by SEC rules to furnish us with copies of all such forms that they file.  Based on our review of the copies of such forms received by us, we believe that during fiscal 2018 all Section 16(a) filing requirements applicable to our executive officers, directors and 10% shareholders were complied.

ITEM 11. Executive Compensation

Compensation Discussion and Analysis

The Corporate Affairs Committee of the Board (the “Committee”) oversees DCP Holding Company’s executive officer compensation and equity-based programs. The Committee reviews and establishes the compensation and benefits for DCP Holding Company’s executive officers named in the Summary Compensation Table of this proxy statement (the “Named Executive Officers”) and other key employees and reviews the principles and strategies that guide the design of compensation plans and benefit programs for all of the Company’s senior executive officers. The Committee is composed entirely of non-employee members of the Board.

Executive Summary

           The compensation program for the Company’s Named Executive Officers and other key employees is closely linked to Company performance. In 2018, the Company achieved total operating revenue of approximately $112.5 million and adjusted net operating income of approximately $4.7 million. If this high level of Company performance continues, the Named Executive Officers and other key employees may continue to be entitled to increased levels of compensation under the short-term and long-term incentive compensation awards made by the Committee.

     During 2018, Anthony A. Cook served as our President and CEO. In December 2018, Mr. Cook resigned from those position and currently serves as Assistant to the President for Corporate Development and Strategy on a part-time basis. Effective January 1, 2019, Robert C. Hodgkins, Jr. was elected President, CEO and CFO of the Company and Jodi Fronczek was named Vice President and Chief Operations Officer.  

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Objectives of Compensation Program

The Company’s compensation programs are designed to help recruit, retain and motivate a group of talented and diverse executives, rewarding them for profitable corporate performance and providing incentives for them to create short-term and long-term corporate stability and growth. Accordingly, the key components of the Company’s compensation package for its executives are base salary, benefits, short-term and long-term incentive cash compensation and other long-term incentives comprised of restricted share or unit awards. The level of these compensation components for the Company’s Named Executive Officers and other key employees is determined by the Committee.

The Committee’s philosophy is that the Company will achieve its best results if its executives act and are rewarded as business owners. Ownership is not only about owning stock, but is also about being accountable for business results. Owners take initiative and responsibility for the assets of the business, including its employees. As executives progress to higher levels at the Company, their responsibilities and rewards will progress as well. Executive compensation programs affect all employees by setting general levels of compensation and helping to create an environment of goals, rewards and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect of executive compensation and incentive programs on all of our employees.

We believe that the compensation of our executives should reflect their success as a management team, rather than individuals, in attaining key operating objectives, such as growth of membership, growth of operating revenue, growth of operating earnings and earnings per share and growth or maintenance of market share and long-term competitive advantage, and ultimately, in attaining an increased book value for our Common Shares. We believe that the performance of the executives in managing our Company, considered in light of general economic and specific company, industry and competitive conditions, should be the basis for determining their overall compensation. We seek to have the long-term performance of our stock reflected in executive compensation through our management equity incentive plan.

Elements of Compensation; Determination of Amounts

Elements of compensation for our executives include: salary, short-term and long-term incentive compensation, health, disability and life insurance, limited perquisites and restricted share unit awards. Base salaries are typically set for our executive officers at the regularly scheduled November meeting of our Corporate Affairs Committee. At this meeting, the Committee also approves and adopts the management equity incentive plan for the new fiscal year and typically grants restricted share unit awards to all of our executives and certain other eligible employees. These executives and other eligible employees have the option to elect to defer their restricted share unit awards under the Company’s deferred compensation plan.

At the beginning of each fiscal year, including 2018, it has been the practice of the Committee to review the history of all the elements of each executive’s total compensation and compare the compensation of the executives with that of the executives in an appropriate market comparison group. At the fall meeting referred to above, our CEO, makes compensation recommendations to the Committee with respect to the executives who report to him. Such executives are not present at the time of these deliberations. The Chairman of the Board then makes compensation recommendations to the Committee with respect to our CEO, who is absent from that meeting. The Committee may accept or adjust such recommendations and also determines the Chairman of the Board’s compensation.

We pay each element of compensation to attract and retain the executive talent, reward annual performance and provide incentive for a balanced focus on long-term strategic goals as well as short-term performance. The amount of each element of compensation is determined by or under the direction of the Committee, which uses the following factors, among others, to determine the amount of salary and other benefits to pay each executive:

• performance against corporate and individual objectives for the previous year;

• difficulty of achieving desired results in the coming year;

• value of their unique skills and capabilities to support long-term performance of the Company;

• performance of their general management responsibilities; and

• contribution as a member of the executive management team.

These elements fit into our overall compensation objectives by helping to secure the future potential of our operations, facilitating our entry into new markets, providing proper compliance and regulatory guidance, and helping to create a cohesive team.

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Our policy for allocating between long-term and currently paid compensation is to ensure adequate base compensation to attract and retain personnel, while providing incentives to maximize long-term value for our Company and our shareholders. Likewise, we provide cash compensation in the form of base salary to meet competitive salary norms and reward good performance on an annual basis and in the form of bonus compensation to reward superior performance against specific short-term goals. We provide restricted share unit non-cash compensation to reward increased share value and as a means to retain the executive officer. The following items of corporate performance may be taken into account in setting compensation policies:

• membership, operating revenue and corporate earnings compared to our financial plan for that year;

• achievement of our strategic objectives; and

• the book value of our Common Shares.

Following our 2018 annual meeting, the Committee also considered the results of the say-on-pay vote and determined that no significant change to the compensation program elements was warranted. The Company currently intends to seek a shareholder advisory vote on executive compensation on an annual basis.

Compensation Consultant

Every two years, with the assistance of an independent executive compensation consultant that reports directly to the Committee, the Committee evaluates the Company’s plans and programs for the CEO against current and emerging compensation practices in the insurance industry, legal and regulatory developments and corporate governance trends. In 2018, the Committee engaged the Compensation Service Group (“CSG”), an independent compensation consultant, to evaluate the external competitiveness of Company’s compensation program for the CEO. CSG utilized two data sources for this analysis: 1) published compensation surveys and 2) proxy statements of SEC-reporting companies with what CSG believed, generated comparable revenue and net income.

Annually, our CEO, with the assistance of Employers Resource Association, evaluates the Company’s plans and programs for the Company’s executive staff against the current and emerging compensation practices in the insurance industry. This review provides assurance that the Company’s compensation programs are designed to help attract and retain the talent necessary to maintain its long history of strong growth, profitability and shareholder returns.

The Committee annually examines the ongoing competitiveness of the Company’s executive compensation programs, reviews both Company and individual executive performance and reports compensation levels for each Named Executive Officer and other key employees to the Board. The Committee works to ascertain and establish competitive levels of base compensation, short-term incentive compensation and long-term incentive awards for the Named Executive Officers and other key employees of DCP Holding Company. Annually, the Committee:

• Reviews compensation levels of the Named Executive Officers and other key employees against independent surveys of managed care organizations and health insurance companies provided by our compensation consultants. As a part of this work, the Committee validates that total compensation paid is appropriate based on an analysis that compares the Company’s performance to the performance reported in these independent surveys. The Committee does not benchmark compensation of our Named Executive Officers against any comparator group.

• Ensures that a significant portion of the total compensation packages for the CEO, CFO, and other key employees are performance-based and that compensation opportunities are designed to create incentives for above-target performance and consequences for below-target performance.

• Approves the base salary compensation for the Named Executive Officers and other key employees.

• Approves the target level of performance-based compensation for the Named Executive Officers and other key employees and the Company performance goals that must be achieved in order for the Named Executive Officers and other key employees to receive all or a portion of their performance-based compensation.

• Approves long-term incentive awards in the form of grants of restricted share units under the management equity incentive plan and the deferred compensation plan.

While the Committee is solely responsible for establishing the compensation level and components for our CEO, he is responsible for evaluating the compensation level of the other Named Executive Officers and other key employees and making compensation recommendations to the Committee. Our CEO is also involved in establishing individual and departmental objectives and goals with the other Named Executive Officers and other key employees and evaluating their performance on an annual basis.

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 Named Executive Officer and Other Key Employee Compensation

Base Salaries

It is the goal of the Committee to establish salary compensation for our executives based on our Company’s operating performance relative to companies of comparable size in our industry over a three to five year period. In setting base salaries for fiscal 2018, the Committee reviewed the research provided by our compensation consultants in 2018 with respect to the salary compensation of officers with comparable qualifications, experience and responsibilities at comparable companies designated by the compensation consultant. The Committee established our target for the total compensation level for the Named Executive Officers and other key employees of DCP Holding Company at the midpoint of the range of compensation for comparable positions from the independent surveys of companies within the health insurance industry provided by our compensation consultants. We believe that this gives us the opportunity to attract and retain talented managerial employees both at the senior executive level and below. The Committee, in determining the base salaries for both Mr. Cook, our CEO during 2018 and Robert C. Hodgkins, Jr., our CFO, considered several factors, including, but not limited to, the compensation payable to the chief executive officers and chief financial officers of various other companies, including other specialty insurance companies with comparable asset size and premium income. For 2018, the Committee increased the base salary for Mr. Cook from $441,500 to $454,745 and for Mr. Hodgkins from $269,014 to $277,084 in order to establish these base salaries at the appropriate point in the range of compensation for CEO and CFO positions at comparable companies. Effective January 1, 2018, Mr. Hodgkins’ base salary was increased to $350,000.

Short Term Non-Equity Incentive Compensation

The Company has a management non-equity incentive plan which is designed to reward our executives for the achievement of shorter-term financial goals, principally annual increases in plan membership, operating revenue and net operating income. These corporate goals are established at levels that the Committee determines are achievable but also a significant challenge for the executive management team. It is the practice of the Committee to establish these Company performance goals prior to the beginning of the applicable performance year. It is our general philosophy that management be rewarded for their performance as a team in the attainment of these goals, rather than individually. We believe that this is important to aligning our executives and promoting teamwork. As discussed above, the compensation structure is designed to promote the continued growth, profitability and long term financial health of the business.

In 2011, the Committee and Company management undertook an analysis of our compensation policies and practices and determined that risks arising from our compensation policies and practices for all of our employees are not reasonably likely to have a material adverse effect on us. However, as a result of our analysis and our compensation objective of achieving an appropriate balance between revenue growth and profitability, the Committee modified the short term management non-equity incentive compensation parameters. For 2016, each executive was eligible to receive thirty percent (30%) of his or her award based on the performance of the Company relative to the established operating revenue goal and fifty percent (50%) of his or her award based on the performance of the Company relative to the established net operating income goal. The remaining twenty percent (20%) of these awards under the plan are granted at the discretion of the Committee in the case of Mr. Cook and at the discretion of the Committee and Mr. Cook in the case of Mr. Hodgkins and other key employees, based upon achievement by the individual of pre-established individual performance objectives. In December 2017, the Committee established the corporate goals for 2018 of:

● Target operating revenue of $112,576,623 for 2018, with a threshold level of $101,318,961 and a maximum level of $146,349,610

● Target net operating income of $4,710,351 for 2018, with a threshold level of $3,532,763 and a maximum level of approximately $6,123,456

These target levels corresponded to our achievement of 100% of the operating revenue and 100% of the net operating income as set forth in our financial plan for fiscal 2018. Under the terms of this plan, the target bonus payable for Mr. Cook was established at 30% of his fiscal 2018 base salary. The target bonus amount for Mr. Hodgkins was established at 25% of his fiscal 2018 base salary and the target bonus amounts for other key employees were established at 18% of each employee’s fiscal 2018 base salary.

The Company’s total operating revenue for 2018 was $112,314,657. This operating revenue exceeded the threshold level of $101,318,961 but was less than the target level of $112,576,623. The Company’s net operating income for 2018 was $4,824,964. This net operating income exceeded the target level of $4,710,351 but was less than the stretch level of $5,416,904. In addition, the Committee evaluated the performance of Mr. Cook relative to the achievement of his position-specific performance objectives, and Mr. Cook evaluated the performance of the other Named Executive Officers and other key employees relative to their position-specific performance objectives. Based on these performance results, on March 7, 2019, the Committee awarded Mr. Cook a non-equity incentive compensation payment equal to 31.1% of his base salary. The Committee also awarded non-equity incentive compensation to Mr. Hodgkins equal to 25.7% of his base salary and to Ms. Fronczek equal to 18.7% of her base salary.

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Long Term Non-Equity Incentive Compensation

In 2007, the Committee established a long term non-equity incentive compensation arrangement for Mr. Cook. This long-term non-equity incentive arrangement was intended to motivate Mr. Cook to achieve long term success for the Company as well as assist in the retention of Mr. Cook. This long-term non-equity incentive arrangement was designed to reward Mr. Cook for increasing the aggregate book value of our Common Shares over the four year period from 2008 through 2011 and was included in Mr. Cook’s employment contract for 2008. Mr. Cook’s employment contracts for 2009 and 2010 also included similar long term non-equity incentive arrangements for the period from 2009 through 2012 and 2010 through 2013, respectively. Mr. Cook’s employment contract for 2011 included a long term non-equity incentive arrangement for the period from 2011 through 2014 whereby Mr. Cook was rewarded for increasing the aggregate book value of the Common and Preferred Shares over the four year period, adjusted for any Common Share dividends paid or provider withhold paid during the four-year period.

In 2011, the Committee changed from this long term non-equity incentive compensation arrangement to a long term equity incentive compensation arrangement for Mr. Cook for the three year period from 2012 – 2014 and for the three year period from 2013 – 2015. The Committee also made Robert Hodgkins, the CFO, eligible to participate in these long term equity incentive compensation arrangements. Then, in 2013, the Committee decided to discontinue the long term equity incentive compensation arrangement and to resume the long term non-equity incentive compensation arrangement for both Mr. Cook and Mr. Hodgkins. The Committee made this decision in order to eliminate the dilutive effect of additional outstanding RSUs on the return on equity of the Company’s Common Shareholders.

Mr. Cook’s and Mr. Hodgkins’s employment contracts for 2018 included a long term non-equity incentive arrangement for the period from 2018 through 2020 whereby Mr. Cook and Mr. Hodgkins are rewarded for increasing the adjusted book value per Common Share over the three year period, adjusted for any Common Share dividends paid or provider withhold paid during the three-year period. The following is a summary of the results relative to these long term non-equity incentive compensation programs through December 31, 2018.

2008 – 2011 Period

The threshold level for the aggregate book value of Common Shares was not achieved for the four year period. Accordingly, no incentive compensation was paid to Mr. Cook.

2009 – 2012 Period

The threshold level for the aggregate book value of Common Shares was not achieved for the four year period. Accordingly, no incentive compensation was paid to Mr. Cook.

2010 – 2013 Period

The threshold level for the aggregate book value of Common Shares was not achieved for the four year period. Accordingly, no incentive compensation was paid to Mr. Cook.

2011 – 2014 Period

The maximum level for the aggregate book value of Common and Preferred Shares was achieved for the four year period. Mr. Cook received a payment related to this incentive compensation of $23,417 in March 2014 and $117,087 was paid to Mr. Cook in March 2015.

2014 – 2016 Period

For the 2014 – 2016 period, the performance metric was changed from the aggregate book value of the Common and Preferred Shares to the aggregate book value of the Common Shares. The maximum level for the aggregate book value of the Common Shares was achieved for the three year period. Mr. Cook received a payment of $181,350, and Mr. Hodgkins received a payment of $106,650 in March 2017.

2015 – 2017 Period

For the 2015– 2017 period, the performance metric was the aggregate book value of the Common Shares. The maximum level for the aggregate book value of the Common Shares was achieved for the three year period. Mr. Cook received receive a payment of $194,997, and Mr. Hodgkins received a payment of $111,499 in March 2018.

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2016 – 2018 Period

For the 2016 – 2018 period, the performance metric was the adjusted book value per Common Share. The adjusted book value achieved was between the target and maximum levels for the three year period. In 2018, the Company increased the bonus payable liability related to their long term incentive compensation arrangement for Mr. Cook by $21,350 and Mr. Hodgkins by $12,934. Mr. Cook will receive a payment of $94,518 and Mr. Hodgkins will receive a payment of $57,260 in March 2019. These amounts are included in the non-equity incentive compensation for Mr. Cook and Mr. Hodgkins in the Summary Compensation Table.

2017 – 2019 Period

For the 2017 – 2019 period, the performance metric was the adjusted book value per Common Share. At this time, the expected level for the adjusted book value per Common Share as of December 31, 2019 is the target level. Accordingly, the Company has established a compensation liability to Mr. Cook and to Mr. Hodgkins based on the target level of performance. If the target level is achieved as of December 31, 2019, the amount payable to Mr. Hodgkins will be $40,352. In 2018, the Company increased the bonus payable liability related to this long term incentive compensation arrangement for Mr. Cook by $22,075 and for Mr. Hodgkins by $13,451. These amounts are included in the non-equity incentive compensation for Mr. Cook and Mr. Hodgkins in the Summary Compensation Table. In December 2018, Mr. Cook resigned as President and CEO and he will receive a payment in the amount of $44,150 in March 2019.

2018 – 2020 Period

For the 2018 – 2020 period, the performance metric was the adjusted book value per Common Share. At this time, the expected level for the adjusted book value per Common Share as of December 31, 2020 is the target level. Accordingly, the Company has established a compensation liability to Mr. Cook and to Mr. Hodgkins based on the target level of performance. If the target level is achieved as of December 31, 2020, the amount payable to Mr. Hodgkins will be $41,563. In 2018, the Company increased the bonus payable liability related to this long term incentive compensation arrangement for Mr. Cook by $22,737 and for Mr. Hodgkins by $13,854. These amounts are included in the non-equity incentive compensation for Mr. Cook and Mr. Hodgkins in the Summary Compensation Table. In December 2018, Mr. Cook resigned as President and CEO and he will receive a payment in the amount of $22,737 in March 2019.

Long Term Non-Equity Retention Incentive Plan

In 2018, the Committee granted to the Named Executive Officers and other key employees a cash grant equal to 5% of each individual’s base salary. These grants were approved at the regularly scheduled meeting of the Committee which was held in December 2017 to be effective January 2, 2018. A Named Executive Officer or key employee must be a Company employee for more than one year before becoming eligible to receive these cash grants. These cash grants vest over the course of a four year period, with 10% vesting in year one, 20% vesting in year two, 30% vesting in year three and 40% vesting in year four. There are no performance criteria associated with the vesting of these cash grants. The only requirement for vesting is that the individual is an employee of the Company at the end of the applicable vesting year.

Management Equity Incentive Plan

Our Management Equity Incentive Plan is the primary vehicle for offering long-term incentive compensation. We also regard our Management Equity Incentive Plan as a key retention tool. With respect to long-term incentive awards, the Committee implemented the 2006 DCP Holding Company Management Equity Incentive Plan, as amended, which ties a portion of executive compensation to restricted share unit awards that increase in value with the value of the Company’s Common Shares.

Long Term Equity Retention Incentive Plan

Prior to 2018, the Committee granted to the Named Executive Officers and other key employees a number of restricted share units (“RSUs”) with a book value at the beginning of the year equal to approximately 5% of each individual’s base salary. These grants were approved at the regularly scheduled meeting of the Committee which was held in December to be effective January 2 of the following year. A Named Executive Officer or key employee must be a Company employee for more than one year before becoming eligible to receive RSU grants. These RSUs vested over the course of a four year period, with 10% vesting in year one, 20% vesting in year two, 30% vesting in year three and 40% vesting in year four. There are no performance criteria associated with the vesting of these RSUs. The only requirement for vesting is that the individual is an employee of the Company at the end of the applicable vesting year. For 2018, this Long Term Equity Retention Incentive Plan was converted to a Long Term Non-Equity Incentive Plan.

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Long Term Equity Incentive Plan

Mr. Cook’s employment contract for 2012 included a long term equity incentive arrangement for the period from 2012 through 2014 whereby Mr. Cook was awarded restricted share units (“RSUs”) in lieu of cash for achieving the Company’s long term performance objectives. In addition the Committee decided to extend this long term equity incentive plan to Mr. Hodgkins, the CFO. This long term equity incentive plan was approved by the Board of Directors in February 2012. The parameters of Mr. Cook’s and Mr. Hodgkins’s long term equity incentive arrangements for the period from 2012 through 2014 are shown below.

Level	Three Year Average % Increase in Adjusted Book Value of Common and Preferred Shares		Resultant Adjusted Book Value of the Company’s Common and Preferred Shares at 12/31/2014		Anthony Cook Restricted Share Units		Robert Hodgkins Restricted Share Units
Threshold		10%	$	8,326,110		25		15
Target		12%	$	8,788,569		76		46
Stretch		14%	$	9,267,843		127		77
Maximum		16%	$	9,764,232		229		139

The adjusted book value of the Company’s Common and Preferred Shares as of December 31, 2014 was $12,869,694. Given that the adjusted book value of the Common and Preferred Shares was greater than the maximum level shown above, the 229 RSUs awarded to Mr. Cook and the 139 RSUs awarded to Mr. Hodgkins associated with the maximum performance level were fully vested.

Mr. Cook’s employment contract for 2013 included a long term equity incentive arrangement for the period from 2013 through 2015 whereby Mr. Cook was awarded RSUs in lieu of cash for achieving the Company’s long term performance objectives. In addition the Committee decided to extend this long term equity incentive plan to Mr. Hodgkins, the CFO. This long term equity incentive plan was approved by the Board of Directors in February 2013. The parameters of Mr. Cook’s and Mr. Hodgkins’s long term equity incentive arrangements for the period from 2013 through 2015 are shown below.

Level	Three Year Average % Increase in Adjusted Book Value of Common and Preferred Shares		Resultant Adjusted Book Value of the Company’s Common and Preferred Shares at 12/31/2015		Anthony Cook Restricted Share Units		Robert Hodgkins Restricted Share Units
Threshold		10%	$	10,977,866		24		14
Target		12%	$	11,587,612		71		41
Stretch		14%	$	12,219,527		118		69
Maximum		16%	$	12,874,010		213		124

The adjusted book value of the Company’s Common and Preferred Shares as of December 31, 2015 was $14,467,962. Given that the adjusted book value of the Common and Preferred Shares was greater than the maximum level shown above, the 213 RSUs awarded to Mr. Cook and the 124 RSUs awarded to Mr. Hodgkins associated with the maximum performance level were now fully vested.

Deferred Compensation Plan

Because of the evolution of regulatory, tax and accounting treatment of equity incentive programs and because it is important to us to retain our named executive officers and other key employees, we determined that it is important to provide our executive officers and key employees with the ability to elect to receive their RSUs as deferred compensation in lieu of taxable restricted share awards. Accordingly, the Company has established the DCP Holding Company Deferred Compensation Plan. Under the terms of the deferred compensation plan, our executives and key employees can elect to defer a portion of their cash compensation and their granted RSUs as they vest. Because deferred cash compensation and deferred RSUs can appreciate in value on a tax-deferred basis, we believe that this is a more efficient way to reward them for and motivate them toward superior long-term performance.

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To measure the amount of our obligation to each participant under the plan, we maintain a separate bookkeeping record for each participant, which we refer to as an “account.” Participants may direct the investment of the portion of the account allocable to that participant in certain mutual funds, or the participant may direct the investment to our tracking shares. We then credit or debit the participant’s account with earnings or losses based upon the performance results of the notional investment options selected by the participant. The participant may change the allocation of his or her account among the investment alternatives then available under the plan.  For management employees, we pay deferred balances upon retirement, termination from employment, death or disability, or at a fixed date determined by the participant.  We pay deferred balances in cash. A Named Executive Officer or other key employee may defer receipt of Common Shares that otherwise would be issued on the date that RSUs vest until after the person has a separation from service or until a fixed future date. 

Perquisites

We limit the perquisites that we make available to our executives. Our executives are entitled to few benefits that are not otherwise available to all of our employees. In this regard it should be noted that we do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executives or employees.

The perquisites we provided in fiscal 2018 are as follows: The Named Executive Officers each received a monthly car allowance and Mr. Cook was authorized to be reimbursed for club membership fees.

Our health and insurance plans are the same for all employees. In general, our employees that have elected the high deductible health plan with the health saving account pay approximately 22% of the health premium due and receive employer health savings account contributions. Our employees who elect the traditional PPO health plan pay approximately 35% of the health premium due. Employees that elect to not participate in the Company’s health insurance plan receive a monthly health care cost allowance of $200.00. All employees who participated in our 401(k) plan received matching funds equal to 50% of the first 4% of their base salary that they elect to contribute into the 401(k) plan. All of our Named Executive Officers and other key employees participated in our 401(k) plan and received matching funds. All employees are allowed to receive cash for unused vacation time in accordance with the provisions of the Company’s Employee Handbook.

SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary ($)		Share Awards ($) (1)		Non-Equity Incentive Plan Compensation ($) (2)		All Other Compensation ($) (3)		Total ($)
Named Executive Officers
Anthony A. Cook (4) President & CEO	2018	$	454,745	$	0	$	186,570	$	15,327	$	656,642
	2017		441,500		22,191		245,135		19,116		727,942
	2016		427,000		20,234		383,220		26,905		857,359
Robert C. Hodgkins, Jr., Vice President & CFO	2018		277,084		0		157,493		16,574		451,151
	2017		269,014		13,315		144,786		16,342		443,457
	2016		258,677		12,141		209,337		16,228		496,383
Other Key Employees
Jodi M. Fronczek, Chief Operations Officer	2018		183,958		0		34,340		5,788		224,086
	2016		178,600		8,876		33,182		7,410		228,068
	2016		166,556		8,094		40,941		7,139		222,730

(1)

This table includes the aggregate grant date fair values of restricted share unit (“RSU”) awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 for 2018 and prior years.

(2)

The 2016 non-equity incentive plan compensation for Ms. Fronczek is equal to 18.7% of her base salary. The 2018 non-equity incentive plan compensation for Mr. Cook is equal to 31.1% of his base salary for the short term non-equity incentive plan portion and 9.9% of his base salary for the long term non-equity incentive plan portion. The 2015 non-equity incentive plan compensation for Mr. Hodgkins is equal to 25.7% of his base salary for the short term non-equity incentive plan portion and 25.5% of his base salary for the long term non-equity incentive plan portion. See “Short Term Non-Equity Incentive Compensation” and “Long Term Non-Equity Incentive Compensation” in Compensation Discussion and Analysis.

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(3)	For 2018 includes: Car allowances for: Anthony Cook, $6,000, and Robert Hodgkins, $6,000. Health care credits for: Anthony Cook, $2,645, Robert Hodgkins, $5,174, and Jodi Fronczek, $2,108. 401(k) matching contributions for: Anthony Cook, $0, Robert Hodgkins, $5,400, and Jodi Fronczek, $3,680. Club membership fees for: Anthony Cook, $6,682.
(4)	Mr. Cook resigned as President and CEO in December 2018.

GRANTS OF PLAN-BASED AWARDS

			Estimated Future Payouts Under Non-Equity Incentive Plan Awards						Estimated Future Payouts Under Equity Incentive Plan Awards
Name	Board Approval Date	Grant Date	Threshold ($)		Target ($)(1)		Maximum ($)		Threshold ($)	Target ($)	Maximum ($)	Grant Date Fair Value of Share Award ($)
Anthony A. Cook, President and Chief Executive Officer	12/13/17	1/2/2018				22,825
	2/14/2018			45,475		68,212		113,687
	12/12/18			—		—		—
Robert C. Hodgkins, Jr., Vice President and Chief Financial Officer	12/13/2017	1/2/2018				13,908
	2/14/2018			27,708		41,563		69,271
	12/12/18			52,500		105,000		210,000
Jodi M. Fronczek Chief Operations Officer	12/13/2017	1/2/2018				9,198
	12/12/2018			18,396		33,112		62,546

(1) On December 13, 2017, the long term non-equity retention incentive plan cash grants were awarded by the Board of Directors. The target amounts for these long term non-equity retention incentive plan cash grants were established at 5% of the 2018 base salaries of Mr. Cook, Mr. Hodgkins and Ms. Fronczek of $454,745, $277,084 and $183,958, respectively. These cash grants vest 10%, 20%, 30% and 40% in 2018, 2019, 2020 and 2021, respectively.    The long term non-equity incentive compensation plans for Mr. Cook and Mr. Hodgkins for the three year period from 2018 – 2020 were approved on February 14, 2018. The target amounts for this long term non-equity incentive compensation plan were established at 15% of the 2018 base salaries of Mr. Cook and Mr. Hodgkins of $454,745 and $277,084, respectively. The long term non-equity incentive compensation is based on the growth in the adjusted book value per Common Share from January 1, 2018 through December 31, 2020.    On December 12, 2018, the short term non-equity incentive plan compensation target amount was established at 30% of his fiscal 2019 base salary for Mr. Hodgkins and 18% of her fiscal 2019 base salary for Ms. Fronczek. These performance target levels correspond to our achievement of 103% of operating revenue and 103% of net operating income as set forth in our financial plan for fiscal 2019. Mr. Cook’s part-time employment agreement for 2019 does not include a short-term non-equity incentive plan.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

	Restricted Share Unit Awards
Name	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)(1)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Anthony A. Cook, President & CEO		22.0	$	29,801
Robert C. Hodgkins, Jr., Vice President & CFO		13.2		17,880
Jodi M. Fronczek, Chief Operations Officer		8.8		11,920

(1) Reflects the number of granted and unvested restricted share units (“RSUs”) at December 31, 2018 under the Retention Incentive Plan. Anthony A. Cook Retention Incentive Plan 2016 grant, 8.0 RSUs unvested; 2017 grant, 14.0 RSUs unvested; The RSUs were forfeited when Mr. Cook, resigned as President and CEO.   Robert C. Hodgkins, Jr.  Retention Incentive Plan 2016 grant, 4.8 RSUs unvested; 2017 grant, 8.4 RSUs unvested   Jodi M. Fronczek Retention Incentive Plan 2016 grant, 4.8 RSUs unvested; 2017 grant, 8.4 RSUs unvested

(2) The values of the granted and unvested RSUs are based on the book value of a Class B Common Share at December 31, 2018 of $1,354.57. Depending on the Company’s performance, the book value will be different at the time of vesting. For example, the book value of the Class B Common Share was $701.78, $815.27, $894.29, $996.53, $1,011.72, $1,109.56, and $1,210.29 on December 31, 2012, December 31, 2013, December 31, 2014, December 31, 2015, December 31, 2016, and December 31, 2017, respectively.

OPTIONS EXERCISES AND RESTRICTED SHARE UNITS VESTED

	Restricted Share Unit Awards
Name	Number of RSUs Acquired on Vesting (#)(1)		Value Realized on Vesting ($) (2)
Anthony A. Cook,
President & CEO		18.4	$	24,924
Robert C. Hodgkins, Jr.,
Vice President & CFO		11.2		15,171
Jodi M. Fronczek,
Chief Operations Officer		6.8		9,211

(1)	All RSUs acquired on vesting were deferred by the named individuals shown when granted.
(2)	The values of the granted and vested restricted share units (“RSUs”) are based on the book value of a Class B Common Share at December 31, 2018 of $1,354.57.

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Post-Employment Compensation

Pension Benefits

We do not provide pension arrangements or post-retirement health coverage for our executives or employees. Our executive officers are eligible to participate in our 401(k) contributory defined contribution plan. In any plan year, we will contribute to each participant a matching contribution equal to 50% of the first 4% of the participant’s compensation that has been contributed to the plan. All Named Executive Officers and other key employees participated in our 401(k) plan during fiscal 2018 and received matching contributions.

Non-Qualified Deferred Compensation

		Executive		Registrant		Aggregate					Aggregate
		Contributions		Contributions in		Earnings in			Aggregate		Balance at Last
		in Last Fiscal		Last Fiscal		Last Fiscal			Withdrawals/		Fiscal
Name and Principal Position		Year-End (3)		Year-End		Year-End			Distributions		Year-End (3)
Anthony A. Cook,	Cash (1)	$	40,985	$	—	$	(15,309	)	$	—	$	671,105
President and Chief Executive Officer	RSUs (2)		24,924		—		100,345			—		967,011
Robert C. Hodgkins, Jr.,	Cash (1)		40,026		—		825			—		220,582
Vice President and Chief Financial Officer	RSUs (2)		15,171		—		61,784			—		595,231
Jodi M. Fronczek,	Cash (1)		4,539		—		—			—		4,539
Chief Operations Officer	RSUs (2)		9,211		—		8,590			—		130,869

(1)	Includes salary and bonus compensation deferred at the election of the Named Executive Officers and other key employees.
(2)	Includes granted RSUs that vested in 2018 at the December 31, 2018 book value of $1,354.57 and the increase in the value of vested RSUs in 2018. The terms of the Company’s deferred compensation plan are discussed in Compensation Discussion & Analysis. The value of the RSU accounts is determined based on the value of the Company’s common shares on the date of valuation. Therefore, the value of these accounts will vary with the changes in value of the commons shares.
(3)	The following table provides additional detail on amounts that are reported in the Nonqualified Deferred Compensation table above and that also are reported as compensation in the Summary Compensation Table of this proxy statement:

Name	Amounts Included as Contributions and Earnings in Nonqualified Deferred Compensation in Fiscal 2018 Table and as Fiscal 2018 Compensation in the Summary Compensation Table (1)		Amount Included in Aggregate Balance at December 31, 2018 in Nonqualified Deferred Compensation Table and Reported in the Summary Compensation Table for Prior Years (2)
Anthony A. Cook
Cash	$	40,985	$	645,429
Deferred RSUs	$	0	$	401,520
Robert C. Hodgkins, Jr.
Cash	$	128,265	$	179,731
Deferred RSUs	$	0	$	246,607
Jodi M. Fronczek
Cash	$	4,539
Deferred RSUs	$	0	$	49,560

(1)	Amounts include the cash compensation deferred by Anthony A. Cook and Robert C. Hodgkins, Jr. in 2018 that was invested in certain mutual funds and 10% of retention cash award granted in 2018 to Anthony A. Cook, Robert C. Hodgkins, Jr. and Jodi Fronczek that also vested in 2018.
(2)	Amounts include the cash compensation deferred by Anthony A. Cook and Robert Hodgkins prior to 2018 that was invested in certain mutual funds and the portion of the RSU deferred compensation associated with RSUs that were granted prior to 2018 to Anthony A. Cook, Robert C. Hodgkins, Jr. and Jodi Fronczek.

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Other Post-Employment Payments

In 2018, all of our employees are employees-at-will and as such do not have employment agreements with us, except in the case of Anthony A. Cook, President and Chief Executive Officer, and Robert C. Hodgkins, Jr., Vice President and Chief Financial Officer. We also do not provide post-employment health coverage or other benefits; provided, however, upon termination of employment each Named Executive Officer is entitled to a lump sum payment for unused vacation time based on the Named Executive Officer’s current salary.

Employment Agreements

In February 2018, we executed a Thirteenth Amended and Restated Employment Agreement with Anthony A. Cook for the year from January 1, 2018 through December 31, 2018 that is automatically extended for additional one year periods on the same terms and conditions unless on or prior to November 15^th of any year the Company or Mr. Cook provides written notice to the other party of termination of the Employment Agreement at the end of the current one-year term. In 2018, Mr. Cook provided written notice to the Chairman of the Board of Directors that he would not be renewing his employment agreement for 2019. In December 2018, Mr. Cook and the Chairman of the Board executed a part-time employment agreement whereby Mr. Cook works part-time on a month-to-month basis with no employee benefits.

If a termination of the employment of Mr. Cook without good cause, or change in control, had occurred as of December 31, 2018, we estimate that the value of the benefits under his employment agreement and our management equity incentive plan (as discussed below) would have been as follows:

Name	Severance Pay (1)		Continuation of Benefits (2)		Accelerated Vesting of RSUs (3)		Potential LTIC Cash Payment (4)		Total
Anthony A. Cook, President & CEO	$	1,630,655	$	35,269	$	29,801	$	217,125	$	2,045,268

(1)	In the event that the Company terminates Mr. Cook's employment agreement without good cause, or Mr. Cook terminates his employment agreement for good reason, such as a material breach by the Company of any provision of the agreement or if Mr. Cook is assigned duties that are materially inconsistent with his skill, position, and background, Mr. Cook is entitled to severance pay. Mr. Cook is also entitled to severance pay in the event of a change of control. A "change of control" means: (a) a change in the majority of the members of the Board of Directors, unless pursuant to the recommendation of the Corporate Affairs Committee of the Board; (b) the acquisition of the Company by another corporation or entity and (c) the sale, lease or other disposition of all or substantially all of the assets of the Company. In accordance with Mr. Cook’s 2018 employment agreement, his severance pay includes his 2018 annual salary of $454,745, his bonus potential for the 2018 fiscal year of $141,480, and payment related to his vested RSUs of $1,034,430 (valued at December 31, 2018 book value of the Common Shares).
(2)	Also in accordance with Mr. Cook’s 2018 employment agreement, continuation of benefits is based on continuation of 401(k) match, all medical, dental, vision and disability benefits, and payment of accrued vacation time as of December 31, 2018.
(3)	Under our management equity incentive plan, on the date a change of control occurs, the restrictions applicable to all RSUs lapse and these awards fully vest. If a change of control had occurred on December 31, 2018, Mr. Cook would have received accelerated vesting with respect to 22.0 unvested RSUs, with a value of $29,801. The value for accelerated vesting of RSUs is determined by multiplying the per share book value of our common shares on December 31, 2018 of $1,354.57 by the number of RSUs as to which vesting would accelerate.
(4)	Under Mr. Cook’s 2017 employment agreement, in the event of a change in control, the adjusted book value per Common Share at December 31, 2018 shall be deemed the portion of the enterprise value of the Company allocated to Common Shares divided by the total number of Common Shares outstanding. If this amount is equal to or greater than $1,643.86, Mr. Cook would receive a cash payment of $110,375.
	Under Mr. Cook’s 2018 employment agreement, in the event of a change in control, the adjusted book value per Common Share at December 31, 2018 shall be deemed the portion of the enterprise value of the company allocated to Common Shares divided by the total number of Common Shares outstanding. If this amount is equal to or greater than $1,793.10, Mr. Cook would receive a cash payment of $113,687.

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In February 2018, we executed the Third Amended and Restated Employment Agreement with Robert C. Hodgkins, Jr. for the year from January 1, 2018 through December 31, 2018 that is automatically extended for additional one year periods on the same terms and conditions unless on or prior to November 15^th of any year the Company or Mr. Hodgkins provides written notice to the other party of termination of the Employment Agreement at the end of the current one-year term. This agreement provides for certain benefits upon an involuntary termination of employment, other than for cause. In the event that the Company is sold, transferred and/or merged with another entity, it will be not be deemed an event of good cause to terminate Mr. Hodgkins. The benefits to be received by Mr. Hodgkins whose employment is terminated without good cause include: receipt of a severance pay for up to 12 months at Mr. Hodgkins’s then current monthly salary, eligibility to receive a bonus based on up to 25% of the severance pay amount, and continuation of health, life and disability benefits for eight months after the termination of employment.

If a termination of the employment of Mr. Hodgkins without good cause, or change in control, had occurred as of December 31, 2018, we estimate that the value of the benefits under his employment agreement and our management equity incentive plan (as discussed below) would have been as follows:

Name	Severance Pay (1)		Continuation of Benefits (2)		Accelerated Vesting of RSUs (3)		Potential LTIC Cash Payment (4)		Total
Robert C. Hodgkins, Jr., Vice President & CFO	$	989,574	$	68,834	$	17,880	$	131,924	$	1,264,356

(1)	In the event that the Company terminates Mr. Hodgkins's employment agreement without good cause, or Mr. Hodgkins terminates his employment agreement for good reason, such as a material breach by the Company of any provision of the agreement or if Mr. Hodgkins is assigned duties that are materially inconsistent with his skill, position, and background, Mr. Hodgkins is entitled to severance pay. Mr. Hodgkins is also entitled to severance pay in the event of a change of control. A "change of control" means: (a) a change in the majority of the members of the Board of Directors, unless pursuant to the recommendation of the Corporate Affairs Committee of the Board; (b) the acquisition of the Company by another corporation or entity and (c) the sale, lease or other disposition of all or substantially all of the assets of the Company. In accordance with Mr. Hodgkins’s employment agreement, severance pay is based on his 2018 base salary, bonus potential for the 2018 fiscal year and payment related to his vested RSUs(valued at December 31, 2018 book value of the Common Shares).
(2)	Also in accordance with Mr. Hodgkins’s 2018 employment agreement, continuation of benefits is based on continuation of 401(k) match, all medical, dental, vision and disability benefits, and payment of accrued vacation time as of December 31, 2018.
(3)	Under our management equity incentive plan, on the date a change of control occurs, the restrictions applicable to all RSUs lapse and these awards fully vest. If a change of control had occurred on December 31, 2017, Mr. Hodgkins would have received accelerated vesting with respect to 13.2 unvested RSUs, with a value of $17,880. The value for accelerated vesting of RSUs is determined by multiplying the per share book value of our common shares on December 31, 2018 of $1,354.57 by the number of RSUs as to which vesting would accelerate.
(4)	Under Mr. Hodgkins’s 2017 employment agreement, in the event of a change in control, the adjusted book value per Common Share at December 31, 2018 shall be deemed the portion of the enterprise value of the Company allocated to Common Shares divided by the total number of Common Shares outstanding. If this amount is equal to or greater than $1,643.86, Mr. Hodgkins would receive a cash payment of $67,254.
	Under Mr. Hodgkins’s 2018 employment agreement, in the event of a change in control, the adjusted book value per Common Share at December 31, 2018 shall be deemed the portion of the enterprise value of the company allocated to Common Shares divided by the total number of Common Shares outstanding. If this amount is equal to or greater than $1,793.10, Mr. Hodgkins would receive a cash payment of $69,271.

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Payments on Change of Control

In addition to the payments on termination of employment and change of control for Mr. Cook and Mr. Hodgkins discussed above, our other key employee is entitled to certain benefits on a change of control. 

Definition of Change of Control.    Under our management equity incentive plan, a “change of control” means any of the following:

• the acquisition by any entity of beneficial ownership of 50% or more of the combined voting power of our then-outstanding voting securities (other than any acquisition directly from us or any of our affiliates or employee benefit plans); or

• during any period of 24 consecutive months, a change in a majority of the members of our Board, other than directors approved by a vote of at least a two-thirds of the incumbent directors ; or

• the occurrence of any transaction requiring shareholder approval for the acquisition of the Company or DCP (other than by us, DCP, or any other affiliate) through purchase of assets, by merger, or otherwise; or

• our shareholders approve the complete liquidation or dissolution of the Company or DCP.

Payments on Change of Control.    Under our management equity incentive plan, on the date a change of control occurs, the restrictions applicable to all RSUs lapse and these awards fully vest. If a change of control had occurred on December 31, 2018, our other key employee would have received the following benefits with respect to unvested RSUs, with such value for the accelerated vesting of the RSUs determined by multiplying the per share book value of our common shares on December 31, 2018 by the number of RSUs as to which vesting accelerated:  Jodi M. Fronczek, 8.8 unvested RSUs, with a value of $11,920.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)
Stephen T. Schuler, DMD,
Chairman of the Board	$	87,660
Ronald L. Poulos, DDS,
Vice Chairman of the Board		46,800
Michael J. Carl, DDS,
Treasurer		46,800
David A. Kreyling, DMD
Secretary		46,800
James E. Kroeger, MBA, CPA		65,004
Jack M. Cook, MHA		49,404
James T. Foley		58,500
Donald J. Peak, CPA		51,996
Fred H. Peck, DDS		49,404
Molly Meakin- Rogers, MBA, CPA		46,800

Overview of Director Compensation and Procedures

Director compensation is the responsibility of the Corporate Affairs Committee (the “Committee”). The director compensation objectives and principles established by the Committee are that: (1) directors should be appropriately compensated for their time and effort; and (2) director compensation should be approached on an overall basis, should motivate behavior and be aligned with the long-term interest of the shareholders. The Committee reviews the level of compensation of our directors every two years. To determine how appropriate the current level of compensation for our directors is, we have historically obtained data from a number of different sources including:

• publicly available survey data describing director compensation ranges for reporting companies;

• information obtained from the National Association of Corporate Directors.

 The Committee has determined that the compensation of our directors for 2016 is within the bottom quartile of the compensation of directors of companies of comparable size in our industry based upon these sources.

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Director Compensation

We compensated non-employee members of the Board with cash compensation. For 2018, each non-employee member of the Board received total compensation of $46,800, with the exception of the individuals who serviced as Chairmen or served on the Special Committee. The Chairman of the Board received $71,760, the Chairman of the Audit Committee received $57,204, the Chairman of the Finance Committee received $51,996, the Chairmen of the Corporate Affairs Committee and the Clinical Affairs Committee both received $49,404. In 2018, Stephen T. Schuler, DMD, James T. Foley and James E. Kroeger served on the Special committee and received additional compensation in the amount of $15,900, $11,700 and $7,800 respectively.

      Our directors may defer receipt of some or all of their annual fees earned under The DCP Holding Company / Dental Care Plus, Inc. Deferred Compensation Plan (the “Plan”). Under this Plan, directors may either invest deferred compensation in DCP Holding Company stock equivalents or in a tax-managed mutual fund.

Compensation Committee Interlocks and Insider Participation

Our Corporate Affairs Committee currently consists of Jack M. Cook, MHA, James T. Foley, David A. Kreyling, DMD, Ronald L. Poulos, DDS, and Stephen T. Schuler, DMD. No interlocking relationship exists between any member of our Board of Directors or Corporate Affairs Committee and any member of the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Corporate Affairs Committee is or was formerly an officer or an employee of DCP Holding Company.

2018 CEO Pay Ratio

Our CEO Pay Ratio was calculated in compliance with the requirements set forth in Item 402(u) of Regulation S-K. In 2018, we identified the median employee by examining the annual total compensation for all of our associates, excluding our CEO, who were employed by us on December 31, 2018. We included all associates, whether employed on a full-time, part-time or temporary basis. To determine the median employee, we calculated the total annual compensation for each of our 95 associates. Using the identified median employee, we calculated that employee’s annual total compensation, including any perquisites and other benefits, in the same manner that we determine the annual total compensation of our named executive officers for purposes of the Summary Compensation Table disclosed above.

The total annual compensation calculated for our CEO was $656,642 and for our median employee was $62,947. The resulting ratio for our CEO’s pay compared with the pay of our median employee for 2018 is 10 to 1.

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the beneficial ownership of the Common Shares of DCP Holding Company as of March 22, 2019 for the following: (1) each of our Named Executive Officers; (2) each of our directors; and (3) our directors and executive officers as a group. No person beneficially owns more than 5% of DCP Holding Company’s Common Shares.

	Number of Common Shares Beneficially Owned		Percent of Common Shares Owned
NAME OF BENEFICIAL OWNER
Michael J. Carl		137		1.09%
Jack M. Cook		163		1.30%
James T. Foley		119		*
David A. Kreyling		137		1.09%
James E. Kroeger		137		1.09%
Donald J. Peak		137		1.09%
Fred H. Peck		137		1.09%
Ronald L. Poulos		82		*
Molly M. Rogers		211		1.68%
Stephen T. Schuler		200		1.59%
Anthony A. Cook		0		*
Robert C. Hodgkins, Jr.		0		*
Directors / Officers as a group		1,668		13.27%

*     Less than one percent (1%)     

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Review, Approval or Ratification of Transactions with Related Persons

A related party transaction is a transaction required to be disclosed pursuant to Item 404 of Regulation S-K or any other similar transaction involving (i) the Company and the Company’s subsidiaries and (ii) any Company employee, officer, director (including a nominee), 5% shareholder or an immediate family member of any of the foregoing without regard to the dollar amount involved.

It is also the policy of the Company that a related party transaction as defined above will not be prohibited merely because it is required to be disclosed or because it involves related parties. Instead, it must be disclosed in advance to the Company and then may be approved by the Corporate Affairs Committee or, under certain circumstances, by the Board of Directors, if it does not present any improper conflicts of interest.

The Corporate Affairs Committee of the Board of Directors is responsible for applying the Company’s policies and procedures relative to related party transactions. The Audit Committee has been assigned the responsibility of monitoring potential related party transactions and reporting them to the Corporate Affairs Committee. The development of the Company’s policies and procedures relative to related party transactions and the Company’s adherence to these policies are documented in the meeting minutes of the Board of Directors and the Corporate Affairs and Audit Committees.

Transactions with Related Persons

Five members of the Company’s Board of Directors are participating providers in the Company’s dental plans. One dentist director, Ronald Poulos, received claims payments of $468,316 in 2018. The payments made to Dr. Poulos were for dentist claims that he submitted as a participating dentist in the Company’s dental plans and were made on the same terms as those applicable to other participating dentists. The five dentist directors combined received claims payments of $244,632 in the aggregate in 2018.

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Director and Executive Officer Agreements and Compensation

See the sections titled “Director Compensation” and “Executive Compensation” for more information regarding compensation of our directors and executive officers.

Employment Agreements

We have entered into employment agreements with our executive officers. For more information regarding these agreements, see the section titled “Executive Compensation” below.

Independence of the Board of Directors

Our Board of Directors has determined that each of the following members is an “independent director” as defined by the listing standards of The Nasdaq Stock Market: Jack M. Cook, James T. Foley, James E. Kroeger, Donald J. Peak, and Molly M. Rogers. The following directors are not an “independent director” as defined by the listing standards of The Nasdaq Stock Market due to their status as a participating provider with Dental Care Plus, Inc. or status as an employee of the Company: Michael Carl, David A. Kreyling, Fred H. Peck, Ronald L. Poulos, and Stephen T. Schuler.

ITEM 14. Principal Accountant Fees and Services

The following table sets forth the fees paid or accrued by us for services provided by Deloitte & Touche LLP, our independent registered public accounting firm, for each of our last two fiscal years:

	Fiscal Years Ended
	2017		2018
Audit Fees (1)	$	320,250	$	364,500
Audit Related Fees (2)		65,028		75,028
Tax Compliance and Consulting Fees		—		—
All Other Fees		—		—
Total	$	385,278	$	439,528

(1) Includes professional services rendered for audits of the Company’s consolidated financial statements and a statutory audit of our insurance subsidiary.

(2) Includes assurance and related services such as the 2018 service organization report (under SSAE 16), and technical consultations, consents and reviews of reports filed with the SEC.

 Audit Committee Pre-Approval Policies and Procedures

The Audit Committee’s policy is to pre-approve all audit and non-audit services by category, including audit-related services, tax services and other permitted non-audit services, if any, to be provided by the independent registered public accounting firm to the Company. In accordance with the policy, the Audit Committee regularly reviews and receives updates on specific services provided by the independent registered public accounting firm.

All services rendered by Deloitte & Touche LLP to the Company are permissible under applicable laws and regulations. During 2018, all services performed by Deloitte & Touche LLP were approved by the Audit Committee in accordance with the Committee’s pre-approval policy.

We have not selected our independent registered public accounting firm for 2019. The Audit Committee of the Board of Directors will make this selection later in the year after the completion of all 2018 related procedures.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Form 10-K.

Page in Form 10-K

(1) Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	32
Consolidated Balance Sheets as of December 31, 2018 and 2017	33
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017, and 2016	34
Consolidated Statements of Redeemable Shares and Shareholders’ Equity for the Years Ended December 31, 2018, 2017, and 2016	35
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016	36
Notes to the Consolidated Financial Statements	37
(2) Financial Statement Schedules:
Schedule I- Summary of Investments - Other than Investments in Related Parties as of December 31, 2018	77
Schedule II-Condensed Balance Sheets of Parent Company as of December 31, 2018 and 2017	78
Schedule II-Condensed Statements of Comprehensive Income of Parent Company for the Years Ended December 31, 2018, 2017, and 2016	79
Schedule II-Condensed Statements of Cash Flows of the Parent Company for the Years Ended December 31, 2018, 2017, and 2016	80
Schedule II-Notes to Condensed Financial Statements	81
Schedule III-Supplementary Insurance Information for the Years Ended December 31, 2018, 2017, and 2016	82
Schedule IV-Reinsurance for the Years Ended December 31, 2018, 2017 and 2016	83
Schedule V-Valuation and Qualifying Accounts for the Years Ended December 31, 2018, 2017, and 2016	83
(3) Exhibits:
See the List of Exhibits on the Index to Exhibits following the signature page.

(b) The exhibits listed on the Index to Exhibits are filed as part of or incorporated by reference into this report.

DCP Holding Company and subsidiaries

Schedule  I - Summary of Investments -

 Other than Investments in Related Parties 

At December 31, 2018

(amounts in thousands)

Type of Investment	Amortized Cost		Fair Value		Balance Sheet
Fixed Maturities:
Bonds:
All other corporate bonds	$	8,453	$	8,201	$	8,201
Certificates of deposit		500		500		500
Total Fixed Maturities	$	8,953	$	8,701	$	8,701
Other Short-Term Investments:
Certificates of deposit	$	400	$	401	$	401
Money Market Fund		454		454		454
Total Short-Term Investments	$	854	$	855	$	855
Total Investments	$	9,807	$	9,556	$	9,556

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DCP HOLDING COMPANY (Parent Only)

Schedule II - Condensed Financial Information of Registrant

Condensed Balance Sheets

As of December 31, 2018 and 2017

	2018		2017
ASSETS
INVESTMENTS	$	1,500,711	$	1,502,159
CASH AND CASH EQUIVALENTS		1,336,384		2,106,093
ACCRUED INVESTMENT INCOME		15,347		16,574
INTERCOMPANY RECEIVABLES		1,581,807
INTERCOMPANY NOTE RECEIVABLE		80,000		80,000
PROPERTY		1,824,500		1,892,564
INVESTMENT IN SUBSIDIARIES		16,637,508		16,013,535
DEFERRED INCOME TAX		1,239,637		1,197,612
OTHER ASSETS		1,755,560		1,563,982
TOTAL ASSETS	$	25,971,454	$	24,372,519
LIABILITIES, REEDEMABLE SHARES, AND SHAREHOLDERS’ EQUITY
OTHER PAYABLES AND ACCRUALS	$	2,661,235	$	2,609,127
INTERCOMPANY PAYABLES				204,478
MORTGAGE LOAN PAYABLE		1,040,000		1,095,200
DEFERRED COMPENSATION		5,248,656		4,821,982
TOTAL LIABILITIES		8,949,891		8,730,787
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SHARES:
Class A, Redeemable Common Shares, no par value—authorized, 7,500 shares; issued and outstanding, 491 and 500 shares at December 31, 2018 and 2017, respectively		665,095		605,143
Class B Redeemable Common Shares, no par value—authorized, 120,000 shares; issued and outstanding, 8,554 and 8,653 shares at December 31, 2018 and 2017, respectively		11,587,017		10,472,602
Class C Redeemable Common Shares, no par value—authorized, 80,000 shares; issued and outstanding, 3,521 and 3,771 shares at December 31, 2018 and 2017, respectively		4,769,451		4,563,987
Class D Redeemable Common Shares, no par value—authorized, 100,000 shares; issued none
Provider Preferred-2009 Series Redeemable Preferred Shares, no par value, cumulative 5% dividend—authorized, 5,000 shares; issued none
Total redeemable preferred and common shares		17,021,563		15,641,732
SHAREHOLDERS’ EQUITY—Preferred Shares; no par value—authorized, 92,700 shares; issued, none
TOTAL LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY	$	25,971,454	$	24,372,519

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8, Page 33 and the notes to the Condensed Financial Statements.

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DCP HOLDING COMPANY (Parent Only)

Schedule II - Condensed Financial Information of Registrant

Condensed Statements of Comprehensive Income

For the Years ended December 31, 2018, 2017 and 2016

	2018			2017			2016
REVENUES
Management fees from subsidiaries	$	14,676,749		$	13,750,044		$	13,358,327
Investment income		60,342			54,731			61,486
Realized (losses) gains on investments, net		(118,165	)		216,128			771
Administrative fees		1,190,762			928,446			939,849
Total revenues		15,809,688			14,949,349			14,360,433
EXPENSES
Insurance expense:
Salaries and benefit expense		9,622,522			9,344,355			9,151,483
Other insurance expense		5,743,704			5,398,489			5,161,794
Total expenses		15,366,226			14,742,844			14,313,277
INCOME BEFORE INCOME TAX		443,462			206,505			47,156
PROVISION (BENEFIT) FOR INCOME TAX:
Current		127,002			388,500			347,948
Deferred		(33,431	)		392,735			(310,054	)
Total		93,571			781,235			37,894
Income before undistributed income of subsidiaries		349,891			(574,730	)		9,262
Undistributed income of subsidiaries		2,207,180			2,404,164			1,979,909
NET INCOME	$	2,557,071		$	1,829,434		$	1,989,171
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Change in the fair value of investments		(172,185	)		36,996			9,491
Reclassification adjustment for gains included in undistributed income		6,283			(21,893	)		(49,551	)
Total other comprehensive income held by subsidaries		(165,902	)		15,103			(40,060	)
Change in the fair value of interest rate swap		7,885			9,043			7,471
Change in the fair value of investments		(42,499	)		6,870			23,882
Reclassification adjustment for losses		2,279			(12,504	)		30,118
TOTAL COMPREHENSIVE INCOME	$	2,358,834		$	1,847,946		$	2,010,582

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8, Page 32 and the notes to the Condensed Financial Statements.

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DCP HOLDING COMPANY (Parent Only)

Schedule II - Condensed Financial Information of Registrant

Condensed Statements of Cash Flows

For the Years ended December 31, 2018, 2017 and 2016

	2018			2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,557,071		$	1,829,434		$	1,989,172
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		130,010			143,057			108,917
Loss on disposal of property		16,990
Realized losses (gains) on investments,net		118,165			(216,128	)		(771	)
Undistributed income of subsidiaries		(2,207,180	)		(2,404,164	)		(1,979,910	)
Deferred income taxes benefit		(33,431	)		392,735			(310,054	)
Deferred compensation		426,674			988,378			994,708
Effects of changes in operating assets and liabilities:
Accrued investment income		1,227			(2,301	)		1,654
Intercompany accounts receivable		(111,807	)		279,567			(7,478	)
Intercompany accounts payable		(204,478	)		204,478
Other assets		(296,308	)		(192,451	)		(143,868	)
Other payables and accruals		(288,813	)		159,023			495,981
Net cash provided by operating activities		108,120			1,181,628			1,148,351
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments		(395,348	)		(1,028,229	)		(834,738	)
Sale and maturities of investments		337,237			982,876			829,806
Acquisition of property and equipment		(73,741	)		(380,071	)
Investment in subsidiary					(500,000	)		(500,000	)
Subsidiary dividends					200,000			200,000
Net cash used in investing activities		(131,852	)		(725,424	)		(304,932	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage loan repayments		(55,200	)		(52,800	)		(50,400	)
Repurchase of redeemable common shares		(120,447	)		(182,107	)		(275,773	)
Repurchase of redeemable preferred shares								(2,805,064	)
Redeemable shares issued								2,280,066
Extinguishment cost of redeemable preferred shares								(118,800	)
Issuance cost of redeemable shares								(116,833	)
Repayment of intercompany loan from subsidiary					150,000
Dividends paid		(570,330	)		(547,443	)		(510,413	)
Net cash used in by financing activities		(745,977	)		(632,350	)		(1,597,217	)
DECREASE INCREASE IN CASH		(769,709	)		(176,146	)		(753,798	)
CASH AND CASH EQUIVALENTS—Beginning of year		2,106,093			2,282,239			3,036,037
CASH AND CASH EQUIVALENTS—End of year	$	1,336,384		$	2,106,093		$	2,282,239
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	42,300		$	46,600		$	46,500
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Redeemed common shares (in other payables and accruals)	$	352,792		$	11,871		$	25,443

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8, Page 32 and the notes to the Condensed Financial Statements.

80

SCHEDULE II - PARENT COMPANY FINANCIAL INFORMATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Parent company financial information has been derived from our consolidated financial statements and excludes the accounts of all operating subsidiaries. This information should be read in conjunction with our consolidated financial statements.

Parent company maintains its investment in all subsidiaries on the equity method. The investment in subsidiary is adjusted for the changes in other comprehensive income from the subsidiaries.

2. TRANSACTIONS WITH SUBSIDIARIES

Management Fee

Through intercompany service agreements approved, if required, by state regulatory agencies, our parent company charges a management fee for reimbursement of certain centralized services provided to its subsidiaries including information systems, investment and cash administration, marketing, legal, finance, executive management oversight and other operating expenses.

Salaries and benefit expense

Salary and benefit expense includes dental benefit expense of approximately $140,000, $138,000, and $134,000, for the years ended December 31, 2018, 2017 and 2016, respectively. These amounts eliminate in consolidation.

Investments in subsidiaries and dividends

In 2018, Dental Care Plus, Inc. declared a dividend in the amount of $1,470,000 payable in January 2019. In 2017 and 2016, the parent company received a dividend from the Adenta, Inc. subsidiary in the amount of $200,000.

There were no investment in subsidiaries in 2018. In 2017 and 2016, the parent company advanced $500,000 into Dental Care Plus, Inc.

Federal Income Tax Arrangement

The parent company has an income tax allocation arrangement with its subsidiaries. DCP makes federal tax payments on behalf of the Company. DCP paid approximately $1,112,000, $1,376,000, and $1,429,000, for the years ended December 31, 2018, 2017, and 2016. The Company’s policy is to settle this intercompany receivable within 30 days of the filing of its consolidated income tax return.

There were no additional investment in subsidiaries in 2018 and 2017.

Reconciliation of Investment in Subsidiaries
	2018			2017
Investment in Subsidiaries—January 1	$	16,013,535		$	13,294,165
Undistributed income of subsidiaries		2,207,180			2,404,164
Total other comprehensive income held by subsidiaries		(165,902	)		15,206
Cumulative effect on change in accounting principle		52,695
Dividends from subsidiaries		(1,470,000	)		(200,000	)
Investment in subsidiaries					500,000
Increase in Investment in Subsidiary		623,973			2,719,370
Investment in Subsidiaries—December 31	$	16,637,508		$	16,013,535

81

DCP HOLDING COMPANY AND SUBSIDIARIES

Schedule III - Supplementary Insurance Information

For each of the Three Years in the Period ended December 31, 2018

(amounts in thousands)

	2018		2017		2016
Deferred policy acquisition cost (a)	$	2,434	$	2,637	$	3,109
Claims payable (a)	$	2,613	$	3,576	$	3,744
Unearned premium (a)	$	33,149	$	36,818	$	46,955
Other policy claims and benefits payable (a)	$	3,943	$	3,850	$	4,299
Premium revenues
Fully-insured dental HMO/ Indemnity	$	50,710	$	51,419	$	53,393
Fully-insured dental PPO		28,658		25,936		22,363
Self-insured dental		31,868		29,427		29,067
Corporate, All Other		1,078		807		771
	$	112,314	$	107,589	$	105,594
Investment income (a)	$	333	$	265	$	274
Future policy benefits, losses, claims and expense losses
Fully-insured dental HMO/ Indemnity	$	37,785	$	38,522	$	39,995
Fully-insured dental PPO		18,844		17,721		15,391
Self-insured dental		27,442		25,365		25,114
	$	84,071	$	81,608	$	80,500
Amortization of deferred policy acquisition cost (a)	$	5,448	$	4,980	$	4,780
Other operating expense (a)	$	19,532	$	17,715	$	17,363
Premium written
Fully-insured dental (a)	$	72,238	$	66,950	$	90,488

(a) The Company does not allocate insurance expense, investment and other income, or other assets or liabilities to identified segments.

82

DCP HOLDING COMPANY AND SUBSIDIARIES

Schedule IV- Reinsurance

For each of the Three Years in the Period ended December 31, 2018

(amounts in thousands)

	2018		2017		2016
Gross earned premium amounts
Fully-insured dental HMO/Indemnity	$	50,710	$	51,419	$	53,393
Fully-insured dental PPO		28,658		25,936		22,363
Self-insured dental		31,868		29,427		29,067
Corporate, All Other		1,078		807		771
	$	112,314	$	107,589	$	105,594
Assumed (ceded) amounts from other companies	$		$		$
Net earned premium amounts
Fully-insured dental HMO/Indemnity	$	50,710	$	51,419	$	53,393
Fully-insured dental PPO		28,658		25,936		22,363
Self-insured dental		31,868		29,427		29,067
Corporate, All Other		1,078		807		771
	$	112,314	$	107,589	$	105,594

DCP HOLDING COMPANY AND SUBSIDIARIES

Schedule V - Valuation and Qualifying Accounts

For the Years Ended December 31, 2018, 2017, and 2016

Description	Balance at beginning of period		Charged to costs and expenses		Deductions		Balance at end of period
Year ended December 31, 2018:
Allowance for Uncollectible Accounts Receivable	$	45,809		79,105		20,733	$	104,181
Year ended December 31, 2017:
Allowance for Uncollectible Accounts Receivable	$	41,093		128,543		123,827	$	45,809
Year ended December 31, 2016:
Allowance for Uncollectible Accounts Receivable	$	14,716		99,084		72,707	$	41,093

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INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION OF DOCUMENT
2.1	Agreement and Plan of Merger by and among DentaQuest, LLC and DCP Holding Company (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K current report filed on March 14, 2019)*
3.1	Amended and Restated Articles of Incorporation (incorporated by reference to the Company’s Form 8-K current report filed on May 28, 2009)
3.2	Amended and Restated Code of Regulations (incorporated by reference to Exhibit 3.2 to the Company’s Form 10 registration statement filed on May 1, 2006)
3.3	Amendment to the Amended and Restated Articles of Incorporation dated July 17, 2010, (incorporated by reference to exhibit 3.3 to the Company’s Form 10-K for the year ended December 31, 2010)
3.4	Amendment to Amended and Restated Articles of Incorporation of DCP Holding Company effective January 3, 2012 (incorporated by reference to exhibit 3.1 to the Company’s Form 8-K current report filed on January 6, 2012)
3.5	Amendment to Amended and Restated Articles of Incorporation of DCP Holding Company effective January 9, 2013 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K current report filed on January 16, 2013)
3.6	Second Amended and Restated Articles of Incorporation of DCP Holding Company effective January 9, 2014 (incorporated by reference to Exhibit 3(a) to the Company’s Form 8-K current report filed on January 15, 2014)
3.7	Second Amended and Restated Code of Regulations (incorporated by reference to Exhibit 3(b) to the Company’s current report filed on January 15, 2014).
10.1	Twelfth Amended and Restated DCP Holding Company Employment Agreement with Anthony A. Cook effective January 1, 2017 (incorporated by reference to Exhibit 10.1 and 10.2 to the Company’s Form 8-K current report filed on May 5, 2017)*
10.2	Thirteenth Amended and Restated DCP Holding Company Employment Agreement with Anthony A. Cook effective January 1, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed on February 16, 2018)*
10.3	Dental Care Plus, Inc. and DCP Holding Company Deferred Compensation Plan, amended and restated (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-K Annual Report filed on March 25, 2008)*
10.4	2006 Dental Care Plus Management Equity Incentive Plan, amended and restated (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K Annual Report filed on March 25, 2008)*
10.5	2006 Dental Care Plus Management Equity Incentive Plan, amended and restated Effective January 1, 2014 (incorporate by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on May 20, 2014)*
10.6	Restricted Share Unit (RSU) Agreement between DCP Holding Company and Robert C. Hodgkins, Jr. and RSU Award to Robert C. Hodgkins, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on April 6, 2012)*
10.7	Preferred Stock Purchase Agreement (incorporated by reference to the Company’s Form 8-K current report filed on July 21, 2010)
10.8	Preferred Shares Purchase Agreement between DCP Holding Company and Cincinnati Financial Corporation dated as of January 4, 2012 (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K current report filed January 6, 2012)
10.9	Preferred Shares Purchase Agreement between DCP Holding Company and Cincinnati Financial Corporation dated as of January 11, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed January 16, 2013)
10.10	Restricted Shares Unit (RSU) Agreement between DCP Holding Company and Robert C. Hodgkins, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report fled June 18, 2013)*.
10.11	Long Term Incentive Compensation Agreement between DCP Holding Company and Robert C. Hodgkins, Jr. effective January 1, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on May 19, 2015)*
10.12	Long Term Incentive Compensation Agreement between DCP Holding Company and Robert C. Hodgkins Jr. effective January 1, 2016 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed on June 3, 2016)*
10.13	Second Amended and Restated DCP Holding Company Employment Agreement entered into effective January 1, 2017 between DCP Holding Company and Robert C. Hodgkins Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed May 5, 2017)*
10.14	Third Amended and Restated DCP Holding Company Employment Agreement entered into effective January 1, 2018 between DCP Holding Company and Robert C. Hodgkins, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed February 16, 2018.
10.15	Fourth Amended and Restated DCP Holding Company Employment Agreement entered into effective January 1, 2019 between DCP Holding Company and Robert C. Hodgkins Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K current report filed December 7, 2018)*
10.16	DCP Holding Company Part Time Employment agreement effective January 1, 2019 dated December 10, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed December 7, 2018)*
10.17	DCP Holding Company Employment Agreement entered into effective January 1, 2019 between DCP Holding Company and Jodi M. Fronczek (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K current report filed December 14, 2018)*

14.1 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-K Annual Report filed on March 30, 2007)

21.1	List of Subsidiaries. (incorporated by reference to Exhibit 21.1 to the Company’s Form 10 registration statement filed on May 1, 2006)
31.1	Chief Executive Officer and Chief Financial Officer certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002, filed herewith
32.1	Chief Executive Officer and Chief Financial Officer certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, filed herewith
101	Financial information and Notes to Financial Statements for the year-ended December 31, 2018 formatted in XBRL (Extensible Business Reporting Language)
*	Reflects management contracts or compensation plan arrangement required to be filed as an exhibit pursuant to Item 15(b) of this Annual Report on Form 10-K.

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DCP Holding Company
March 22, 2019	/s/ Robert C. Hodgkins, Jr.
	Robert C. Hodgkins, Jr.
	President, Chief Executive Officer and Chief Financial Officer
	(Principal Executive, Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

March 22, 2019	/s/ Stephen T. Schuler
	Stephen T. Schuler
	Chairman of the Board of Directors
March 22, 2019	/s/ Ronald Poulos
	Ronald Poulos
	Vice-Chairman of the Board of Directors
March 22, 2019	/s/ David A. Kreyling
	David A. Kreyling
	Secretary
March 22, 2019	/s/ Michael J. Carl
	Michael Carl
	Treasurer
March 22, 2019	/s/ Fred H. Peck
	Fred H. Peck
	Assistant Treasurer
March 22, 2019	/s/ Jack M. Cook
	Jack M. Cook
	Director

March 22, 2019	/s/ Donald J. Peak
	Donald J. Peak
	Director
March 22, 2019	/s/ James E. Kroeger
	James E. Kroeger
	Director
March 22, 2019	/s/ Molly Meakin-Rogers
	Molly Meakin-Rogers
	Director
March 22, 2019	/s/ James T. Foley
	James Foley
	Director

85