In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update, ("ASU"), No. 2010-24, "Health Care Entities—Presentation of Insurance Claims and Related Insurance Recoveries" ("ASU 2010-24"). ASU 2010-24 clarifies that a health care entity should not net insurance recoveries against a related claim liability. Additionally, the amount of the claim liability should be determined without consideration of insurance recoveries. This guidance is effective for fiscal years beginning after December 15, 2010. Accordingly, the Company adopted ASU 2010-24 on January 1, 2011. The adoption of this standard did not have a material impact on the consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011, with early adoption permitted. While the adoption of this guidance is expected to impact the Company's disclosures for annual and interim filings for the year ending December 31, 2012, it will not have an impact on the Company's results of operations or financial condition.

In September 2011, the FASB issued ASU 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-8"), which provides authoritative guidance to simplify how entities, both public and nonpublic, test goodwill for impairment. This accounting update permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance will be effective for the Company beginning on January 1, 2012, with early adoption permitted. The Company does not expect the guidance to impact the Company's financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU 2011-12 "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12"), which defers the requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The effective dates for ASU 2011-12 are consistent with the effective dates for ASU 2011-05 and, similar to our expectations for the adoption of ASU 2011-05, while the adoption of this guidance is expected to impact the Company's disclosures for annual and interim filings for the year ending December 31, 2012, it will not have an impact on the Company's results of operations or financial condition.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates.

Managed care revenue, inclusive of revenue from the Company's risk, EAP and ASO contracts, is recognized over the applicable coverage period on a per member basis for covered members. The Company is paid a per member fee for all enrolled members, and this fee is recorded as revenue in the month in which members are entitled to service. The Company adjusts its revenue for retroactive membership terminations, additions and other changes, when such adjustments are identified, with the exception of retroactivity that can be reasonably estimated. The impact of retroactive rate amendments is generally recorded in the accounting period that terms to the amendment are finalized, and that the amendment is executed. Any fees paid prior to the month of service are recorded as deferred revenue. Managed care revenues approximated $2.2 billion, $2.4 billion and $2.2 billion for the years ended December 31, 2009, 2010 and 2011, respectively.

The Company has certain FFS contracts, including cost-plus contracts, with customers under which the Company recognizes revenue as services are performed and as costs are incurred. Revenues from these contracts approximated $104.4 million, $192.9 million and $174.5 million for the years ended December 31, 2009, 2010 and 2011, respectively.

The Maricopa Contract is partially funded by federal, state and county block grant money, which represents annual appropriations. The Company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies. Block grant revenues were approximately $106.6 million, $109.1 million, and $114.4 million for the years ended December 31, 2009, 2010 and 2011, respectively.

The Company recognizes dispensing revenue, which includes the co-payments received from members of the health plans the Company serves, when the specialty pharmaceutical drugs are shipped. At the time of shipment, the earnings process is complete; the obligation of the Company's customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $221.6 million, $234.8 million and $247.4 million for the years ended December 31, 2009, 2010 and 2011, respectively.

The Company has the ability to earn performance-based revenue under certain risk and non-risk contracts. Performance-based revenue generally is based on either the ability of the Company to manage care for its clients below specified targets, or on other operating metrics. For each such contract, the Company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation. Pro-rata performance-based revenue is recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts. Performance-based revenues were $7.6 million, $13.1 million and $26.5 million for the years ended December 31, 2009, 2010 and 2011, respectively.

The Company administers a rebate program for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Each period, the Company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the Company's clients, as well as historical and/or anticipated sharing percentages. The Company earns fees based upon the volume of rebates generated for its clients. The Company does not record as rebate revenue any rebates that are passed through to its clients. Total rebate revenues for the years ended December 31, 2009, 2010 and 2011 were $29.4 million, $25.5 million, and $32.8 million, respectively.

The Maricopa Contract generated net revenues that exceeded, in the aggregate, ten percent of net revenues for the consolidated Company for the years ended December 31, 2009, 2010 and 2011. Pursuant to the Maricopa Contract, the Company provides behavioral healthcare management and other related services to approximately 715,000 members in Maricopa County, Arizona. Under the Maricopa Contract, the Company is responsible for providing covered behavioral health services to persons eligible under Title XIX (Medicaid) and Title XXI (State Children's Health Insurance Program) of the Social Security Act, non-Title XIX and non-Title XXI eligible children and adults with a serious mental illness, and to certain non-Title XIX and non-Title XXI adults with behavioral health or substance abuse disorders. The Maricopa Contract began on September 1, 2007 and extends through September 30, 2013 unless sooner terminated by the parties. The State of Arizona has the right to terminate the Maricopa Contract for cause, as defined, upon ten days' notice with an opportunity to cure, and without cause immediately upon notice from the State. The Maricopa Contract generated net revenues of $725.0 million, $807.1 million and $779.5 million for the years ended December 31, 2009, 2010 and 2011, respectively.

One of the Company's top ten customers during 2009 and 2010 was WellPoint, Inc. The Company recorded net revenue from contracts with WellPoint, Inc. of $170.4 million and $175.7 million for the years ended December 31, 2009 and 2010, respectively. The Company's contracts with WellPoint, Inc. terminated on December 31, 2010.

In addition to the Maricopa Contract previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the years ended December 31, 2009, 2010, and 2011 (in thousands):

Segment	Term Date	2009			2010			2011

Commercial
Customer A	December 31, 2012	$	235,002		$	243,399		$	171,109
Customer B	June 30, 2014		85,842			71,338			67,049
Customer C	December 31, 2012 to December 14, 2013(1)		40,697	*		65,175	*		111,607
Public Sector
Customer D	June 30, 2012(2)		147,734			153,650			191,063
Radiology Benefits Management
WellPoint, Inc.	December 31, 2010(3)		155,933			159,644			—
Customer E	November 30, 2012 to April 30, 2013(1)		—			121,401			134,257
Customer F	June 30, 2011 to November 30, 2011(1)(3)		80,368			66,970			38,297
Customer G	June 30, 2014		23,331	*		51,877			55,197
Customer H	March 31, 2013		—			10,448	*		36,293
Specialty Pharmaceutical Management
Customer I	March 31, 2012 to January 1, 2013(1)		85,725			86,850			90,563
Customer J	April 29, 2012 to September 1, 2012(1)		43,937			57,198			56,115
Customer E	February 1, 2012 to April 30, 2013(1)		30,856			32,877			25,006	*
Customer Q	December 31, 2012		42,465			24,897	*		18,943	*
Medicaid Administration
Customer K	December 4, 2011(3)		11,353			31,145			28,060
Customer L	September 30, 2013(4)		—			26,108			82,770
Customer M	March 16, 2012 to June 30, 2017(1)		10,528			24,432			23,683
Customer N	June 30, 2012 to June 30, 2013(1)		8,995			22,000			18,924	*
Customer O	June 30, 2010(3)		8,815			10,319	*		—
Customer P	June 30, 2013 to September 30, 2014(1)		6,036	*		16,249	*		22,084

The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the "Pennsylvania Counties") which are part of the Pennsylvania Medicaid program, and with various areas in the State of Florida (the "Florida Areas") which are part of the Florida Medicaid program. Net revenues from the Pennsylvania Counties in the aggregate totaled $315.5 million, $334.8 million and $351.6 million for the years ended December 31, 2009, 2010 and 2011, respectively. Net revenues from the Florida Areas in the aggregate totaled $130.9 million, $140.5 million and $131.8 million for the years ended December 31, 2009, 2010 and 2011, respectively.

The Company's contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer's option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company's contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company's contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made.

The Company files a consolidated federal income tax return for the Company and its eighty-percent or more owned subsidiaries, and the Company and its subsidiaries file income tax returns in various states and local jurisdictions.

The Company estimates income taxes for each of the jurisdictions in which it operates. This process involves estimating current tax exposures together with assessing temporary differences resulting from differing treatment of items for tax and book purposes. Deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. The Company establishes valuation allowances against deferred tax assets if it is more likely than not that the deferred tax asset will not be realized. The need for a valuation allowance is determined based on the evaluation of various factors, including expectations of future earnings and management's judgment. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.

The Company periodically performs a comprehensive review of its tax positions and accrues amounts for tax contingencies related to uncertain tax positions. Based upon these reviews, the status of ongoing tax audits, and the expiration of applicable statutes of limitations, accruals are adjusted as necessary. The tax benefit from an uncertain tax position is recognized when it is more likely than not that, based on technical merit, the position will be sustained upon examination, including resolution of any related appeals or litigation processes. Total accruals for unrecognized tax benefits as of December 31, 2010 and 2011 were $111.6 million and $99.2 million, respectively, and were included within the accompanying consolidated balance sheets in tax contingencies.

The Company adjusts these liabilities for unrecognized tax benefits when its judgment changes as a result of the evaluation of new information not previously available. The resolution of tax audits is unpredictable and could result in tax liabilities that are significantly different than those which have been estimated and accrued by the Company. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. If the Company's unrecognized tax benefits had been fully realized as of December 31, 2010 and 2011, $88.2 million and $80.3 million, respectively, would have impacted the effective tax rate.

Reversals of both valuation allowances and unrecognized tax benefits are recorded in the period they occur, typically as reductions to income tax expense. However, reversals of unrecognized tax benefits related to deductions for stock compensation in excess of the related book expense are recorded as increases in additional paid-in capital. To the extent reversals of unrecognized tax benefits cannot be specifically traced to these excess deductions due to complexities in the tax law, the Company records the tax benefit for such reversals to additional paid-in capital on a pro-rata basis.

The Company recognizes interim period income taxes by estimating an annual effective tax rate and applying it to year-to-date results. The estimated annual effective tax rate is periodically updated throughout the year based on actual results to date and an updated projection of full year income. Although the effective tax rate approach is generally used for interim periods, taxes on significant, unusual and infrequent items are recognized at the statutory tax rate entirely in the period the amounts are realized.

Cash equivalents are short-term, highly liquid interest-bearing investments with maturity dates of three months or less when purchased, consisting primarily of money market instruments. At December 31, 2011, the Company's excess capital and undistributed earnings for the Company's regulated subsidiaries of $56.3 million are included in cash and cash equivalents.

The Company has certain assets which are considered restricted for: (i) the payment of claims under the terms of certain managed care contracts; (ii) regulatory purposes related to the payment of claims in certain jurisdictions; and (iii) the maintenance of minimum required tangible net equity levels for certain of the Company's subsidiaries. Significant restricted assets of the Company as of December 31, 2010 and 2011 were as follows (in thousands):

All of the Company's investments are classified as "available-for-sale" and are carried at fair value. Securities which have been classified as Level 1 are measured using quoted market prices while those which have been classified as Level 2 are measured using quoted prices for identical assets and liabilities in markets that are not active. The Company's policy is to classify all investments with contractual maturities within one year as current. Investment income is recognized when earned and reported net of investment expenses. Net unrealized holding gains or losses are excluded from earnings and are reported, net of tax, as "accumulated other comprehensive income (loss)" in the accompanying consolidated balance sheets and consolidated statements of income until realized, unless the losses are deemed to be other-than-temporary. Realized gains or losses, including any provision for other-than-temporary declines in value, are included in the consolidated statements of income.

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

The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the best estimate of projected future cash flows at the effective interest rate implicit in the debt security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. Furthermore, unrealized losses entirely caused by non-credit related factors related to debt securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income.

As of December 31, 2010 and 2011, there were no unrealized losses that the Company believed to be other-than-temporary. No realized gains or losses were recorded for the years ended December 31, 2009, 2010 or 2011. The following is a summary of short-term and long-term investments at December 31, 2010 and 2011 (in thousands):

	December 31, 2010

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government and agency securities	$	2,178	$	1	$	—		$	2,179
Obligations of government-sponsored enterprises(1)		10,142		7		(11	)		10,138
Corporate debt securities		268,739		245		(215	)		268,769
Certificates of deposit		750		—		—			750
Taxable municipal bonds		2,680				(12	)		2,668

Total investments at December 31, 2010	$	284,489	$	253	$	(238	)	$	284,504

	December 31, 2011

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government and agency securities	$	697	$	—	$	—		$	697
Obligations of government-sponsored enterprises(2)		8,293		3		(3	)		8,293
Corporate debt securities		192,059		31		(277	)		191,813
Certificates of deposit		100		—		—			100

Total investments at December 31, 2011	$	201,149	$	34	$	(280	)	$	200,903

The maturity dates of the Company's investments as of December 31, 2011 are summarized below (in thousands):

The Company's accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Management believes the allowance for doubtful accounts is adequate to provide for normal credit losses.

Accounts receivable subjects the Company to a concentration of credit risk with third party payors that include health insurance companies, managed healthcare organizations, healthcare providers and governmental entities.

Pharmaceutical inventory consists solely of finished products (primarily prescription drugs) and are stated at the lower of first-in first-out cost or market.

Long-lived assets, including property and equipment and intangible assets to be held and used, are currently reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be addressed. Impairment is determined by comparing the carrying value of these long-lived assets to management's best estimate of the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The cash flow projections used to make this assessment are consistent with the cash flow projections that management uses internally in making key decisions. In the event an impairment exists, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset, which is generally determined by using quoted market prices or the discounted present value of expected future cash flows.

Property and equipment is stated at cost, except for assets that have been impaired, for which the carrying amount has been reduced to estimated fair value. Expenditures for renewals and improvements are capitalized to the property accounts. Replacements and maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. The Company capitalizes costs incurred to develop internal-use software during the application development stage. Capitalization of software development costs occurs after the preliminary project stage is complete, management authorizes the project, and it is probable that the project will be completed and the software will be used for the function intended. Amortization of capital lease assets is included in depreciation expense and is included in accumulated depreciation as reflected in the table below. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which is generally two to ten years for buildings and improvements (or the lease term, if shorter), three to fifteen years for equipment and three to five years for capitalized internal-use software. The net capitalized internal use software as of December 31, 2010 and 2011 was $61.9 million and $62.0 million, respectively. Depreciation expense was $37.8 million, $43.9 million, and $47.9 million for the years ended December 31, 2009, 2010 and 2011, respectively. Included in the depreciation expense for the years ended December 31, 2009, 2010 and 2011 was $20.2 million, $26.6 million and $28.9 million, respectively, related to capitalized internal use software.

Property and equipment, net, consisted of the following at December 31, 2010 and 2011 (in thousands):

The Company is required to test its goodwill for impairment on at least an annual basis. The Company has selected October 1 as the date of its annual impairment test. The goodwill impairment test is a two-step process that requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit with goodwill based on various valuation techniques, with the primary technique being a discounted cash flow analysis, which requires the input of various assumptions with respect to revenues, operating margins, growth rates and discount rates. The estimated fair value for each reporting unit is compared to the carrying value of the reporting unit, which includes goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an "implied fair value" of goodwill. The determination of a reporting unit's "implied fair value" of goodwill requires the Company to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the "implied fair value" of goodwill, which is compared to its corresponding carrying value.

The fair value of the Health Plan (a component of the Commercial segment) and the Radiology Benefits Management reporting units were determined using a discounted cash flow method. This method involves estimating the present value of estimated future cash flows utilizing a risk adjusted discount rate. Key assumptions for this method include cash flow projections, terminal growth rates and discount rates.

The fair value of the Specialty Pharmaceutical Management reporting unit was determined using the discounted cash flow, guideline company and similar transaction methods. Key assumptions for the discounted cash flow method are consistent with those described above. For the guideline company method, revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples for guideline companies were applied to the reporting unit's actual revenue and EBTIDA for the twelve-month period ended September 30, 2011 and projected revenue and EBITDA for 2012. For the similar transaction method, an EBITDA multiple based on merger and acquisition transactions for similar companies was applied to the reporting unit's actual EBITDA for the twelve-month period ended September 30, 2011. The weighting applied to the fair values determined using the discounted cash flow, guideline company and similar transaction methods to determine an overall fair value for the Specialty Pharmaceutical Management reporting unit was 60 percent, 24 percent and 16 percent, respectively. The weighting of each of the methods described above was based on the relevance of the approach. A change in the weighting would not change the outcome of the first step of the impairment test.

The fair value of the Medicaid Administration reporting unit was determined using discounted cash flow, guideline company and similar transaction methods. Key assumptions for the discounted cash flow method are consistent with those described above. For the guideline company method, an EBITDA multiple for guideline companies was applied to the reporting unit's projected EBITDA for 2012. For the similar transaction method, revenue and EBITDA multiples based on merger and acquisition transactions for similar companies were applied to the reporting unit's actual revenue and EBITDA for the twelve-month period ended September 30, 2011. The weighting applied to the fair values determined using the discounted cash flow, guideline company and similar transaction methods to determine an overall fair value for the Medicaid Administration reporting unit was 75 percent, 22.5 percent and 2.5 percent, respectively. The weighting of each of the methods described above was based on the relevance of the approach. A change in the weighting would not change the outcome of the first step of the impairment test.

As a result of the first step of the 2011 annual goodwill impairment analysis, the fair value of each reporting unit with goodwill exceeded its carrying value. Therefore, the second step was not necessary. However, a 56 percent decline in fair value of the Health Plan reporting unit, a 54 percent decline in fair value of Radiology Benefits Management, or a 20 percent decline in fair value of Specialty Pharmaceutical Management would have caused the carrying values for these reporting units to be in excess of fair values, which would require the second step to be performed. The second step could have resulted in an impairment loss for goodwill.

For Medicaid Administration, an 8 percent decline in fair value, or approximately $10 million, would have caused the carrying value to be in excess of its fair value as of October 1, 2011. While there are numerous assumptions that impact the calculation of the fair value of this reporting unit, the most sensitive assumptions relate to the discount rate and the estimated future cash flows. A decline in fair value of approximately $10 million would occur upon either: (1) an increase of 0.85 basis points in the discount rate utilized to determine the present value of the projected net cash flows; or (2) a decline of between 12 and 25 percent in estimated future cash flows, with the percentage decrease varying depending upon whether the cash flow decrease were to occur in the near term or the long term. Such decline in the future cash flows could be the result of a loss of one or more significant customers without the generation of new business to offset such losses. A decline in the fair value could result in a carrying value for Medicaid Administration in excess of fair value, which would require the second step of goodwill testing to be performed. The second step could result in an impairment loss for goodwill.

Goodwill for each of the Company's reporting units is as follows (in thousands):

The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2011 are reflected in the table below (in thousands):

The following is a summary of intangible assets at December 31, 2010 and 2011, and the estimated useful lives for such assets (in thousands):

Amortization expense was $9.5 million, $10.8 million and $10.7 million for the years ended December 31, 2009, 2010 and 2011, respectively. The Company estimates amortization expense will be $9.7 million, $9.1 million, $9.1 million, $8.0 million and $5.3 million for the years ending December 31, 2012, 2013, 2014, 2015, and 2016 respectively.

Cost of care is recognized in the period in which members receive managed healthcare services. In addition to actual benefits paid, cost of care in a period also includes the impact of accruals for estimates of medical claims payable. Medical claims payable represents the liability for healthcare claims reported but not yet paid and claims incurred but not yet reported ("IBNR") related to the Company's managed healthcare businesses.

Such liabilities are determined by employing actuarial methods that are commonly used by health insurance actuaries and that meet actuarial standards of practice.

The IBNR portion of medical claims payable is estimated based on past claims payment experience for member groups, enrollment data, utilization statistics, authorized healthcare services and other factors. This data is incorporated into contract-specific actuarial reserve models and is further analyzed to create "completion factors" that represent the average percentage of total incurred claims that have been paid through a given date after being incurred. Factors that affect estimated completion factors include benefit changes, enrollment changes, shifts in product mix, seasonality influences, provider reimbursement changes, changes in claims inventory levels, the speed of claims processing, and changes in paid claim levels. Completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period. Actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims. For the most recent incurred months (generally the most recent two months), the percentage of claims paid for claims incurred in those months is generally low. This makes the completion factor methodology less reliable for such months. Therefore, incurred claims for any month with a completion factor that is less than 70 percent are generally not projected from historical completion and payment patterns; rather they are projected by estimating claims expense based on recent monthly estimated cost incurred per member per month times membership, taking into account seasonality influences, benefit changes and healthcare trend levels, collectively considered to be "trend factors."

Medical claims payable balances are continually monitored and reviewed. If it is determined that the Company's assumptions in estimating such liabilities are significantly different than actual results, the Company's results of operations and financial position could be impacted in future periods. Adjustments of prior period estimates may result in additional cost of care or a reduction of cost of care in the period an adjustment is made. Further, due to the considerable variability of healthcare costs, adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period. Prior period development is recognized immediately upon the actuary's judgment that a portion of the prior period liability is no longer needed or that additional liability should have been accrued. The following table presents the components of the change in medical claims payable for the years ended December 31, 2009, 2010 and 2011 (in thousands):

	2009			2010			2011

Claims payable and IBNR, beginning of period	$	184,422		$	168,851		$	166,095
Cost of care:
Current year		1,771,213			1,919,785			1,790,124
Prior years		(5,900	)		(11,800	)		(5,400	)

Total cost of care		1,765,313			1,907,985			1,784,724

Claim payments and transfers to other medical liabilities(1):
Current year		1,624,626			1,777,356			1,657,291
Prior years		156,258			133,385			136,429

Total claim payments and transfers to other medical liabilities		1,780,884			1,910,741			1,793,720

Claims payable and IBNR, end of period		168,851			166,095			157,099
Withhold receivables, end of period(2)		(25,182	)		(23,424	)		(19,126	)

Medical claims payable, end of period	$	143,669		$	142,671		$	137,973

Actuarial standards of practice require that the claim liabilities be adequate under moderately adverse circumstances. Adverse circumstances are situations in which the actual claims experience could be higher than the otherwise estimated value of such claims. In many situations, the claims paid amount experienced will be less than the estimate that satisfies the actuarial standards of practice.

Due to the existence of risk sharing provisions in certain customer contracts, principally in the Public Sector segment, a change in the estimate for medical claims payable does not necessarily result in an equivalent impact on cost of care.

The Company believes that the amount of medical claims payable is adequate to cover its ultimate liability for unpaid claims as of December 31, 2011; however, actual claims payments may differ from established estimates.

Other medical liabilities consist primarily of "reinvestment" payables under certain managed behavioral healthcare contracts with Medicaid customers and "profit share" payables under certain risk-based contracts. Under a contract with reinvestment features, if the cost of care is less than certain minimum amounts specified in the contract (usually as a percentage of revenue), the Company is required to "reinvest" such difference in behavioral healthcare programs when and as specified by the customer or to pay the difference to the customer for their use in funding such programs. Under a contract with profit share provisions, if the cost of care is below certain specified levels, the Company will "share" the cost savings with the customer at the percentages set forth in the contract.

As of December 31, 2010 and 2011, the only individual current liability that exceeded five percent of total current liabilities related to accrued employee compensation liabilities of $34.5 million and $32.7 million, respectively.

Net income per common share is computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period (see Note 6—"Stockholders' Equity").

The Company uses the Black-Scholes-Merton formula to estimate the fair value of substantially all stock options granted to employees, and recorded stock compensation expense of $19.8 million, $15.1 million, and $17.4 million for the years ended December 31, 2009, 2010 and 2011, respectively. As stock compensation expense recognized in the consolidated statements of income for the years ended December 31, 2009, 2010 and 2011 is based on awards ultimately expected to vest, it has been reduced for annual estimated forfeitures of five percent, five percent and four percent, respectively. If the actual number of forfeitures differs from those estimated, additional adjustments to compensation expense may be required in future periods. If vesting of an award is conditioned upon the achievement of performance goals, compensation expense during the performance period is estimated using the most probable outcome of the performance goals, and adjusted as the expected outcome changes. The Company recognizes substantially all of these compensation costs on a straight-line basis over the requisite service period, which is generally the vesting term of three years.

The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. Financial assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows:

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

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

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

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value as of December 31, 2010 and 2011 (in thousands):

	Level 1		Level 2		Level 3		Total

Cash and Cash Equivalents(1)	$	—	$	68,726	$	—	$	68,726
Restricted Cash(2)		—		72,698		—		72,698
Investments:
U.S. Government and agency securities		2,179		—		—		2,179
Obligations of government-sponsored enterprises(3)		—		10,138		—		10,138
Corporate debt securities		—		268,769		—		268,769
Taxable municipal bonds		—		2,668		—		2,668
Certificates of deposit		—		750		—		750

December 31, 2010	$	2,179	$	423,749	$	—	$	425,928

	Level 1		Level 2		Level 3		Total

Cash and Cash Equivalents(4)	$	—	$	1,296	$	—	$	1,296
Restricted Cash(5)		—		47,972		—		47,972
Investments:
U.S. Government and agency securities		697		—		—		697
Obligations of government-sponsored enterprises(6)		—		8,293		—		8,293
Corporate debt securities		—		191,813		—		191,813
Taxable municipal bonds		—		—		—		—
Certificates of deposit		—		100		—		100

December 31, 2011	$	697	$	249,474	$	—	$	250,171

Certain prior year amounts have been reclassified to conform with the current year presentation.