WellCare Health Plans' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.12.14 | About: WellCare Health (WCG)

WellCare Health Plans, Inc. (NYSE:WCG)

Q4 2013 Earnings Conference Call

February 12, 2014 8:30 ET

Executives

Gregg Haddad - Vice President, Investor Relations

Dave Gallitano - Independent Chairman, Interim Chief Executive Officer

Tom Tran - Chief Financial Officer, Senior Vice President

Analysts

Tom Carroll - Stifel, Nicolaus

Kevin Fischbeck - Bank of America Merrill Lynch

Michael Baker - Raymond James

Josh Raskin - Barclays Capital

Chris Rigg - Susquehanna International Group

Peter Costa - Wells Fargo Securities

Carl McDonald - Citigroup

Chris Carter - Credit Suisse

Brian Wright - Monness, Crespi & Hardt

Scott Fidel - Deutsche Bank

Dave Styblo - Jefferies

Andy Schenker - Morgan Stanley

Ana Gupte - Leerink Partners

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the WellCare Health Plans Fourth Quarter 2013 Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded Wednesday, February 12, 2014.

I would now like to turn the conference over to Gregg Haddad, Vice President of Investor Relations. Please go ahead, sir.

Gregg Haddad

Good morning. And thank you for joining us. Today, we will be making forward-looking statements, including but not limited to, our 2014 financial guidance. Various risks and uncertainties, such as those described in our filings with the SEC, including our September 30, 2013 quarterly report on Form 10-Q, may materially impact those statements. While these risks and uncertainties may cause our future results to differ from today's statements, we are not undertaking any obligation to update or revise any forward-looking statement.

Certain financial information that we will discuss today includes adjustments to expenses related to previously disclosed government investigations and related litigation that we believe are not indicative of long-term business operations. We will identify results that have been adjusted.

In addition, please refer to our news release published this morning for supplemental schedules that reconcile results determined under Generally Accepted Accounting Principles, or GAAP, to our adjusted results. Our news release is published on our website at www.wellcare.com.

During today's discussion, we will describe our 2014 financial outlook. Our guidance includes the anticipated results from the Windsor Health Group acquisition which closed effective January 1, 2014. Guidance doesn't include the acquisition of certain assets of Healthfirst New Jersey, which was pending regulatory approval.

Our discussion today is led by Dave Gallitano, WellCare's Chairman and Chief Executive Officer; Tom Tran, Chief Financial Officer; and Ken Burdick, President National Health Plans.

I will now turn the discussion over to Dave.

Dave Gallitano

Good morning, everyone.

This morning I want to cover several important topics with you. First, I want to highlight some of our 2013 accomplishments. Second, I will discuss the pressures facing our industry in 2014 and how they impact WellCare. Next, I will review how some of our 2014 initiatives are affecting our financial outlook. And finally, I will talk about recent management changes and the CEO search. Then Tom will provide an update on our recent financial and operating results and discuss our 2014 financial outlook in more detail.

Starting with 2013 highlights, premium revenue increased nearly 30% from 2012 and at year-end we served more than 2.8 million members, as of January due to growth in all of our segments we are serving over 3.3 million members.

Over the past year or so, we have entered three more state Medicaid programs and now serve nine programs in total working at partnership with Kentucky's leaders. We were successful in stabilizing the program to deliver quality, cost effective care to our members on a long-term sustainable basis. In 2014, we expect to significantly expand our presence in Florida's Medicaid program as a result of our award in last fall's Managed Medical Assistance procurement.

In Medicare Advantage, our acquisitions in California and Arizona expanded our service area to 14 states in 2013. We grew the segment premium revenue by nearly 60% compared to 2012. This significant growth resulted from the continued execution of the strategy we laid out a few years ago to scale up our MA business.

Our objective continues to be to ensure a competitive cost structure in light of the challenging Medicare reimbursement environment of 2014 and potentially 2015. That point is a good segue to discussing the pressure facing our industry in 2014 and how these impact WellCare.

Our industry faces significant challenges this year; foremost among these is funding pressure particularly for Medicare Advantage. We are confident that working with our government partners, we can achieve meaningful cost savings over time for the programs we serve. We believe, however, our government partners fiscal needs have to be balanced with the resources and investments required to provide our members with quality care and service.

Continued cuts are putting the industry insurers and providers in a difficult position which is affecting access to care. We believe that the lower income individuals upon whom we focus are better-served by the benefits and quality of care in a Medicare Advantage program than in a traditional fee-for-service Medicare program. Many independent studies confirmed this view. Funding needs to be more appropriately aligned with this result, the pressure impacts many aspects of our business.

For example, building a high-quality provider network is even more challenging today than it has been historically. At present we believe that the funding in policy objectives are not well-aligned and this mismatch is a challenge inherent in our 2014 outlook.

A related pressure on our ability to serve our customers is the Affordable Care Act Health Insurance Fee. For 2014, we face an incremental expense that we currently estimate in the range of $130 million. While we anticipate that our state customers will reimburse us for this fee that funding will impact their budgets. For Medicare programs, the fee meaningfully affects our flexibility in serving our lower income members for the services and quality of care we strive to deliver.

Our work to mitigate the impact of the fee through network management, administrative cost discipline and other factors will continue throughout 2014, but nonetheless, is a significant challenge.

Next, I will review the impact of our 2014 initiatives on our financial outlook. Based on our 2014 guidance our premium revenues are expected to nearly double compared with 2011. This includes the 23% to 25% growth we expect to achieve in 2014. During the past few months, we have been reassessing the infrastructure that supports our operations, care management and quality activities.

We believe that in certain areas our investments have not kept pace with our rapid growth. Consequently, we need to invest for the higher level this year to better align our infrastructure with the growth we have experienced and expect to achieve over the coming years.

For example, with our business growth more and more focused on higher acuity populations, we are investing to enhance what we call our Enterprise Medical Management system or as we refer to it, EMMA. This mostly home grown system has served us well for many years. But this platform is becoming less effective as we integrate and coordinate a much more diverse set of care and service providers that are necessary for the growth of our managed long-term care in integrated dual eligibles program.

EMMA served us well as we built our Hawaii long-term care program from the ground up. It has become less effective as we have grown our long-term care program in New York and soon in New Jersey. We are confident that a more robust platform will help us – help member stay in their homes with safely and effectively manage cost for our government partners.

In other words, we need a network to prevent for as long as possible a more – a move to facility-based care for these members and we need to strengthen our technology to better support this objective.

Another example is our work to make our case in care managers more productive. Our processes today involve a higher level of manual activity than we believe is appropriate. Given the growth we have achieved, our systems were designed for a smaller company with a more homogenous membership base. Among our needs are leveraging more current technology to automate decisions and provide more robust reporting. We also need to strengthen our platform to more effectively managed care gap-closure and quality performance ultimately helping us to more productively manage these processes. These and other enhancements will also enable us to locate resources closer to our members.

My final example is the work we are doing with our customer service infrastructure. We are working to deploy technology that results in giving our service representatives the ability to access in a timely manner all data relevant to a members needs. By this, I mean, having the ability to get a comprehensive look at medical data and call history among others.

We will be enhancing our interactive voice response and computer telephony technology so our representatives can address members needs more productively within enhanced quality.

With that background, let me put in perspective our adjusted net income per share guidance of $3.75 to $4.05 compared to $4.63 in 2013. First, we estimate that the ACA fee, net of state Medicaid program reimbursement will negatively impact our 2014 results by $1.17 to $1.26 per share. Second, our work to strengthen our infrastructure that we need to sustain our profitable growth results in another $0.35 to $0.45 in expenses. To that end, we also expect to increase our capital expenditures by as much as 50% above 2013. This reflects an increase of approximately $30 million. Third, we currently expect our growth initiatives to impact earnings by $0.25 to $0.30 per share, which mainly results from Florida MMA implementation requirements. And finally, interest expense in 2014 compared to 2013, we expect $0.32 to $0.34 per share to impact our earnings due mainly to the senior notes we issued last November.

While industry conditions presents several challenges, the Board and Management team continue to believe that we are well-positioned to capitalize on significant opportunities for prudent profitable growth over the coming years. Our optimism is reflecting in the meaningful investments we are making in 2014. Our confidence also was evidenced by the actions we have taken to build our management team. We are very pleased that Ken Burdick recently joined us as President of National Health Plans. Ken's extensive experience in government programs and leading large organizations already is having a positive impact on the company.

In addition, we recently named a new Chief Information Officer, Rose Hauser. Rose has extensive accomplishments in deploying technology to achieve improvements and productivity and service quality. Given some of the 2014 initiatives, I described a momentum ago; we anticipate Rose will be an important contributor to our results.

Finally, we are continuing our search for a CEO. In the meantime, I bought a house in Tampa and I'm living here full time, demonstrating my commitment to WellCare and all the constituents that we serve. I can assure you that the Board and management team are fully engaged in ensuring WellCare continues to be a leader in government healthcare coverage.

Now, I will turn our discussion over to Tom to discuss our recent results in 2014 outlook.

Tom Tran

Thank you, Dave, and good morning, everyone. Today, we will review the result of our operation and discuss segment highlights. I will then conclude with our outlook for 2014.

Adjusted net income for the fourth quarter of 2013 was $48 million compared with $58 million for the same period in 2012. Adjusted net income per diluted share for the fourth quarter of 2013 was $1.09 compared with $1.32 per share for the same period in 2012. Adjusted net income was lower in 2013 primarily due to increase in the PDP and Medicare Advantage Segment medical benefit ratios or MBRs, higher interest expense and a higher effective income tax rate. These factors will offset partially by increase in the Medicaid and MA segment premium revenue and decrease the adjusted administrative expense ratio and Medicaid segment MBR.

Premium revenue for the fourth quarter of 2013 increased 23% year-over-year to $2.4 billion, medical benefit expense was $2.1 billion, an increase of 25% from the fourth quarter of 2012. 2013 expense include unfavorable reserve development related to prior periods that decreased pre-tax income by approximately $20 million or $0.29 per diluted share. The $20 million was comprised of $10 million of favorable development related to prior years and $30 million of unfavorable development related to the prior quarters of 2013. The unfavorable development was primarily attributable to the Medicaid segment.

For the full-year of 2013, medical benefit expense include favorable reserve development that increased pre-tax income by $3 million or $0.04 compared with favorable development that increased 2012 pre-tax income by $77 million or $1.10.

Turning to the Medicaid segment membership increased 11% year-over-year to $1.8 million as of December mainly as a result of organic growth in Kentucky and Florida and our Missouri and South Carolina acquisitions offset in part by the end of our participation in the Ohio program at the end of June 2013.

Premium revenue for the fourth quarter increased 24% year-over-year to $1.5 billion driven by change in the geographic and demographic mix of our members as well as enrollment growth. For the fourth quarter of 2013, the Medicaid segment MBR was 88.4% compared with 88.7% in 2012.

The year-over-year decrease result primarily from the improvement in the Kentucky program, sequentially the Medicaid MBR decreased 70 basis points from 89.1% in the third quarter of 2013.

Regarding recent Medicaid developments, last week we execute our agreement for the new Florida Managed Medical Assistance or MMA program. We continue to anticipate that our Florida TANF and SSI membership should increase to at least 500,000 members by December 2014 compared with 394,000 members that we serve in December 2013. We expect that our average premium per member per month under MMA program will be approximately 40% higher than the premium under the existing program. This is mainly due to the additional benefits provided in the MMA program.

Our implementation work is well-underway and we are preparing for the North Florida implementation beginning in May. Implementation of the entire state should be complete by early fall. In January, we enroll our initial membership in the New Jersey Medicaid program. We have continued to work towards the regulatory approval of our acquisition of certain asset of Healthfirst Health Plan of New Jersey.

At the present time, we anticipate closing will occur during the second quarter of this year. In addition, in July the state is planning to bring managed long-term support and service into its managed Medicaid Medicare program.

In last November, South Carolina approved expansion of our service area for six additional counties and we are now serving the Medicaid program in 45 out of 46 counties. In January, in conjunction with state policy change and our purchase of certain assets from Carolina Medical Homes, we approximately 16,000 member were transitioned to us further strengthening our position in the state. Last month Hawaii select our Ohana Plan to continue serving the state through the new QUEST Integration program.

This initiative combines several existing state health programs into one serving all of the Hawaii's Medicaid populations. Implementation is expected to occur in January of 2015. Regarding Medicaid eligibility expansion under the Affordable Care Act or ACA, five of our nine Medicaid state implement the change on January 1. The expansion had a sizable positive effect on our Kentucky program membership. In the other four states for a variety of reason, the effect was negligible.

We currently expect that all of our state Medicaid customer will reimburse us for the ACA health insurer fee including the related income tax expense gross up when determining actuarially sound rates. At this time, we have contractual documentation for the reimbursement of these items with two of our nine states. We continue to negotiate with the other states to complete the documentation as soon as possible, but we cannot predict the timing or guarantee the ultimate result.

In January, we began accounting for the estimated insurer fee expense because of the uncertainty associated with the timing of contractual agreements with certain states; our recognition of some of the state reimbursement may be delayed until later periods in the year. This would impact our earnings until such time as revenue and its funds recognition are in sink.

Moving to our Medicare Advantage segment, membership was 290,000 as of December 2013 increasing 36% year-over-year. 2013 fourth quarter premium revenue was approximately $785 million up 37% year-over-year. The segment MBR in the fourth quarter was 88% compared to 86.9% in 2012. The year-over-year increase result primarily from the MBR of our California plan offset partially by improved result in the other markets. We are disappointed in the performance of our California plan which we acquired in October of 2012. The plan has experienced membership growth well in excess of our expectation. However, as a result of this and other factors it has been more difficult to achieve the operational and other performance improvements we had anticipated. We have focused more intensely on these activities and expect to achieve progress during 2014.

We are pleased with our Medicare open enrollment period result, WellCare's enrollment grew by 13,000 members organically an increase of 5% compared with December 2013 despite the change in our plan design this year. We anticipate membership will continue to grow during remaining months of 2014, but at a much lower pace than during 2013. We remain focused on executing our plans for strengthening network management, quality, sales and operational discipline and other factors in-light of the challenging reimbursement environment.

Our acquisition of Windsor Health Group at 39,000 MA members in January of 2014. Windsor offers MA plans in 192 counties in Arkansas, Mississippi, South Carolina and Tennessee all of which are new MA states for us. Like WellCare, Windsor offers only HMO products and focus on serving individuals who are lower income or dually eligible for Medicare and Medicaid.

Moving to our PDP segment, revenue was $173 million for the fourth quarter of 2013 down 19% year-over-year. Our December 2013 PDP enrollment was approximately 797,000 members. The segment MDR was 74.6% for the fourth quarter compared with 66.9% in 2012, the increase primarily was due to the performance of our enhanced product. WellCare's 2014 PDP bids result in our basic plan being below the benchmarks in 30 of the 33 CMS region for which we submit bid.

By comparison for 2013, our basic plan was below the benchmarks in 14 regions and within the de minimis range in five others. The positive 2014 outcome was driven by the realignment of our benefit plans and cost structure to allow a prudent competitive bids. Among the improvements, it's a launch of preferred pharmacy networks that offers lower cost both to our members and to WellCare.

As a result, our PDP membership at January was over 1.1 million, an increase of 40% compared with December 2013. In addition, the Windsor acquisition adds more than a 100,000 individual members in 11 CMS regions combined, we serve more than 1.2 million members as of January 2014. We expect membership to continue to grow through the remaining months of 2014.

Turning to 2014 financial guidance, we anticipate that our adjusted net income per diluted share will be in a range of approximately $3.75 to $4.05. The decrease compared with 2013 is being driven by industry conditions particularly the ACA fee and the reduction in Medicare Advantage premium rates as well as certain other factors specific to our company. Two areas of investment are expected to have a meaningful effect on our 2014 result. The first is a strengthening of our infrastructure to keep pace with our rapid growth.

As Dave discussed, we need to make certain investment this year to support the growth we expect over the coming years. Areas of investment include quality initiatives, care management and operational infrastructure and our information technology capabilities among others. For 2014, we expect that these investments will unfavorably impact adjusted net income per share by $0.35 to $0.45.

The second area of investment is related to our 2014 growth activities. The largest being the Florida MMA implementation. During the first half of 2014, we will incur significant expense to implement the new program including the hiring of 700 additional staff. Implementation is expected to begin in May and will be facing over the subsequent four months consequently we will have a number of months in which we incur expense but we will not have revenue.

For 2014, we anticipate that incremental spending for the Florida MMA program and other growth activities will unfavorable impact adjusted net income per share by $0.25 to $0.30. Regarding the important components supporting our earnings guidance, we currently expect that our aggregate company 2014 premium revenue will be in a range of approximately $11.6 billion to $11.75 billion, an increase of 23% to 25% compared to 2013.

We anticipate Medicaid segment premium revenue to increase approximately 22% to 23% mainly as a result of the Florida MMA implementation growth in Kentucky and our New Jersey entry. We expect premium revenues to our MA segment to increase approximately 22% to 24% year-over-year driven mainly by the Windsor acquisition. We anticipate the PDP segment premium will increase 33% to 37% primarily as a result of our January 2014 and ongoing membership growth offset in part by lower premium rates resulting from our 2014 bids.

Regarding segment MBR, we expect that our Medicaid segment MBR to be in a range of approximately 87.25% to 88.25% compared with 88.2% in 2013. The expected increase premium revenue resulting from the reimbursement by state for the ACA fee has the effect of lowering to 2014 Medicaid MBR guidance by approximately 150 basis points. That is, if the additional premium revenue associated would anticipate ACA fee reimbursement were not included in our guidance. Our MBR guidance range would be approximately 88.75% to 89.75%.

The increase in 2014 compared to 2013 results principally from the implementation of the Florida MMA program. As I mentioned earlier, our anticipated Florida MMA premium per member per month will be higher than our historical experience to compensate us for the enhanced benefits and service required in the MMA program. But, we also expect its MBR in 2014 to be higher than 2013.

For the MA segment, we expect an MBR in a range of approximately 85% and 86% compared with 86.6% for 2013. We will be reporting our new Medicare supplemental insurance products as part of the MA segment results. While our guidance is for the 2014 MBR to decrease compared to 2013, it is important to consider the effect of the ACA fee on our margin including the fee not being deductible in determining income tax expenses. Including the effect of the ACA fee, our MA line of business will be less profitable in 2014 compared to 2013.

We currently anticipated that our PDP segment 2014 MBR to be in a range of approximately 83.25% to 84.25% down from 86.5% in 2013. The year-over-year decrease result mainly from the realignment of our benefit plans and cost structure including the launch of our preferred pharmacy network. In particular to our 2014 bids, we were able to modify our enhanced plan through increased premium rates and cost sharing as well as other changes. That said, like our MA plans, the ACA fee will negatively impact the profitability of our PDP line of business.

Our adjusted administrative expense ratio for 2014 is expected to be between approximately 8.6% and 8.7%, an increase from 8.5% in 2013. The increase results primarily from some of the expenses for growth initiatives and infrastructure investment that I described a moment ago. We expect to report the ACA fee expense separately from SG&A expense. Consequently our administrative expense ratio guidance does not include the ACA fee expense.

Regarding ACA fee currently we estimate that our 2014 fee will be between $125 million and $135 million. In addition, due principally for the ACA fee not being tax deductible, we anticipate that our 2014 effective income tax rate will be in a range of 50.5% to 51.5%. In November, we issued $600 million in notes due November 2020 at a yield of 5.75%. We also enter into a new $300 million revolving credit facility replacing and terminating the previous credit facility. The new long-term capital provide us with additional flexibility to pursue growth opportunities, as a result of the new debt structure, we expect that our interest expense will be between $38 million and $39 million for 2014. This expense will decrease adjusted net income per share by $0.32 to $0.34 compared to 2013.

Although, we typically do not provide forward-looking commentary regarding quarterly result, a few data points are important to identify. First, our PDP segment will have a much more meaningful effect on our financial results in 2014 versus 2013; consequently the seasonal pattern of PDP segment result will have a more pronounced effect on the aggregate company result particularly in the first quarter.

In addition, as I discussed earlier accounting for ACA fee expense and reimbursement may not be in sync until later in the year and for our Florida MMA implementation expenditures will occur primarily in the first half. The combination of these factors will pressure first and second quarter earnings and may result in an adjusted net loss in the first quarter.

In summary, 2014 will be another year of significant growth and investment for WellCare. We are focused on effectively executing on our important growth initiatives particularly in Florida and the integration of the recent acquisition. We also will devote significant efforts to continuing to implement action to help mitigate the impact of Medicare funding pressures and equally important are the meaningful investment we have discussed in quality, care management, service and productivity with the objective of helping ensure our ability to support growth opportunities over the coming years.

Operator, we are ready to begin the question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Tom Carroll with Stifel, Nicolaus. Please proceed with your question.

Tom Carroll - Stifel, Nicolaus

Hey, good morning. So maybe a little more color on the ACA insurer fee as there is no where to explicitly put this in your bids. But it sounds like you are doing everything you can to mitigate as much of it across your spectrum of underwriting levers and SG&A efficiency areas. But I guess give us a sense, if you can, between that $1.17 to $1.26, I mean we're kind of in the middle does – do you think you are going to cover it this year? And then maybe some thought about the impact of that into next year, 2015.

Tom Tran

Hey, Tom. This is Tom Tran. Let me to provide some additional context on the ACA fee. Let me just give you a break down of that so you have some clarity. The ACA fee as we said at a midpoint $130 million of that approximately 70 plus million dollars is for the Medicaid component and the balance is for the MA and Part D.

So for the Medicaid component, we expect that to be reimbursed by the state plus the tax gross up. So for the MA and Part D is approximately $54 million to $55 million. So if you look at our MBR, we essentially have been able to decrease the MBR by 110 bps at a midpoint versus 2013, so you could theoretically say that we have been able to offset the ACA fee. However, the tax effect of that is obviously still meaningful.

Our PDP, the same way, we have been able to really factor that in our bps, and we expect the MBR to decrease as you can see by at least 275 bps. So in a way we have covered some of that but obviously the tax effect of that is still significant. So for 2015, we expect obviously the ACA fee to increase for the whole industry, we don't have visibility into that, yes, so I will refrain from going there at this point.

Tom Carroll - Stifel, Nicolaus

Okay. Thank you.

Tom Tran

Sure.

Operator

Our next question comes from the line of Kevin Fischbeck, Bank of America Merrill Lynch. Please proceed with your question.

Kevin Fischbeck - Bank of America Merrill Lynch

Okay, great. When you guys talked about the reasons for making the CEO change you commented on two things. One was looking for someone who was familiar with running a larger organization and it sounds like some of the investments that you are making here are a reflection of kind of what you feel needs to be done.

The second dynamic was looking for somebody to control costs within the larger organization and obviously G&A guidance is up year-over-year. Just try to get a sense of the kind of $0.65 of investments, how much of this is really ongoing in your view versus costs that should go away for 2015? And what your thoughts are about being able to leverage G&A going forward?

Dave Gallitano

Kevin, this is Dave Gallitano. There are a couple of things going on. First, we are investing in what I would call tools; mostly IT generated capabilities that allow us to manage the business more effectively. Those tools also allow you to increase productivity across a number of activities. And one of the things that we have – that we are doing this year in order to keep things control the way we like to have them controlled, we are using more people than you would expect. As the tools come in line productivity will increase and we will be able to again get cost back in line with what we think is realistic for our circumstance.

The other – so in terms of dividing up the expense, the operating expense that we are talking about this year, I'm not really prepared to do that today, we are still working on and getting an understanding of what we think is achievable with the tools. So right now, if I had to take a wild guess and this is truly a guess, maybe you split it, half of it is ongoing, half of it would come back out or even it is one time or short time expense. The capital expenditure, I think we are going to spend more capital dollars over time. The objective is to get the technology up to what we think is appropriate and then keep it there, whether we spend in incremental $30 million every year over and above what we have done historically, I can't predict that, but I think its probably going to be closer to being in line than what you have historically seeing.

Kevin Fischbeck - Bank of America Merrill Lynch

So, I guess to that end, oftentimes when companies make an investment the way you're talking about it, they will say something like we are going to spend $30 million and we are going to achieve $15 million of run rate savings off of that. Is that the type of thought process that you are going through here that this is a one-time expense, but with a direct kind of return on capital? Or this is an expense that is just kind of needed to bring you up to where you need to be?

Dave Gallitano

Every capital dollar we spend, we look for a return. So there are some obviously that we have to from a regulatory standpoint. But, when we put in place customer service tools for example, our expectation is, our people can be more productive with the tools we give them. Our case managers when we put in tools that help them do their jobs; our expectation is that we will increase productivity.

Kevin Fischbeck - Bank of America Merrill Lynch

And then just the growth investment, it sounds like does that expense go away or is that expense just covered by revenues second half of the year so it just becomes part of the ongoing G&A?

Tom Tran

Yes, Kevin. Tom here. So the growth investments are essentially the upfront implementation cost especially for the Florida MMA, which is very large program. So obviously once the – you incur expense before you actual get revenue into the second or third quarter. So that's what we want pointed out. The upfront costs and following that there will be just run rate, started going into the third and fourth quarter. So you can say that the upfront expense may go away once the revenue is up. There are also, the other program you mentioned before which is the New Jersey long-term, service and support which is state will implement effective July of 2014. So we are scaling up our infrastructure and operation and staff that really be prepared for that implementation as well.

Kevin Fischbeck - Bank of America Merrill Lynch

Okay, great. Thank you.

Operator

Our next question comes from the line of Michael Baker with Raymond James. Please proceed with your question.

Michael Baker - Raymond James

Thanks a lot. Earlier you indicated that the CEO search would kind of take a nine-month timeframe, I was wondering if you could update us in terms of your thoughts around that.

Dave Gallitano

Well, what I previously said, Michael is that we – we wouldn't expect it to be any shorter than nine months. As we previously stated, we have retained the search firm that was in November. And they are continuing to work diligently on that process. We are being – to be candid, very finicky we want a very strong leader, we want somebody that can carry this organization into the future and deal with the growth that we are experiencing and that we expect to continue to experience.

So it's a very robust process. We want a high caliber CEO. And the Board has asked me and I continue to be very dedicated to staying here for whatever duration is required.

Michael Baker - Raymond James

And how about in terms of – from an experience standpoint, how important is Managed Care background?

Dave Gallitano

I think industry experience is always important. But, I don't think it's the only criteria and I think having strong leadership ability and having skills in managing a larger more complex organization is certainly the predominant element of skill that we are looking for. Healthcare clearly would be a big plus. And we are certainly trying to stay within that confine.

Michael Baker - Raymond James

Thanks for the update.

Operator

Our next question comes from the line of Josh Raskin with Barclays Capital. Please proceed with your question.

Josh Raskin - Barclays Capital

Hi. Thanks. I just want to clarify the spanning [ph] of the ACA fee. So are you saying the guidance includes the impact of $1.17 to $1.26, but if you get reimbursed from the state the number would be higher or you assuming in your guidance that you are getting that full $70 million reimbursed from the states and therefore you would expect when you get that payment that your guidance would be in the $3.75 to $4.05 range?

Tom Tran

Josh, we expect to be fully reimbursed by the state for the $75 million ACA fee and including tax gross up. So we look at the premium level. We included in our premium roughly $115 million at midpoint in terms of increase in premium revenue from that reimbursement from the state. So in essence from an after-tax basis they had zero impact to the EPS.

Josh Raskin - Barclays Capital

Right. I'm sorry, Tom, but I'm asking your guidance your EPS guidance --

David Gallitano

Our guidance is net of the reimbursement we're assuming.

Josh Raskin - Barclays Capital

Is net of the -- so it includes it, right? So you're saying that, so when you get paid for this fee that means you would expect to report $3.75 to $4.05?

David Gallitano

That's correct.

Josh Raskin - Barclays Capital

Okay. Thank you. And then just on the MA, MLR pressure, I think you mentioned California. So is that I mean those guys have shown significant growth for multiple years before you bought them sort of off the charts growth? Were they just not properly accrued? Was it their benefit design was not structured right? Are they not – were they just not prepared from a financial standpoint? And then I guess similarly on Windsor, did they account for the fee in their bidding process and the way they changed their benefit designs for 2014?

Tom Tran

Sure. So let me address the California situation. Certainly we believe that all the medical expenses are appropriately accrued and reserved for and that we obviously have the visibility into the 2014 bids. Obviously, we have certainly a strong view about how we want to achieve certain MBR level. What we incur here is essentially a number of network structure that we need to really, I'll call it retooling that as well as I put in some of our medical management initiative really impact the MBR and we are in the middle of very tightly managing that process and we expect that to be, I'll say that favorable effect in 2014.

So we do know about the growth in 2013 very significant growth and 2014 we have slowed that down significantly. So we basically have put the growth brake on and then working on the medical cause as well as admin expense structure. For the Windsor side, yes, the fee assumed in our obligation as part of our purchase agreement and that we obviously know about the bid process and that we're very comfortable with the MBR as well as the financial outcome of that for this year.

Dave Gallitano

I'd just add to what Tom said on California. The primary issue on California provider contracts and those are the ones that we're working through very diligently.

Josh Raskin - Barclays Capital

Right. But usually when you are retooling the network it means you are eliminating high cost providers et cetera. My understanding was Easy Choice had a very narrow network to start. I didn't – or maybe they didn't have a big enough network was my understanding. So wouldn't that save money I guess if you were retooling the network? I guess what is causing the big MLR increase?

Tom Tran

Sure. So for some of our network we have anywhere from global cap to partial risk sharing arrangement and we certainly believe that the network they have especially on the multilingual ethnic network is very strong. But there are certain pockets at networks are really not performing at the level of our expectation and that's where we are going to really focus on those networks, those IPAs to improve the performance.

Josh Raskin - Barclays Capital

Okay. Got you. And then, I'm sorry, just the last question. The four items that you broke out, I am just try to figure out how many of those or what dollar amount of that would you suggest to sort of non-recurring that won't recur in 2015? Obviously, interest expense occurs; the ACA fee probably actually increases a little bit. So I am really just looking at the operational and infrastructure cost and I think Kevin was trying to get to this as well as the growth initiatives. I mean it sounds like you are hiring and taking on all these people. Is there an expectation that those costs will not repeat in 2015 or are these going to be ongoing costs?

Dave Gallitano

Josh, some of those costs will repeat in 2015, we're not prepared today to get into the detail of how that's going to transpire.

Josh Raskin - Barclays Capital

Okay. Understood. Thanks.

Operator

And our next question comes from the line of Chris Rigg with Susquehanna International Group. Please proceed with your question.

Chris Rigg - Susquehanna International Group

Thanks. Just couple of clarifiers on the ACA fee. So the $130 million in the EPS impact, are essentially fairly apples and oranges because you're just talking about $54 million to $55 million is the true net reduction to earnings from a tax in the MA and PDP segments. Is that correct?

Tom Tran

That's correct, Chris. So let me clarify again. $130 million, of that $75 million is really fees relating to the Medicaid segment. And the balance approximately $55 million is for the MA and Part D. That $55 million is really the impact on the EPS that we described.

Chris Rigg - Susquehanna International Group

Okay. And then when you report your results for 2014, you're going to breakout the fees from SG&A. Are you also going to break it out from premiums or is it going to be embedded in the premiums?

Tom Tran

We're still sorting through that, Chris. And then obviously at the first quarter report we'll have more – but we will transparent to let you know the ACA fee impact and whether we got reimbursed by state as well, if not reimbursed by certain other states.

Chris Rigg - Susquehanna International Group

Okay. And then one big picture question which I know is going to be difficult to ask. But, given the CEO transition coupled with the fact that the industry is sort of going through probably the most significant period of change possibly ever. I guess has the Board ever sort of step back and said it is better to go ahead as the standalone entity or have you ever thought about considering strategic alternatives. I guess I just want to get the general mind set in the company, is it unless somebody comes in randomly to say hey we're interested in buying WellCare, the strategy is to continue to go at this as a standalone company indefinitely?

Dave Gallitano

Chris indefinite is a long time. The Board is very convinced WellCare can survive very well on its own two feet. That said, if somebody approached us and wanted to discuss a combination of some variety, we would very – we would obviously listen and we would look at it very carefully. At the end of the day, we will do the best thing for our shareholders. And there is no hesitation to go down either path.

Chris Rigg - Susquehanna International Group

Okay. Thank you.

Operator

And our next question comes from the line of Peter Costa with Wells Fargo Securities. Please proceed with your question.

Peter Costa - Wells Fargo Securities

I am hoping you can give us some comfort on the Part D business. If you look at your Part D performance in the fourth quarter it seems like it was the piece that was a little bit worse performing than some of the other parts of the business relative to your expectations.

You talked about Part D revenues, PMPM rates being down next year given your bids. You point out that – well, I don't know if you pointed out, but you could see that you picked up a number of members likely from a plan that found them unprofitable that were pushing them off, in particular Aetna's members in your basic plan I assume.

And then you have your preferred networks and your enhanced plan which maybe helps you, but you are still really looking for over 200 basis points of improvement in your loss ratio given that we've seen increases in generic drug prices and we have seen the Hep C drug costs that are likely to come next year that are hard to forecast. How can you give us comfort that you are going to get the 200 basis point plus improvement in your loss ratio?

Tom Tran

Sure, Chris. Sorry, Peter, this is Tom. So we described our 2013 negative impact from the enhanced product, right, not the basic product. Basic products performed very well and within our expectation. So we have retooled the enhanced product as part of our 2014 bids including premium increase would beneficiary as well as cost sharing. And then obviously with the preferred network we believe that that costs allow us – cost reduction allow us to bid competitively.

So regarding enhanced product, we have seen essentially decrease in membership for 2014, which is the effect that we expect out of our 2014 bid. So the basic product is where we have significant growth as of January 2014 resulting from our bids obviously, below the benchmarking 30 to 33 regions. And we are comfortable with the way that we bid as well as the cost structure. So that's why we expect the improvement and much of the improvement is really from the enhanced product portfolio.

Peter Costa - Wells Fargo Securities

That's helpful. Thank you.

Operator

Our next question comes from the line of Carl McDonald with Citigroup. Please proceed with your question.

Carl McDonald - Citigroup

Thank you. I wanted to come back to Tom's question around Medicare Advantage and the industry fee. In the answer there it sounded like what you were saying is that the base amount of the industry fee was incorporated into the bids, the non-tax-deductible portion was not. So is that how to think about it that the non-deductible portion of the Medicare hit is the piece that's actually hurting the EPS number?

Tom Tran

Well, I wouldn't characterize it that way Carl. We just want to point out the fact that obviously when you look at our CTP the MA medical loss ratio, it dropped over 100 bps. So we are making improvement and really retooling the benefit design the network our structure as well as our medical cost management. But I just want to provide a comparison when you reduce your MBR by 110 bps; you still had the effect of the ACA fee when you look at the gross margin or the operating margin of that business line, that is what we're trying to point out. Certainly when we bid for that we factor into our equation the impact of both obviously the MA reimbursement cut as well as the ACA fee but we point out that obviously it would not be able to absorb all of that.

Carl McDonald - Citigroup

So when we look at the $1.17 to $1.26 range that you provided for the impact of the ACA fee, what you're saying basically is the net impact on earnings is much, much smaller than that because you have offset it in the Medicare bids?

Tom Tran

Yes, that's another way to look at that. So, yes.

Carl McDonald - Citigroup

Okay. And then the other question I had was just a high level on Kentucky. It has been a fairly profitable market for you. In 2013, you mentioned the good Medicaid expansion growth. There are some new competitors that will be in the market at least to compete for your members starting around midyear. So I'd just be interested in your thoughts around do we see margins in Kentucky normalize? Are you factoring in any significant enrollment losses? How do you think that will play out?

Dave Gallitano

We believe Kentucky is – we believe we have a very strong relationship with our state partner in Kentucky. And we're very confident of the numbers we have in our budget for this year vis-à-vis Kentucky. I was in Kentucky last week met with the people there I think we have a very strong group of people there.

Tom Tran

Carl, just to provide some additional point to what Dave said is that, January we saw significant membership growth based on our base membership as well as the ACA expansion. And that – the way it works in Kentucky even though you have new competitors entering the market effective July, the stay doesn't really take your members and reassign them. You keep your members and there is obviously the member of free to really choose plan, if they wish. However, we expect the impact of that to be minimal because we have very strong network, healthcare management, our customer service model is very strong. So we have – we will watch that but I don't want to get prediction but I feel pretty good that our membership will be very strong going towards the end of this between now and at that time.

Carl McDonald - Citigroup

All right. Appreciate it. Thank you.

Operator

And our next question comes from the line of Chris Carter, Credit Suisse. Please proceed with your question.

Chris Carter - Credit Suisse

Thanks. Good morning. Just to maybe follow-up on Kentucky commentary. Could you tell us how many Medicaid expansion – excuse me enrollees you picked up in January in the state?

Dave Gallitano

Sure. The ACA expansion we call that. We see somewhere between 35,000 and 40,000 members in January. So that's obviously the ACA expansion population that is funded 100% by the Fed. So the state had expected to see over a period of years maybe not one year but longer that the expansion will increase Medicaid membership by approximately 300,000 members. So what we have seen is that mostly for who went to navigate or still in enroll into the ACA exchange and others. The majority of people somewhere between 70% and 80% of them qualify for Medicaid, obviously then they get sent back for the state to really get qualify to enroll. So that process is obviously a slow process, we can now months to really get to, I'll call that full penetration of that.

Chris Carter - Credit Suisse

Okay. And then just maybe I know when you published your contract there you said the rates are obviously higher for the expansion population. Could you maybe help quantify for us how different the rates are for expansion versus your legacy book?

Tom Tran

I won't go into the detail of that but I will say the very meaningfully higher event the base rate that we see for the existing population in anticipation of potential pent-up demand in service as well as the unknown factor of the population. However, in Kentucky there is a risk adjustment mechanism. Therefore, over a period of time you would see that normalize regression back to whatever the population that you service.

Chris Carter - Credit Suisse

Okay. And just maybe one more on a separate topic, but could you just talk to us about what your guidance seems for accretion for the Windsor book?

Tom Tran

Yes. We don't provide a detail of what we expect Windsor to be – provide some accretion to our EPS in 2014.

Chris Carter - Credit Suisse

Okay. Thank you.

Operator

And our next question comes from the line of Brian Wright with Monness, Crespi and Hardt. Please proceed with your question.

Brian Wright - Monness, Crespi & Hardt

Thanks. Good morning. Couple of real quick questions. Could you help us out with the impact of provider pass through payments on medical claims payable for the year end this year versus year end a year ago?

Tom Tran

Sure. You're talking about essentially the parity payment PCP, is that correct?

Brian Wright - Monness, Crespi & Hardt

That's correct absolutely, yes.

Tom Tran

Okay, right. So we have various models adopt by states some is pass through some are considered what I call capitation restructure. So overall, in 2013, we record approximately $120 million to $130 million of that so called pass through in our financial statement. Obviously this may not, most of that's really pass through so impact of the earnings is somewhat smaller minimal.

Brian Wright - Monness, Crespi & Hardt

But is that what's on your balance sheet at the end of 2013 the $120 million, the $130 million.

Tom Tran

Yes. Right. So the IBNR or the claim reserves were up and having impact of about two days throughout DCP. But as you know, this is just a timing issue, then it will probably clear out in the next quarter or two.

Brian Wright - Monness, Crespi & Hardt

Okay, thank you. And then just the last question is – so this is the second quarter in a row where you had met between prior year and prior quarter unfavorable development and yet the medical claims payable went down $11 million sequentially. Did you think at all about increasing your provision for adverse deviation given what you saw for two quarters in a row now?

Tom Tran

Obviously, the claim reserve is an estimated of point in time. We believe that our claim reserve methodology is consistent and that our provision for effort deviation methodology [indiscernible] as our prior -- our current practice, so we don't see anything unusual there Brian.

Brian Wright - Monness, Crespi & Hardt

Okay. Thank you.

Operator

And our next question comes from the line of Scott Fidel with Deutsche Bank. Please proceed with your question.

Scott Fidel - Deutsche Bank

Thanks. I actually just wanted to follow up on just the negative PPD of $30 million to Medicaid in the fourth quarter. If you can just give us some more details on exactly what the drivers were there in terms of markets or product segments.

And then, just interested if you have seen any increase recently in claims acuity or severity in the Florida business that was something that one of your peers just cited that they saw the fourth quarter.

Tom Tran

Yes. For me it's further across Florida. We haven't seen anything unusual in our Florida market, okay? So relating to the PPRD for the fourth quarter as we comment before that most of that's from the Medicaid segment and I would say that two markets in particular. One is Georgia where we have some higher claims on the behavioral health side and we addressed that already. So we expect that to be pretty much under control as we see. Second is in Kentucky, there were some as I will call that retro membership activities.

So the impact of that is reduced by the retro revenue that we receive. So when you look at just purely from a claim reserve development you see that as an impact for the claim but in fact the EPS in fact is somewhat less. So those are the two areas that really impacting most of the PPRD for the fourth quarter.

Scott Fidel - Deutsche Bank

Okay. And then just my follow-up question is just in terms of thinking about the after-tax margins in MA. As we think about the reimbursement pressure that the industry is experiencing, WellCare is experiencing and then the hit to the after-tax margins from the [indiscernible] you have cited and then also the increase investments that you are making for things like MA stars improvement. How does that all flow through into after-tax margin in MA? It seems like you do expect the business to be profitable in 2014, but should be thinking about after-tax margin maybe in sort of the 1% to 2% area?

Tom Tran

Well, we look at operating margin and after-tax margin for the whole company on a consolidated basis. We don't provide operating margin down to that segment level. But it will be fair to say that given the impact of the ACA fee and higher tax rate you would expect that if you were to allocate expense and so on down to that segment level that after-tax margin will be less in 2014 versus 2013.

Scott Fidel - Deutsche Bank

Okay. But you definitely expect MA after-tax to be profitable in 2014, right?

Tom Tran

We don't provide pre-tax or after-tax by segment. So I would focus on a gross margin level minus whatever impact of the ACA fee that I mentioned before.

Scott Fidel - Deutsche Bank

Okay. Thank you.

Operator

And our next question comes from the line of Dave Windley with Jefferies. Please proceed with your question.

Dave Styblo - Jefferies

Good morning. It's Dave Styblo filling in for Windley. Couple questions, just wanted to hear a little bit more about – obviously you guys just gave 2014 guidance and I want to look ahead a little bit to 2015 since there is quite a bit of investments that are one time that you've suggested might go away. But I am thinking about other tailwinds.

Can you help us think about what other headwinds and tailwinds to think about in 2015? I am thinking things like Windsor and then obviously the MA rate pressures. But can you provide us maybe a list of things that you see going forward into next year?

Dave Gallitano

The two big things that I think are going to continue to impact the industry are the ACA fee which is obviously very significant and also just funding pressure, those are the two big items that I see.

Dave Styblo - Jefferies

And then on the tailwind side?

Tom Tran

We're not prepared to go into 2015, right now. But certainly we'll continue to address our medical cost structure. We'll continue to address our administrative expense structure. So those are things that we can continue to do as well as enhancement if any on our quality rating at the state level as well as at the federal levels. So that's what we continue to work on and expect to have some positive effect for us going forward into 2015.

Dave Styblo - Jefferies

Okay. My second question is just about your capital. The debt raise obviously gave you a little bit more cushion. I am just wondering, what are the sources and how do we think about a roll forward going from here? I mean are you using some of that cash to clearly make some of these investments? And then beyond that can you elaborate on what your priorities are for that cash?

Dave Gallitano

Sure. The things that we're being very focused on are ensuring that we fund and build the infrastructure we need to allow us – that will allow us to continue to grow and do so profitably. So that's a big part of it. Acquisitions as I've stated before we will continue to be opportunistic on those although this year, I think you would, I would expect you to see fewer acquisitions if any as we focus primarily on integrating those that we've already closed.

Tom Tran

Just to add a couple of other data points here. Obviously, we will continue to generate positive cash flow as we expect from each year. And second is that, we have some pending acquisition that will deploy some of that capital and additional capital we have the ability to fund both organic in any other kind of non-organic opportunity. So we're very well-positioned from a cash view point that's that we will focus on really deploying capital for growth.

Dave Styblo - Jefferies

Great. Thanks.

Operator

And our next question comes from the line of Andy Schenker with Morgan Stanley. Please proceed with your question.

Andy Schenker - Morgan Stanley

Hey, good morning. So Dave, in your prepared remarks you said while you expect the states will reimburse you for the seed [ph] the funding will impact your budgets. Are you guys seeing a little bit more pressure, maybe a little bit more contentious negotiations with the states around future rate updates as they try to absorb the impact of the fee and the tax gross up? Thanks.

Dave Gallitano

Well, right now, we are seeing we are feeling pretty positive about the ACA fee reimbursement on the Medicaid side. The funding pressure is continuous and we fully understand this -- the objectives – our government partners have both federal and state. Our issue is that I think we're getting to the point where providing level of care needed particularly for a very needy population is certainly becoming a lot more difficult and that includes funding to get to the provider networks that we need to serve that population. That is just becoming more challenging.

Andy Schenker - Morgan Stanley

Okay. And then thinking into 2015 here, any thoughts about entering exchange at that point or still kind of wait and see?

Dave Gallitano

Well, we didn't talk about 2015 but we are looking at exchanges this year that is, we have I would call it incubating some exchange activity in 2014 that is in our budget. And our focus is primarily on serving the members that we target and our intention is not to become a commercial provider, but we do want the ability to serve and retain a member as they move in and out of the government programs.

So for example, a lot of the Medicaid population end-up on Medicaid as a result of a loss of job. So if they get a job, we would like to be able to hold on to that member with the product that is suitable for that individual. And so it's not migration in and out of the government programs that we're focused on and the members that are part of that migration.

Andy Schenker - Morgan Stanley

Okay. So you guys are at least interested in it and thinking about it.

Dave Gallitano

Yes. And it's really a question of how we participate. We have to design a way that is suitable for our organization and as targeted at the members that we serve.

Andy Schenker - Morgan Stanley

Right. And then just lastly here, on the woodwork eligibles, is there any expectations – in your numbers, I know it is obviously still early, are you guys seeing any incremental movement maybe in some of the states that you are in that did not expand things?

Tom Tran

We don't see that much in terms of the five states I mentioned before Kentucky was the most positive effect that we've seen the other four states we have seen very little in fact of the woodworking that everybody has been talking about.

Andy Schenker - Morgan Stanley

Okay. Thanks.

Operator

And our next question comes from the line of Ana Gupte with Leerink Partners. Please proceed with your question.

Ana Gupte - Leerink Partners

Yes. Hi. Thanks. Good morning. So I'm assuming that the $50 million that was in this Medicare Advantage and it is not just non-deductibility. But taking the question more broadly, you have a low income focused with networks in low income neighborhoods. What are you seeing with providers who are capitated and that you are potentially passing on some of that rate pressure and under funding pressure, may be its tax related or not, but it is at least way beyond the taxes. Are you seeing more coding creep perhaps where you have partially capitated contract arrangements?

And then on the flipside, on the upside are they more incented to do better for you on the star ratings where you are lagging peers?

Dave Gallitano

Ana, there are a couple of things going. We are very focused on coding creep and that's something that we put a lot of effort into managing. From a quality standpoint one of the things we are looking at this year and one of the things we have built into our budget is providing incentive to our providers to focus on quality with us. We want them to partner with us more. So we are implementing a pay-for performance plan this year and that is in our budget.

Tom Tran

Let me add a couple of things to what Dave said regarding the coding impact. Obviously, as you know under the MA program, they are facing the rebasing of this risk adjustment and that obviously have an impact more pronounced impact to us because we serve the lower income population. So in 2014 that basin is approximately 75% of that, next year we'll still be in another 25%.

So we are focused with work our obviously MA provider partners that insure they understand and they'll focus on closing care gap and really provide a better care and obviously that would increase the risk score, the risk stratification of the members.

On the other hand, we mentioned previously that approximately 70% of our membership in MA is with some sort of risk sharing providers arrangement. That number will come down a little bit now because Windsor is less into it have lower risk sharing structure than we in WellCare do have. But, we expect that to provide some, I'll call it alignment of interest between us and our providers. Certainly that will provide some shock absorber and not all of that.

Ana Gupte - Leerink Partners

Okay. So it sounds like it is not just about top line but you are focusing on cost and quality and they are coming along with you on that.

Dave Gallitano

Yes, very much so.

Ana Gupte - Leerink Partners

The next question is also related to this, but your benefit design seemed to be a lever to offset some of the rate pressure. Your loss ratios in 2014 are being guided at a pretty nice level considering all the pressures that you have got, albeit that the tax rate goes up a ton but nonetheless.

What is driving the growth here given that the benefit design may be less rich, what value are you adding? I think you mentioned that they don't really care about silver sneakers and eyeglasses and that is not your target market. Are you getting it from agents or are you getting it from smaller plans or is it from the large – the Uniteds of the world that might be pressing up?

Dave Gallitano

I think it's a combination of everything you just said. It's not from any one particular area. Our benefit design we believe is very competitive with the folks that we compete against in the various markets we're in and certainly where we bid, the bidding process is very focused on benefit design. So we feel we're very competitive, we don't think we're doing anything that is putting us at a disadvantage.

Ana Gupte - Leerink Partners

So it is all of the above. Okay. One final question, what is guiding your move into Medigap? I think Kaiser put out something saying that seniors in America – healthier, wealthier, sicker, poorer and I thought you were at least in the poorer range if not sicker. So is this a focus to broaden your offering?

Tom Tran

Yes. So we enter into the Medigap business, the MedSup business with the acquisition Windsor so they have roughly about 50,000 MedSup members. And we believe that their pricing and the target -- the market they target is pretty compelling in terms of looking at the loss ratio very reasonable. I won't go into the details beyond that discussion but we think there are some opportunity here that we are still exploring and that we'll have more to say when we just obviously saw operating this business in about 30 or 40 days, so we are assessing and to see if there is a stronger program for us to even improve on that.

Ana Gupte - Leerink Partners

Got it. So it's only Windsor, okay. Well, thank you for taking the questions. That's helpful.

Operator

Mr. Haddad, there are no further questions at this time. I'll turn the call back over to you.

Gregg Haddad

Thank you, operator, and thanks to everyone for participating in today's call. We look forward to talking again with you soon.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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WellCare Group (WCG): Q4 EPS of $1.09 misses by $0.06.