Question-and-Answer Session
Operator
Our first question comes from Josh Raskin with Lehman Brothers. Please go ahead.
Josh Raskin – Lehman Brothers
Hi. Thanks. Good morning. Mark, first and foremost, congrats on the pending transition, I should say. Two questions. First, on the behavioral health component, one, I was wondering if you could break out just – as a sort of a new segment change for us. The weakness, was it more employer group or health plan, and then if you could talk a little bit about what's driving the cost trends there? And then the second question, which I am sure will be echoed, in light of the lower yield environment, I am just curious if that plays into your thoughts around the ability to buy back shares. Just obviously dilutive from an EPS perspective the lower rates, but it also impacts your returns, your weighted average cost of capital as far as I calculate. So, just those two questions.
Rene Lerer
Okay, Josh, as for the first question, the quarter in commercial was not weak. We had unfavorable care development that impacted the quarter and those – most of that was related to the terminated contracts and the run out of those contracts which were, as you know, health plan contracts to the extent these are looking to identify that piece. It did relate to the old health plans. So, – but that was most of the, if you want to call weakness in the quarter, it was the unfavorable care development. And another piece of it related to retrospective membership adjustments that went – increased and we got increased revenue for that. Otherwise, the care trend in the quarter was very stable and we had membership and rate increases primarily in the old health plan segment that caused our quarter to be good and, actually therefore, caused us to increase guidance for the year.
Mark Demilio
The second question, Josh, relates obviously to capital deployment strategy. And, obviously, as we have looked at this each quarter over the past couple of years there are lots of factors that are taken into account. And, obviously, the impact of both the debt markets as well as the interest market and our ability today to generate much lower interest income is clearly an important component of that discussion. And as I said, we have spent the last couple months and continue to do a very detailed strategic review both internally and using external consultants to look at sort of the strategic direction. So, as we look at all the pieces on capital deployment, acquisitions, uses of cash, debt markets, obviously, the impact of the change in the interest rates will impact that discussion that we are going to continue to have. So, I don't have an answer, but it clearly is a material component that will be taken into account.
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