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Executives

Julie Loftus Trudell - SVP, IR

Jim Carlson - Chairman and CEO

Jim Truess - EVP and CFO

Dick Zoretic - EVP and COO

John Littel - EVP, Government Relations

Analysts

Scott Fidel - Deutsche Bank

Charles Boorady - Credit Suisse

Melissa McGinnis - Morgan Stanley

Josh Raskin - Barclays

Tom Carroll - Stifel Nicolaus

Chris Rigg - Susquehanna Financial

Matt Borsch - Goldman Sachs

Michael Baker - Raymond James

Peter Costa - Wells Fargo Securities

Carl McDonald - Citigroup

Sarah James - Wedbush Securities

Ken Levine - UBS

Scott Green - Bank of America/Merrill Lynch

Amerigroup Corporation (AGP) Q4 2011 Earnings Conference Call February 17, 2012 8:00 AM ET

Operator

Welcome to Amerigroup Corporation’s Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After management’s presentation, you will be invited to participate in a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded today, Friday, February 17, 2012.

I’d now turn the conference call over to Julie Loftus Trudell, Senior Vice President of Investor Relations at Amerigroup. Please go ahead.

Julie Loftus Trudell

Good morning, and thank you for joining Amerigroup’s fourth quarter 2011 conference call and webcast. With me this morning are Amerigroup’s Chairman and CEO, Jim Carlson; and Chief Financial Officer, Jim Truess. In addition, Dick Zoretic, our Chief Operating Officer; and John Littel, our Executive Vice President of External Relations will be available for questions.

The press release announcing our fourth quarter earnings was distributed this morning. A replay of this call will be available shortly after the conclusion of the call through Thursday, February 23, 2012. The numbers to access this replay are in the earnings press release. The conference call will also be available through the Investors’ page of the company’s website approximately two hours following the conclusion of this live broadcast for 30 days. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, February 17, 2012, and have not been updated subsequent to the initial earnings call.

During this call we will make forward-looking statements including statements relating to our growth prospects including the State of Washington, contract award, the dual eligible opportunity, rates, medical cost trends, the closing of the Health Plus acquisition as well as our 2012 outlook. Listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations and we advice listeners to review the risk factors discussed in our press release this morning as well as other SEC documents that have been furnished or filed with the SEC.

I’d now like to turn the call over to our Chairman and Chief Executive Officer, Jim Carlson. Jim?

Jim Carlson

Thank you, Julie, and thank you all for joining us this morning. In the fall of 2010, we described 2011 as the year in which we would lay the foundation for significant growth ahead. We predicted that we would grow the top line a little bit slower than usual, high single-digits over 2010 and we would see very important new and renewal business come to market. We were tested from a competitive perspective and couldn’t be happier with our success in that front.

In fact we believe that our 2011 success will set the stage for growth for several years to come. We surpasses the 2 million member mark and total revenues exceeded $6 billion. 2011 was also a strong year for earnings with a 3.1% net income margin. We now expect dynamic growth in 2012 and beyond.

As you can see from the 2012 outlook parameters as outlined in the press release, we expect our earnings to be impacted particularly in the first half of 2012 by the large volume of new business being implemented in the first quarter and the targeted closing of the Health Plus acquisition in the second quarter.

I think we might further describe 2011 as a tipping point. Regardless of exactly when it happen is pretty clear that by the end of the year, the value proposition, the track record of the private sector and state budget challenges all converge to yield wide spread acceptance of managed care as the preferred strategy for administering publicly funded safety net programs. And that has certainly been evidenced in the discussions on the dual eligible opportunity which I will talk about in a few minutes.

Well as I noted, we are very pleased with our successful participation in a number of highly competitive opportunities to expand our business. Including the consistently high technical scores we have been awarded. In the largest managed care RFP in history, we maintained our positions as Texas’ leading managed care vendor in terms of market share adding about $1 billion in annualized revenue beginning in 2012. Texas continues to be on the forefront of Medicaid privatization and their long-term care program studied by many other states looking to address similar populations.

Louisiana our 12th states represents a carefully designed program to move approximately 865,000 citizens into a statewide managed care program. The first phase the New Orleans region went live on February 1, and we are pleased with our initial positioning. The remaining regions are expected to go live on April 1 to June 1 of this year. And several other markets including New Jersey, New York, Ohio, and Virginia, we have expanded our product offerings and service areas.

Our planned acquisition of Health Plus in New York will provide an additional scale and leverage in a market with the largest Medicaid spend in the country. We believe we are on-track for a second quarter closing. Beyond this acquisition a number of opportunities remain in this market, notably New York’s plan for addressing their dual eligible population through their Medicaid Advantage Plus program.

And finally, the Washington State Healthcare Authority announced in January its intent to contract with us and for other firms as a result of a state-wide bidding process. We expect to participate in Washington’s Healthy Options program and provide services for TANF and CHIP as well as more than 100,000 seniors and people with disabilities who are not also eligible for Medicare. Additionally, we expect to participate in the State’s basic health program which currently provides subsidized health coverage for approximately 40,000 low income adults. The State has also submitted a letter of intent to CMS on the duals.

We expect to initially operate in 22 of the State’s counties including four of the five most populated counties. The State hopes to finalize contracts by the end of the month. While we are talking about expansion prospects, I’d like to spend a couple of minutes reviewing the dual eligible opportunity.

By the end of the year, the market was beginning to recognize what we have been anticipating for a long time, despite all of the growth in the past year, we believe our largest opportunity may lay ahead of us. The opportunity to help the States with their long-term care challenges and integrating care for individual eligible for both Medicaid and Medicare.

There has been so much recent commentary on the duals, I think it would be helpful to review where we are in the process. Since last July’s letter to the State’s announcing the demonstration initiative, CMS and the State’s have been working on designing State-specific models and resolving various integration issues. On January 25, CMS laid out a schedule for program design and implementation for the remainder of the year. This includes finalizing memoranda of understanding this spring with the states planning to go live on January 1, 2013 and then executing contracts with participating health plans over the summer.

Health plans interested in participating must be qualified by CMS to do so and the notice of intent to apply is due by April 2. Amerigroup has already submitted our notices to CMS for the following states: Tennessee, Florida, New York, New Mexico, Ohio, Texas and Virginia. CMS has probably stated that the goal for membership in this demonstration is to enroll between one to two million individuals during 2013 out of the total nine million dual eligibles today. It’s important to remember that there will be a fair amount of variability among the States participating. That’s the point of demonstration programs. Even the States most often mentioned as first-tier States, those that will go live in January 2013, will have slightly different approaches. So, we believe that most will focus on Medicaid managed care plans as the starting point for their strategy.

Additionally, CMS has given some parameters to the States relative to passive enrollment and the way at which they will merge Medicare, Medicare Part D and Medicaid premium rates. There is an emphasis on markets with long-term services and support programs in place, especially given the frequency with which dual eligible members move back and forth between acute care and long-term care settings.

We now believe that our first opportunity to execute a contract to serve fully integrated dual eligibles will likely be in Tennessee. The pre-Medicaid vendors in Tennessee have met with CMS and meet weekly with the state.

Here’s what we have learned. Rather than issuing an RFP for this population, Tennessee plans to utilize their existing Medicaid program contractors to provide an integrated package of Medicaid and long-term services and supports, Medicare covered services and Part D prescription coverage in three-way contracts amongst CMS, the State and the MCOs.

This approach will utilize the MCOs’ experience with Tennessee’s long-term choice program and ensure the quickest and smoothest transition for members. Premiums for Medicare covered services, including Part D, whether the individual is in fee-for-service or Medicare advantage, will be combined with Medicaid and paid to the Medicaid plans. While there are many issues that must still be addressed, we anticipate contracting with CMS and the State in the summer with go-live on January 1, 2013. All of us, whether CMS, the States or the companies involved have much to do to be ready for such an influx of numbers with very specialized needs.

Through meetings and program design sessions, we are already talking about the process part of the integration and that’s important, especially to CMS and State Medicaid directors. But as we talked about at Investor Day, it is even more critical to remember just how delicate the medical and personal situations are for dual eligible members.

Keeping someone out of the hospital or nursing home often involves being in their home and their community, helping to understand exactly what their needs are and minimizing any change of status that would require institutionalization. Well, we’ve been doing just that for more than 14 years across a growing number of markets. In fact, around 40% of Amerigroup’s revenues are derived from members enrolled in programs other than TANF and CHIP. The experience we have gained in managing nursing home diversion and long-term care services in markets as diverse as Florida, New Mexico, New York, Tennessee and Texas should serve us well as we work to fully integrate the acute and long-term care services for this population.

We understand the importance of in-home assessments, having done nearly 100,000 in New Mexico alone, as an example, and the value of technology like our iPad applications for care coordinators that help us better coordinate the individual needs of that member. We know how vital it is to ensure adequate care in home and community-based settings and have partnered with national and local advocates to ensure the delivery of these services.

As you can tell, we are enthusiastic about the dual eligible demonstration, not only from an expansion perspective, but also because we believe we are exceptionally well-equipped through our experience and platform to address one of the most significant health challenges of our time and on behalf of some of the most vulnerable citizens among us.

We applied CMS in our state partners for their efforts, flexibility and the drive to finally make this integration happen. We have always believed that the potential for transformational growth in this industry is significant. In fact, if the past year is a prologue to the future, our success during 2011 bolsters our confidence as we look ahead.

Emerging opportunity to serve the dual eligibles would be exciting enough in its own regard. But when we also consider the $50 billion pipeline that includes opportunities to expand our presence in Ohio, Georgia and Florida, as well as the millions of people who are expected to become eligible for Medicaid under the Affordable Care Act, a few conclusions come into focus and help establish our 2012 goals.

First, we must bring a single-minded focus to the execution of any new business implementation and do a great job. Winning is a good start but the benefit of growth doesn’t just happen. We have to manage that opportunities successfully just as we have in over 80 implementations in the past. I’m confident that our staff and experienced management team will include strong, national, regional and local operations leadership will continue to deliver.

Second, part of that implementation work means delivering expected financial results as we integrate new programs. Our focus will be to manage this expansion through the startup phase and then to levels consistent with our company long-term historical performance.

Third, we will continue to position the company for further growth, for expansion opportunities in Ohio, Florida and Georgia while preparing for the dual integration opportunity, all the while ensuring that we continue to be very disciplined with respect to taking on the right additional expansions.

Fourth, we will continue our multi-year imperative to improve clinical quality. Achieving these goals will be important in the face of the additional opportunities we’re foreseeing in 2013 and beyond.

And finally, as I look beyond 2012, I can envision long-term scenarios that could place us at roughly three times or more of the revenue we achieved last year. The impact of this dynamic expansion needs to be factored into every decision we make.

With such a robust pipeline, a growing focus on long-term services, the opportunity to integrate and care for the dual eligible population and the recognition by State and federal officials of the value proposition of the private sector, we are very excited by the opportunities in the future that see.

So, with that I’ll turn the call over to Jim.

Jim Truess

Thanks, Jim. Good morning, everyone, and thanks for joining us. Today, I want to cover highlights in the quarter and full-year, and then I’ll wrap up with comments on our outlook for 2012. For the fourth quarter, net income was approximately $32.8 million, resulting in diluted earnings per share of $0.67. This compares to $48.1 million or $0.96 in the third quarter of 2011. For the year ended December 31, 2011, net income was $196 million or $3.82 per diluted share, versus net income of 273 million or $5.40 per diluted share for full-year 2010.

Premium revenue for the fourth quarter of 2011 increased 9.6% to $1.6 billion versus 1.5 billion in the fourth quarter of 2010. Sequentially, premium revenue increased $41.2 million or 2.6%. The sequential increase in premium revenue primarily reflects increased membership and expanded coverage services in several markets. The most significant impact was the further enrollment of the aged, blind and disabled population in managed care in the State of New Jersey.

Fourth quarter premium revenue was also positively impacted by the inclusion of pharmacy services in New York and Ohio as well as the expansion of our service area in Texas. For the year ended December 31, 2011, premium revenue increased 9% to $6.3 billion from 5.8 billion for the year ended December 31, 2010. Fourth quarter investment income and other revenues were $4.7 million compared to 4.1 million in the third quarter of 2011. For the full-year 2011, investment income and other revenues were $17 million versus 22.8 million in 2010.

Health benefits expense, as a percent of premium revenue, was 84.7% for the fourth quarter of 2011 versus 80.4% in the fourth quarter of 2010, and compared to 83.9% in the third quarter of 2011. The sequential increase in the health benefits ratio was primarily due to normal seasonal increases in medical costs. As I discussed on our third quarter call, we anticipated that the fourth quarter would reflect a higher health benefits ratio than the third quarter due to the normal seasonal increase in medical cost as we move toward the winter months with seasonality peaking in the first quarter. The fourth quarter HBR was also higher due to the premium rate reduction in Texas which became effective on September 1.

Finally, we had other routine prior period revenue adjustments that, on balance, were lower than in the third quarter. Offsetting the items which increased the HBR sequentially the underlying medical cost trends during the fourth quarter were lower and slightly better than our expectations. Always nice to see a bit of moderation on that front.

Also, higher levels of favorable reserve development were recognized in the fourth quarter than in the third quarter. Net of associated accruals for experience rebate in Texas, applicable medical loss ratio floors, and other gain sharing arrangements with State customers, our period reserve development favorably impacted the ratio by 160 basis points in the fourth quarter compared to 20 basis points in the third quarter of 2011. For the full-year 2011, the health benefits ratio was 83.7% compared to 81.6% for the full-year 2010.

Selling, general and administrative expenses were 8.8% of total revenues for the fourth quarter of 2011 versus 8% in the fourth quarter of 2010, and compared to 8.2% for the third quarter of 2011. Selling, general and administrative expenses were elevated in the quarter due to some unique expenditures. We reached an agreement in principle to settle a litigation matter and established a corresponding accrual. This matter was previously discussed in our third quarter 10-Q.

We had increased spending for new market start-up activities in Louisiana and Texas. We actively pursue the RFP in Washington State and made investments to enhance our competitive positioning. We incurred transaction and implementation costs associated with the Health Plus acquisition, and we made a contribution to our foundation.

In total, these items increased the SG&A ratio by 70 basis points. For the full-year 2011, the SG&A ratio was 8.1% compared with 7.8% for the full-year 2010. Fourth quarter interest expense was $8 million compared to 4.2 million in the third quarter of 2011. The sequential increase is due to additional interest on the $400 million in senior notes issued in November 2011. For the full-year 2011, interest expense was $20.6 million versus 16 million in 2010.

The fourth quarter tax rate was 35.9% as compared with 37.2% in the third quarter. The majority of the rate decrease was attributable to settlement of a state income tax audit. The full-year tax rate was 36.9%, down from 37.5% in 2010, primarily due to a decrease in the blended state income tax rate and the state income tax audit settlement I just mentioned.

Cash and investments at December 31, 2011, totaled $2.2 billion, of which 725 million was unregulated, compared to 298 million of unregulated cash and investments at September 30, 2011. The sequential in unregulated cash and investments was primarily due to the receipt of proceeds from the issuance of $400 million of senior notes in November 2011, as well as the dividends received from our regulated subsidiaries.

During the quarter, we repurchased approximately 391,000 shares of common stock at an aggregate cost of $18.5 million and at an average price of roughly $47. For the full-year, we repurchased 3.3 million shares of common stock at an aggregate cost of $176 million pursuant to our ongoing share repurchase program. Our debt-to-total capital ratio increased to 33.8% as of December 31, 2011, from 16.9% as of September 30, 2011 as a result of the $400 million in senior notes that we issued in November. A portion of the proceeds from the new senior notes will go to retire the convertible notes when they mature in May of 2012. I believe a better view of our underlying leverage ratio involves excluding the convertible notes and including the additional $75 million of senior notes we issued in January 2012. With those adjustments, the debt-to-total-capital ratio would be 27%, right within our long-term targeted range of 20 to 30%.

We believe our balance sheet is well positioned. Factoring in the $75 million of additional senior notes issued in January, we have approximately $800 million of unregulated cash in investments. This strong liquidity is particularly important now during a time of significant revenue growth. I want to offer a few specific comments on how we intend to utilize this liquidity during the year.

First, the convertible notes will mature in May of this year, the principal amount is approximately $260 million. Second, we currently anticipate that the Health Plus acquisition in New York will close in the second quarter. The purchase price is $85 million. And we anticipate providing capital contributions to our New York health plan during the year of approximately $130 million, the increased statutory capital position commensurate with the growth in this business.

For the remainder of our existing subsidiaries, we expect to collect dividends from some and invest additional cash in others. On balance, we expect the dividends to roughly offset the contribution.

Turning now to medical claims payable. Medical claims payable as of December 31, 2011 totaled $573 million compared to $545 million as of September 30, 2011. Days in claims payable represented 38 days of health benefits expense in the fourth quarter compared to 37 days in the third quarter of 2011. The sequential increase was primarily due to the quarter ending on Saturday, lowering the amount of claims disbursed at quarter-end.

Looking ahead, we continue to expect that the speed of claims processing will increase. We expect that providers will submit claims more quickly, and we will be able to process them more quickly. And then finally, the inclusion of pharmacy benefits in several States with its rapid processing cycle will further shorten the average cycle time. Therefore, we now expect that our DCP range is more likely to be 30 to 40 days in future quarters.

Cash flow from operations totaled $208 million for the year ended December 31, 2011. Cash used in operations was 35.3 million for the three months ended December 31, 2011. Cash flow in the quarter was negatively impacted by no advanced premium payments in December. And, therefore, the unearned revenue liability approached zero at year-end. This is just a timing issue. We had received October 2011 premium payments in September from Maryland and Florida. This early receipt of premiums did not occur in December. Maryland and Florida paid their January premium at the beginning of January.

The important thing to remember is that large variability and cash flow from operations tends to be driven primarily by changes in working capital accounts, such as timing of premium payments, tax payments or movement from the claims liability to name a few.

In movement in these working capital accounts, either positive or negative, doesn’t generate deployable cash. As I mentioned in our third quarter call, a favorable timing item in one quarter typically yields an unfavorable timing item in a subsequent quarter just as we experienced between the third and fourth quarters of 2011. More importantly, we generated solid free cash flow in 2011 at the parent company level with record dividends.

Let’s now turn to our outlook for 2012. On our third quarter call, I provided some general thoughts around our 2012 outlook parameters. This morning, we introduced our specific parameter ranges for 2012 which remain consistent with our discussion last quarter.

2012 is likely to be a story of two-halves, the first half versus the second half. Historically, our earnings progression is slightly biased towards the second half of the year. And by that, I mean, more than half our earnings are usually recognized in the second half. There are a couple of reasons for this, the most important being the seasonality of medical costs and the timing of annual rate increases.

Again in 2012, we expect that earnings will be biased to the second half of the year. But this year, we expect the bias to be much greater than normal. The difference in 2012 has to do with the volume of new business coming on in the first and second quarter. At the onset of new business, both administrative and medical cost ratios are generally higher than levels that will be reached a few quarters beyond the start-up point.

One key measure of this magnitude of new business involves our revenue growth rate. We expect 2012 total revenues to increase approximately 40% on a year-over-year basis. We anticipate the key drivers of revenue growth in 2012 to be new market and product expansions and the inclusion of additional covered benefits. More specifically, this includes the Texas expansion which goes live in March of 2012, the planned Health Plus acquisition which we currently expect to close in the second quarter and our new market entry into Louisiana, which is a three-phase rollout that began in the first quarter.

And finally, we will have expansion in existing markets primarily reflecting increased membership and expanded covered services. We haven’t factored our expected startup in Washington during the third quarter into our revenue estimates yet. We will incorporate that information in the future as more details firm up.

We expect the full-year health benefits ratio to fall within the range of 85.8% to 87.3% of premium revenue reflecting suppressed premium rate actions received in 2011 that continue in place through a portion of 2012 as well as the impact of higher health benefits ratios on new business.

We expect the full-year SG&A ratio to be approximately 7.2% plus or minus 20 basis points. This reflects economies of scale achieved through large-scale business expansion and ongoing efficiencies in our core operations. Because we are able to support the new business growth using our established infrastructure, these expansions contribute to a significant improvement in the SG&A ratio. For the full-year 2012, we expect the net income margin to be in the range of 1.5% to 2.5%. The full-year net income margin range is suppressed by approximately 40 basis points due to a few different factors. In most cases, related to the large-scale business expansion.

First, in addition to estimated medical cost per new business, we will also establish an actuarial margin for adverse deviation on top of our point estimate for claims payable. This means reported medical expenses on a new piece of business are elevated due to the expectation that costs will be higher in the first year than following years and the impact of establishing the actuarial margin as the new claims liability build.

Second, we expect to incur elevated SG&A expenses associated with the implementation of new business, business development cost for future business, and transaction and integration cost for the Health Plus acquisition. Even though the SG&A ratio is expected to be down substantially in 2012, there are certain expenditures we are incurring associated with new business, without which the SG&A leverage would be even greater.

Also, I should note that based on more detailed analysis over the last couple of months, the Health Plus acquisition is now expected to be neutral to earnings in 2012. We have previously indicated we thought it would be slightly dilutive. The final higher cost item in 2012 is the increased interest expense prior to the maturity of the convertible notes in May of 2012.

Although the full-year net income margin in 2012 is currently projected below our long-term range of 2.5% to 3.5%, we expect to approach, if not operate within the long-term range during the second half of the year. In light of the company’s revenue potential in 2013 when we expect to enjoy the full-year effect of the various expansions occurring in 2012 and our belief that we can operate within our targeted net income margin range over the long-term, we remain enthusiastic and optimistic about the future.

For our final parameter, we expect fully diluted shares outstanding to be approximately 49.5 to 50.5 million. Again, the share count involves a story of the first half versus the second half of the year. As we have discussed in the past, while the convertible notes remain outstanding, we recognize the dilutive potential from them in our diluted share count. This is in spite of the fact that the dilution of the convertible notes themselves are fully hedged. Upon maturity in May of 2012, this dilution will end.

The fourth quarter fully diluted share count included 1.2 million shares associated with the convertible notes that are fully hedged. Certainly, there are other factors that will impact the share count during the year but this is an important one to remember and it goes away in the second half of the year.

While we usually don’t give parameters on some of the smaller items on the income statement, I wanted to detail a couple of directional indicators and reminders for those that maintain detailed models. We expect that investment income will rise in 2012 approximately 30% due to higher investible balances coming from the proceeds of our senior notes and the favorable cash flow impact that comes from business expansion.

The weighted average premium tax rate in 2012 is expected to decline slightly from 2011. This is just due the difference in the proportion of revenue that will come from the various States in 2012 versus 2011. And as I’ve just mentioned, interest expense will increase. We have $475 million of 7.5% notes outstanding and expect the convertible notes to remain outstanding until May 15. Between the 2% coupon and the accretion on the discount, we expect to recognize approximately $4.8 million in interest expense on the convertible in 2012.

Before we wrap up, let me touch on one item related to the first quarter. We expect the cash flow on the quarter will be positively impacted by the increase in claims liability from growth in the business. Also, I mentioned earlier we did not receive the earlier receipt of January premium in December of 2011, which drove down our unearned premiums balance at year-end and had an unfavorable impact on operating cash flow in the fourth quarter.

In the first quarter, we anticipate unearned premium revenue returning to more normalized levels, which will create favorable cash flow in the quarter. However, our cash flow in the quarter will be pressured by a decision in Georgia to delay premium payments during the first quarter. We understand the State is addressing some cash flow timing issues. We estimate that premium receivable could increase by as much as 130 million by the end of the first quarter due to the delay. Given our strong liquidity position, we are able to bridge this timing delay and support our State customers. We understand that Georgia will catch up during the second quarter and return to be in current on premium payments.

With that, let me conclude here so we preserve some time for questions. Operator, we’d like to begin the question-and-answer session. We ask that you limit yourself to one question and a follow-up so that we can accommodate as many questions as possible.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Scott Fidel with Deutsche Bank.

Scott Fidel - Deutsche Bank

First question just on the Tennessee duals, maybe if you can share with us how much revenue you think could be up for grabs due to this opportunity with the integration plan there? And then maybe just more broadly help us think about how you think about margins for dual-related populations over time as that matures relative to the long-term 2.5 to 3.5% margin view that you have?

Jim Carlson

Well, Scott, good morning. Just give you a couple of data points to think about. First, I think we’d probably be reluctant to quantify the revenue here because we’re not under contract yet. I think there are still some moving parts on how the State’s going to do this and it’s probably a little premature for us to size that for you. From a margin standpoint, again, until we see the rates, we’re not going to know exactly how to think about this. But I would say that the preliminary data we have would suggest that the, thinking is much about making sure the programs works. Obviously, there’s some inefficiencies that can be identified and removed for better coordination. When you think about going into a Medicaid de novo opportunity in some of the managed care savings that are built into those rates, it feels to us like the integrated revenue will be a little bit better from a starting standpoint than we typically see. Often, you see a double-digit in managed care savings assumption and a Medicaid, right. We’re not thinking that it’s going to look like that right now based upon what we know. But I think I’ll probably stop there given that there’s so much we still have to find out.

Scott Fidel - Deutsche Bank

Okay. And then just sticking on the dual subject, you guys have the benefit of operating in a number of the States where CMS is working with them on these different pilot programs, the 15 States. So, you mentioned a number of those where you’ve submitted letters of intent to potentially participate. I’m just interested as you’ve reviewed all of these different structures, some of the States that you think are showing the most interesting structures or sort of best approaches to solving this issue.

Jim Carlson

I think I’ll punt that over to John. He’s the closest to the day-to-day conversations we’re having.

John Littel

Hey, Scott, good morning. I think as Jim said earlier, I think there’s still a lot of variability in the States. I mean, they’re really kind of looking at the enrollment mechanisms and sort of network requirements and things like that. So, I think that, as Jim also noted, the States with long-term care programs, they seem to be a little bit further along. And they have something to build off of. So, we do see that Medicaid managed care being the platform in those States because they have that experience and kind of taking all the elements that CMS offers some variability on and then kind of tailoring it specifically to those States.

Jim Carlson

One point that I’ll follow back on here that we probably might have made more strongly in our prepared remarks now that you’ve asked the question is that I think all the dual integration discussion is stimulating a lot more activity within the states about the long-term-care question. And we’ve been in this long-term care programs and a number of markets. And so, a corollary benefit to all the strategic work that’s going on is we think there may be an acceleration of some of the new business opportunities on long-term care, which we’re very pleased to see.

Scott Fidel - Deutsche Bank

Okay. Then just one last quick one just for Jim Truess on the share account. Jim, maybe because of the dynamic of the converts maturing. Can you help us think about maybe a share count would compare in the first half of ‘12 relative to the back half of ‘12?

Jim Truess

Sure, you bet. Because of the convert in this issue around the dilution, we do expect more likely than not that the share count’s going to be higher in the first half of the year. And then after that dilution comes up when the convertible matures, share count will come down in the second half of the year. Obviously, there are other variables that affect the share count. It could be different but sitting here today that’s our expectations.

Operator

Your next question comes from the line of Charles Boorady with Credit Suisse.

Charles Boorady - Credit Suisse

You know, I recognize a 40% revenue growth makes it difficult to predict margins of any great precision and I appreciate the thought you’ve put in have given us parameters around 2012 which is very helpful. I’m wondering think about fine tuning my model, what are some of the main factors that you think could take you to either the high end or the low end of that range of the guidance?

Jim Carlson

Jim, go ahead.

Jim Truess

Sure. Good morning, Charles. Thanks for the question. Yes. I think probably it’s similar to what it would be in any year, sitting here at the beginning of the year there’s still a lot of unknowns. And the two most powerful factors usually that drive our performances what happens on rate renewals that we get. And certainly in our business, the more significant rate renewals are in the second half of the year. And also of course, the progression of medical cost trends during the year. And I think to the extent those were to come more than favorable side, that’s likely to push us up in the range. We’re certainly very gratified at the end of the fourth quarter to see that. We saw some moderation in medical costs a little bit lower than we expected and so you always when that happens, appreciate that and feel good about that. So, nice way to start off the year, but we’re still at the beginning of the year and quite a few quarters ahead.

Charles Boorady - Credit Suisse

Got it. And specifically with the rates, Texas rates an issue at all, or is the mechanism through which they share excess profits, etcetera was just a contracting relationship one where you have a good-enough read on the rates and how it’s going to flow through to your bottom line that that’s not going to be a concern?

Jim Truess

Well, I think, yeah, we continue to feel real good about the way that the State of Texas handles the rate-sending process. I mean, they’ve just been a fantastic partner over the years. And continue to handle that whole matter in a highly professional and effective manner. As we’ve talked about in the past, it is our expectation that during 2012, we probably will have a smaller volume of premium rebate or profit share, as we call it in Texas, than we’ve had in years past because of the change on premium rates. So, that’s our expectation. And we do think when you look at the experience of the plans across the State, that more likely than not, a more normalized rate increase is likely in Texas than warranted. And I think given their track record over the many, many years that we’ve been in Texas, they’ve always handled this in an appropriate and prudent fashion. And that’s certainly our expectation again for 2012.

Charles Boorady - Credit Suisse

Okay. Great. Just finally, can you tell us anything about Washington State?

Jim Truess

Sure, just a couple of comments. Obviously, we’re thrilled to be able to enter the State. One of the things that we decided to in the fourth quarter was make some additional investments in that market and really pursue that aggressively. And if you will allow, it was great to get an almost immediate return on investment on those dollars that we’ve spent in the first quarter when the awards were announced. So, we’re thrilled to enter that State. We’re excited about our opportunity. We really ended up in the counties that we wanted to be in. And we’ve got a team on the ground and ready to go. And we’re excited to be a part of Washington, and as Jim mentioned in his comments, there are also some interesting possibilities in Washington around how the dual-eligible population may be handled there. So, a lot of potential in an interesting market for us. So, we’re excited.

Charles Boorady - Credit Suisse

Did your guidance range contemplate any contribution from Washington at all to revenue or EPS or is that totally out of it?

Jim Truess

No. We have it at this point in time in the approximate 40% revenue number. We didn’t include Washington. We just chose not to do that. We want to do a little bit more work and have things a little bit firmer with the State. And so, we’ll certainly integrate that in subsequent guidance and our outlook information that we give out. I’m thinking at this point is that Washington probably doesn’t have much of an impact on the bottom line either up or down, even if it’s starting the year and build out of membership during the year and that sort of thing. But we’ll certainly firm up on that as we move along.

Operator

Your next question comes from the line of Melissa McGinnis with Morgan Stanley.

Melissa McGinnis - Morgan Stanley

Quick question on the revenue guidance again. When you say you build in some expansions in existing market, did you make any assumption around what we might see from the planned and managed long-term care expansions in New York or New Jersey?

Jim Truess

At this time we factored in to our analysis certain expansions in some of our existing markets. By and large, those things are mostly underway. The potential you’re thinking about in New York, we don’t have a significant factor right now. That certainly could become more powerful as the year goes along. But at this point in time, based on what we calculated so far, we don’t have that as a significant factor.

Melissa McGinnis - Morgan Stanley

Okay, great. And continuing with that and other minute and your comments around other managed long-term care opportunities. How significant could maybe like the New York or New Jersey or even other managed long-term care opportunities proves to your revenues and earnings over time?

John Littel

Melissa, this is John. I would just say both of those programs are startup this year. In New Jersey, they have a rollout that starts this year and then really goes live January 1, 2013. And in New York, they’re really ramping up their mandatory program beginning in July. So, I think you will see both of those will really they’re really kind of strike to hit their stride at the end of this year.

Jim Carlson

I’d just sort of underscore, in our commentary here, you’re seeing a lot of things that are happening in 2013. The sub-periods of things that start in 2012 carry over the 2013. So, from a management standpoint, a lot of what we’re trying to solve for here is whatever decisions we make today would totally allocate resources and so forth so that we can manage a longer horizon than just the next couple of quarters. It’s really a pre-dynamic environment. When you think about how much run rate revenue is coming under the books between, let’s say February and June, it’s unprecedented. I’m not sure, for instance, any pure play company has ever taken on a $1 billion revenue stream in a single transaction, for instance, in terms of what our base revenue is. So, all of these things are really factoring into how we think about not just the next couple of quarters but certainly 2013. There’s a lot of activity underway.

Melissa McGinnis - Morgan Stanley

Now, I agree. Thank you. It seems like even coming off at such a strong 2012 top line growth, there’s lot of opportunities for ‘13 to be a really solid year as well. And I just want to be sure those opportunities were still out there on the horizon.

Jim Carlson

Well, whether I stated well enough or not in the prepared comments, I think the challenge for our leadership team is to try to have all of this growth in our historical margins arrive at the same intersection at a reasonable period of time. And that’s what we’re going be working on all year.

Operator

Your next question comes from the line of Josh Raskin with Barclays.

Josh Raskin - Barclays

I guess a question around medical cost, it seems like it’s been a very volatile year. First quarter we were still seeing trends below historical norms; second quarter, way above; third, kind of in line; fourth, sounds like we’re getting better. So, now that you’ve kind of got a year of claims under your belt, I’m just curious, one, what do you think was driving all this volatility in cost trends relative to your expectations? And then I guess most importantly, what’s the trend assumption in going into 2012 for the MBR guidance you gave?

Jim Truess

Yes. Interesting we, as you can imagine, we spent a lot of time going back and looking over the various quarters and seeing how things have played out, how they played relative to our initial expectations and all of that. It's interesting things really did play out in 2011 I think exactly as we identified them quarter-by-quarter. And I think that in your characterization, it’s pretty right on to the way I would characterize it today. We did see in the first quarter of 2011 that we’re coming off 2010 very low trends. We continue to see some pretty low trends particularly with some first couple of months of the first quarter. We did see some increases in the second and third quarter, and then when we look at the progression of medical costs today from the third to the fourth quarter, I mean subject to obviously we don’t have nearly the level of completion on the fourth quarter that we will have in a couple of quarters from now. But we didn’t see as much change from the third quarter to the fourth quarter as we might have expected. There’s always seasonality in there and that sort of thing, but kind of beyond seasonality we didn’t see as much. So, we were certainly pleased to see that.

You know what, it’s interesting when you look back over a lot of years and we have a luxury of being able to kind of comb our own data and combing in detail for a lot of years. I mean, it isn’t unprecedented to see deviations which are differences in the rate of change between orders for the population and we’re in lots of different States and see a lot of different members. That isn’t actually particularly unprecedented. So, that’s just the way the population is.

I think as far as our expectations for next year, as you can imagine, we expect the medical cost next year will be more in line with our historical medical cost experience. In the past, we’ve talked about that sort of range is 3 to 5%. I think the only different dynamic in 2012, and this is something we have factored into our analysis, is we talk a lot about during 2011, in discussions of great actions that state implemented, in many cases, states were reducing unit price reimbursement.

And so, in some cases, particularly since our rate actions are biased towards the back half of the year, some of those unit rate changes that they’ve implemented will also impact the results we see in 2012. And so, I think that’s one factor that they cannot bring our medical cost trend down below what are otherwise would be if the unit cost changes. And so, when you look at 2012 versus 2011, in certain cases, unit costs are going to be a bit lower. So that’s the one factor down that brings us a little bit below our range due to those unit cost changes.

Josh Raskin - Barclays

Got it. So, I guess just looking at it sort of apples-to-apples excluding the changes in the provider costs that sort of flow through, if 2012 is expected to be in that 3 to 5% range excluding again the provider portion that’s bringing you down, what was 2011 and maybe what was the fourth quarter of 2011?

Jim Truess

What would the trend be excluding those changes?

Josh Raskin - Barclays

If 2012 trend is expected to be 3 to 5%, what happened in 2011? What was that number?

Jim Truess

Yes. It’s right at the bottom of our range, give or take, 3 to 5% is our long-term range. We arrived towards the bottom of our range.

Josh Raskin - Barclays

Okay. So, you’re actually expecting it to tick up a little bit?

Jim Truess

Well, again, this is where I think the question of provide a unit cost changes become important and I want to be careful. Let’s not parse this too much or not or not be clear on the way we’re parsing this with the affected provider unit reimbursement changes. We expected the absorbed number that we will see in 2012 will be a bit below our range.

Josh Raskin - Barclays

Okay, got you. And then, maybe just a question for Jim Carlson, taking a step back, you mentioned a line of sight or a particular path that could occur where the revenues could triple or more. I guess, what’s the thought process in terms of a timing there? And it sounds as though, based on your discussion, a lot of these implementations that are going on mid-2012, is it possible that ‘13 growth is in the ballpark of ‘12 or would it be crazy to think that it’s even higher in terms of a percentage?

Jim Carlson

Well, I think that you’re not going to get a data out of me on that three times.

Josh Raskin - Barclays

I’ll try every year until it happens, Jim.

Jim Carlson

So, we are looking at some pretty striking possibilities when you consider the impact of reform that do allow us full opportunity of rebidding Georgia, Texas and Florida, that’ll be plenty of competition, but we’re well positioned in all those markets. They’re going to be Ohio, I’m sorry. Ohio, Georgia and Florida are big re-procurement opportunities where we’ve got nice positioning, and we’d hope to be able to grow our platform there. And just as I said, the tipping point where there’s a $50 billion in this pipeline including some of those re-procurement. There’s just a lot of ways to grow the business. And when we model some of this out and do some long-term scenario planning, it’s pretty striking. And so, it really affects the way you think about your infrastructure, resource allocation, IT priorities, leadership decisions, a whole myriad of things, and we feel pretty good about that.

Relative to 2013, pretty early to make qualitative comments, but I’d say that you can model enough of what we already know about 2012 carried into 2013, make some broad assumptions about how fast this dual-eligible integration opportunity unfolds. And if we were to add another market perhaps along the way, as I said we’ll be very disciplined about that sort of thing prior to have a pretty compelling assumption about 2013 if we do that sort of work.

Josh Raskin - Barclays

Compelling meaning similar to ‘12?

Jim Carlson

I don’t think I can go there with you.

Jim Truess

Josh, we’re going to move on, if it’s all right.

Josh Raskin - Barclays

Yes.

Jim Truess

Because the Q&A here and I’m sure we got a lot more. I want to go to one question per person if we could now.

Operator

Your next question comes from the line of Tom Carroll with Stifel.

Tom Carroll - Stifel Nicolaus

So, let me follow-on on Josh’s trend or thought here. Texas is likely driving the biggest part of your revenue growth in 2012. Is that fair?

Jim Truess

Yes, that’s fair. That’s fair.

Tom Carroll - Stifel Nicolaus

Okay. And that’s already your largest market and you should enjoy a fair bit of SG&A leverage in that market. Is that fair?

Jim Carlson

That’s fair.

Tom Carroll - Stifel Nicolaus

You’re telling that cost trends came in lower than expected in 4Q and perhaps may turn a bit lower than your range in 2012. Rates, when we look at rates again this year, I’m certainly not forecasting them right now but should be more favorable relative to what they were over the last few months. So, I guess, it seems to me that cost trends would have to really spike or your internal forecast with respect to new business would have to be really wrong in order for you guys to migrate to the low end of this wide range you’re providing? Is that fair?

Jim Carlson

Well, yes, I think when we look at the range and we’ve given out this net income range, obviously we are trying to work just some round numbers here, and certainly, it is a wider range. I think obviously at the beginning of the year, there was a lot of different variables and things they’re not knowable with certainty. And so, we think it’s prudent that at the start of the year to work with a wider range and certainly possible that we’ll entertain the idea of tightening that range as we go along. What I think you’re thinking about is right. I mean, as we’ve talked about in our prepared comments, we do kind of see more so than we’ve seen years passed where there’s a difference between the first half and the second half of the year and it has to do with the premium actions we got in the second half of last year were low, negative in certain cases, and those are carrying in particularly into the first half of the year until we get to a more significant bolus of rate actions of 2012.

It’s generally our belief, based on looking at our own information and the way that the results have progressed for our competitors in many of our markets, that a more normalized rate increases are going to be warranted in 2012. And obviously, we can’t say with any certainty what exactly those will be today. But we do think that the data is going to support that. We feel good about where we’re at so far on medical cost trends. And as we’ve just talked about, there can always be some variabilities there. But you can be assured that we’re going to be aggressive about managing costs and we’ve demonstrated tremendous capabilities in that over the years, particularly that’s why we have been able to historically earn the sort of margins that we’ve been able to earn.

So, as it’s always the case, the beginning of the year, there’s a lot of variables, a lot of unknowns, but we certainly come into the year very optimistic. I mean, we feel good about we have these tremendous opportunities that Jim described with all the revenue growth, our business is performing well, and we’ve got a really great team on it. So, it’s exciting. We’re happy to start a new year.

Tom Carroll - Stifel Nicolaus

Just a clarification on Louisiana, with the (inaudible) commentary that’s out here recently, your patch or whatever you want to call it, there was some Louisiana Medicaid noise in there. Is that anything we should worry about?

John Littel

Hey, Tom, this is John. The answer is no. It’s part of the Hurricane Katrina thing. It was money that was going to be taken away from them anyway. The senators and the delegates support it. So, no, it’s just moving money around.

Operator

The next question comes from the line of Chris Rigg with Susquehanna Financial.

Chris Rigg - Susquehanna Financial

Just probably a high-class problem, but just help me understand, so you guys obviously are in a very good spot to pick up a lot of dual-eligible revenue over the next few years. Is there a point where you guys say, okay, we’ve sort of maxed out and we’ve reached our bandwidth. And you basically have to tell some of your state partners we are operating in sort of traditional Medicaid. We just can’t do it. And if that’s sort of a scenario that could play out, how do you think States would react to that? And is there any sort of scenario where you have to kind of just stay with the program no matter what to maintain sort of the traditional Medicaid in the 2014 expansion footprint?

Jim Carlson

Well, there’s a lot in your question there, a lot of hypothetical that we’d have to ponder. I think I would just go back to my statement. I want to be very disciplined about which new business we take on it. So, that it’s not as much of a question of how much growth you take on, it’s more a question of how do you grow profitably. How do you drive return on invested capital to attract the metrics. We’re a debt issuer now. Those people want to know that we can service our obligations. So, we’re going to be really careful about making sure we get in the things we can do well. And I think I’d just stop there.

Operator

Your next question comes from the line of Matt Borsch with Goldman Sachs.

Matt Borsch - Goldman Sachs

Just a quick one. Anything you can comment on in terms of what you’ve seen coming into the year so far in terms of utilization?

Jim Truess

Hey, Matt. Good morning.

Matt Borsch - Goldman Sachs

Good morning.

Jim Truess

Your question is pretty early I think we’re probably not ready to make any comments about trends we’re seeing in 2012. So, it’s still pretty early. But it won’t be too far. Will be on another earnings call, we’ll give you an update then.

Matt Borsch - Goldman Sachs

All right. And the birth rate, how did you see births trend going into the year-end?

Jim Truess

I think we always see a certain amount of seasonality normal seasonality on the birth that we see and handle among our population. I don’t think any significant deviations we’d call out you think?

Jim Carlson

No. There’s been a long-term trend, long-term decline, as you’d see, since 2008 and then, more or less continued from 2010 through 2011. We did see a little spike in births in the third quarter which we tend to see each year, sort of a seasonal thing. And I’ll let you imagine why that might be the case. But generally speaking, that’s an annual event and overall from ‘10 to ‘11 we saw a decline.

Operator

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

Michael Baker - Raymond James

I was looking for an additional color on the investments that you made as it related to Washington State. I know there are some earlier reference on the procurement side but was also wondering if there’s anything done in terms of positioning for ultimate membership?

Jim Carlson

Yes, we did. When you think about things that we may do as we pursue a state, everything from the efforts we make around network development, obviously the better network you can build, the better you’re going to potentially perform in ERP evaluation, and then the better you may perform with regard to the membership you ultimately receive, some of it has to do with community relations and advertising that we may do, particularly, in a new market where Amerigroup may not be a brand name in that market historically, we want to be able to establish that and build some name recognition. And so, those are the sorts of things among many others that we did in that market.

Operator

Your next question comes from the line of Peter Costa with Wells Fargo Securities.

Peter Costa - Wells Fargo Securities

You had the low utilization in the quarter, you mentioned, but can you spike that out a little bit for us in terms of whether it’s hospital utilization, outpatient, pharmacy, physicians and whether at a particular State or two that delivered the better performance? Was it maybe offloading some of the rate decrease in Texas that you had talked about trying to do? What exactly drove the lower costs?

Jim Carlson

Sure. We have a certain amount of visibility, obviously, on the fourth quarter. We don’t have ultimate visibility on all the detailed aspects since we haven’t paid all the claims yet. But I think Dick and I have spent a tremendous amount of time looking at business, studying, and then I think certainly, I think our conclusion over the last two years has generally been that inpatient costs are pretty stable. And generally when we see scheme deviation, it tends to be more on the physician and hospital or patient side. I think those are probably the primary factors. One of the things we are seeing at the moment is some differences in trends between different States. Some are higher and lower, different times of the year, as we’ve seen more consistency across the State. I think we’re probably seeing some more deviations in the market, but some of that are just due to some specific dynamics. But that’s probably about as precise as we can be right now.

Peter Costa - Wells Fargo Securities

Okay. Thanks. And then just one last question, if you don’t mind me taking two here. You spiked out Tennessee for the duals. Is that the only one you expect in 2013 relative to the other applications that you made, or is that just the one you spiked out as being the closest?

Jim Carlson

Hey, Pete. I think we just use it as an example because there’s so much further along. We’re actually in implementation work there. We are doing a lot of other States that are sort of teeing up, want to go first in January 2013, so not really certain where CMS will land on those.

Operator

Your next question comes from the line of Carl McDonald with Citigroup.

Carl McDonald - Citigroup

Going to stick with Tennessee. For the duals in Tennessee, do you have a sense of how much of their medical spend is already being managed through the existing Medicaid program. I know long-term care moved to Medicaid a couple of years ago, aged, blind and disabled, but not clear if that's non-dual ABD or includes the duals as well?

Jim Carlson

Yes, we have many duals today are enrolled with us and we handle their Medicaid and long-term care services, so we have a fair amount of their revenue today. The opportunity in this new program would be to have their Medicare side as well.

Carl McDonald - Citigroup

And so, would you think about that as being sort of a roughly 60/40 split?

Jim Carlson

Tell me which side 60, which side 40.

Carl McDonald - Citigroup

Sorry. The Medicare being 60, Medicaid 40.

Jim Carlson

No. I think it’s going to be inverted from that because we already have long-term care, and long-term care can be a particularly significant part of the duals total cost. So, for us, it’s more about the Medicare premium that we’re going to get that we potentially will get that we’re not receiving today.

Operator

Your next question comes from the line of Sarah James with Wedbush.

Sarah James - Wedbush Securities

You mentioned that there’s a slightly improved outlook for the Health Plus contribution for the year, and I’m wondering if that’s coming from transaction and innovation cost, there may be an improvement in MLR. I think Health Plus have been running at about 85.5 MLR on their stat filing, so a little bit above where you are as a company and sort of where you could see that going for the long-term as far as their MLR or New York MLR?

Jim Carlson

Sure. I think the difference on what we’re seeing for 2012 on Health Plus. Actually, largely, it has to do with G&A, where we’re able to fine tune our estimates a little bit better and give a little tighter on that, so that’s where the improvements coming. I think with regard to medical cost, I’d actually probably put their historical numbers, and as you can see depending on what stat filings you’re looking at and the snapshot you’re getting, that sort of thing. I tend to put their historical numbers more in the upper 80s, and we actually think over time we’re going to be able to improve that. And that’s really where the predominant part of our return on investment, we think, is going to come from is our ability to manage medical cost. And we have a pretty good track record in New York, I mean when you look at the medical loss ratios we’ve been able to run on our existing business in New York. They’re certainly quite a bit better over the long-term than the high 80s, and so that’s probably the deepest part of our opportunity, as well as certainly the scale of economies that Amerigroup brought to that entity. We think that can help on the G&A side as well.

Operator

Your next question comes from the line of Ken Levine with UBS.

Ken Levine - UBS

Jim, just going back to your state rate commentary at the company’s Investor Day in September. I believe that you are anticipating that the higher medical costs are starting to emerge in the second quarter of 2011; would be captured in time for the second half 2012 state rate renewal cycle. So, specific to the pretty significant prior period development that you saw in the fourth quarter and perhaps going back to adjust the prior recent quarters medical costs for that, how does this favorable prior period development impact your expectations for the 2012 second half state rate renewal cycles and it kind of relative to your margin trajectory for 2012 relative to prior expectations?

Jim Carlson

Sure. Yes, and I think all of the things being equal to the extent we’re placing our medical cost a little bit lower in 2011 than we would have in the past. That is the factor that was placed all through in the rate. Nevertheless, I don’t think that changes the thesis that I described at Investor Day. I think that’s still the belief I have and that’s in looking at our own results and the trends that are embedded in our results. The visibility, albeit limited on our competitors in the various markets, we still think that the medical cost experience over time here fits support, certainly different rate scenarios than we saw in 2011. That’s our belief today.

Operator

Your next question comes from the line of Scott Green with Bank of America.

Scott Green - Bank of America/Merrill Lynch

So, I have a question on your comments about approaching, if not operating within 2.5 to 3.5% net margins in the back half of the year. So, assuming you’re going to grow in 2013 too, would we not see business development cost, startup cost, etcetera, press the margins back down to 1.5 to 2.5 or your operating this year or what’s unique about getting back there this year that lets you stay there going forward?

Jim Carlson

Yes. It’s a good question, Scott. Obviously, it’s a little tough for us to put a fine point on it for 2013 at this stage of the game. But certainly as we mentioned in our comments, we certainly, sitting here today, expect higher margins in the second half of 2012 than we expect to record in 2011. And as I mentioned, when you look at some of our aggregate statistics for the year, whether it would be our health benefits ratio range or the SG&A ratio range, we do expect that those numbers will be more favorable in the second half of the year than the first half of the year.

Now, how it ultimately plays out in 2013 is really going to be a function of the composite of the various variables in the sense of, how does the business in 2012 that we have, how does that perform in 2013, what’s the impact if any from a significant or not, expansions in 2013. So, a lot of variables there, it's a tough to pin that down precisely today. But it's interesting if you kind of step back from this for a moment and you think about there’s not too many companies out there that off of a $6 billion revenue base have the opportunity or potential to grow at 40% as we are foreseeing now for 2012. What we look at, the investments that we are making in 2012 and our support, obviously we feel good about that. We think we are making the appropriate investments. We are spending the money where we need to spend it in order to be successful at it, and that's really going to put us on an appropriate and attractive trajectory in the future. If we again have the opportunity to see significant growth again like that, we'll do the same we'll do the right thing again, which is to make sure that we invest the right money and to be successful at it and as Jim mentioned, in order to make sure that we are getting the kind of return on investment overtime. So, I guess that's the way of saying that we continue to feel very optimistic about the future and good about the long-term in a way this is all playing out. But to get down to the specific statistics and all that a couple of years out, it's probably a little tough to say right now.

Scott Green - Bank of America/Merrill Lynch

And can I just ask you a clarification question? When you were reviewing the capital at the parent, before you had kind of outlined an amount of deployable capital you thought you had, and I think if I did the math right, there was like, 325 million or so left over from all the puts and takes this year. So, is that right? Do I need to then think about, you want to keep 100 million cash at the parent and then you are going to have to fund organic growth going forward? So, can you just update us on what kind of capital you think you have deployable at this point?

Jim Carlson

Sure. As we mentioned in my comments we have about given the follow-on debt issue that we did in January, we have about $800 million of cash and investments. And a couple of the near-term uses of those funds, on the second quarter, we expect to retire the convertible. We’re going to expect to close the Health Plus transaction, and that’s kind of the first component, the acquisition price. Secondly, this will happen throughout the year. We’ll begin to boost the statutory capital of our plan. We’re probably going to hold more than $100 million. I would say that’s a bit on the low side for what we’ll hold at the parent level. But those are the primary sort of puts and takes. We aren’t expecting at this point if you’ll allow, we’re going to in our subsidiaries in our other subsidiaries outside of New York, as I mentioned, we’re expecting to get some dividends from some and invest some additional capital and others for those subsidiaries that are growing substantially, but that tends to be a little bit more as we see today kind of an exchange of dollars rather than money that either comes up to the parent or goes down from the parent. So, that’s kind of how we see the progression at this point.

Scott Green - Bank of America/Merrill Lynch

So, should we no longer think about acquisitions as a potential use of capital near-term? I guess that was the spirit of my question.

Jim Carlson

Okay. Sorry I didn’t catch that. I think there’s still a possibility. I mean, obviously, we’re pretty busy. We’ve got a lot going on. I don’t think that means we won’t consider an acquisition. We will continue to consider acquisitions. And for us, as it’s always the case, it’s a question of what sort of returns do we think we can earn. I think probably at the moment, we have a luxury of being even more discriminating or demanding even higher returns given all the other things we have going on. But I wouldn’t want to close that out as a possibility.

Operator

I will now turn the conference back over to Mr. Carlson for any closing remarks.

Jim Carlson

Well, listen now, we ran a little over this morning. I apologize for that. But we do thank you for your interest in the company. We really stand at the frontend of some major transformation here that’s deep and multiyear in significance. We’re really excited by the opportunity to do some things we predicted and talked about for a long time. And we appreciate the support of our colleagues that are working really hard in all these implementations, and we appreciate the support of the investment community that has helped us do all of this. So, we’re looking forward to a big 2012 and years thereafter. Thank you very much.

Operator

Ladies and gentlemen, that does conclude today’s conference call. Thank you all for participating and you may now disconnect.

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