WellPoint Inc Guidance Call Transcript

Mar.11.08 | About: Anthem, Inc. (ANTM)

WellPoint, Inc. (WLP) Guidance Call March 10, 2008 5:30 PM ET

Executives

Michael Kleinman – Vice President Investor Relations

Angela F. Braly – President & Chief Executive Officer

Wayne S. DeVeydt – Chief Financial Officer & Executive Vice President

Analysts

Justin Lake – UBS

William Georges – JP Morgan

Mathew Borsch – Goldman Sachs

Greg Nersessian – Credit Suisse

Doug Simpson – Merrill Lynch

Scott Fidel – Deutsche Bank Securities

Thomas Carroll – Stifel Nicolaus & Company, Inc.

Peter Costa - FTN Midwest Securities Corp.

Carl McDonald – Oppenheimer & Co.

Norman Fidel - Alliance Bernstein

Matthew Perry – Wachovia Capital Markets, LLC

Charles Boorady – Citigroup

John Rex – Bear Stearns

Michael Baker – Raymond James

Operator

Ladies and gentlemen thank you for standing by and welcome to the WellPoint conference call. At this time all lines are in a listen only mode. Later there will be a question and answer session, instructions will be given at that time. (Operator Instructions) As a reminder this conference is being recorded. I’d now like to turn the conference over to the company’s management. Please go ahead.

Michael Kleinman

Good afternoon and welcome to WellPoint’s conference call, I’m Michael Kleinman, Vice-President of Investor Relations. With me this afternoon are Angela Braly, President and Chief Executive Officer and Wayne DeVeydt, Executive Vice President and Chief Financial Officer. On this call Angela will discuss the press release we issued earlier today and Wayne will then offer details of our revised guidance which will be followed by a question and answer session.

We will be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond the control of WellPoint. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our press release, our annual report on Form 10K and other periodic filings we make with the SEC. I will now turn the call over to Angela Braly.

Angela F. Braly

Good afternoon. Before I begin let me first state that we are disappointed with having to revise our 2008 outlook. The executive leadership team and I are fully committed to and have already begun taking the appropriate actions necessary to address the issues we’re facing. As many of you have seen in our press release we issued earlier today we are now projecting GAAP net income of $5.76 to $6.01 per diluted share for 2008 assuming net realized investment gains of approximately $0.06 per share. This revised outlook represents growth of 4% to 8% over 2007. Our previous 2008 guidance was $6.41 per diluted share. For the first quarter of 2008 we are expecting net income of $1.16 to $1.26 per share assuming net realized investment gains of $0.06 per share compared to our previous guidance of $1.44 per share.

These adjustments to earning guidance stems from three primary areas. A majority of the earnings reduction is due to higher than expected than medical costs including less favorable than expected prior year reserves development. Also contributing is lower than expected fully insured enrollment and to a lesser extent the changing economic and regulatory environment in which we operate. I’m going to discuss each of these areas and the actions we are taking to address the issues.

Let’s first start with our medical costs for 2008 which are running higher than expected. On our fourth quarter 07 earnings call we told you that we had carefully evaluated our year end reserves and adjusted completion factors to reflect then assumed claims trends. While we continue to have favorable reserve development for the first two months of 2008 it was still less than our targeted level. Accordingly, we’ve recorded additional reserves to reestablish our high single digit margin for adverse development. Consequently, we now believe that our original trend assumptions for 2008 were understated. This higher trend impacts a number of our business lines in 2008 specifically medical cost trends in our commercial business are running higher than we previously expected and we now expect 2008 medical costs trends for our local group and individual fully insured business to be in the range of 8% plus or minus 50 basis points. With the benefit of hindsight our 2007 trends are restating approximately 50 basis points higher than originally reported.

In addition, trends in our senior Medicare Advantage business are particularly high. It’s fair to ask why this happened. As we discussed in January, we began to notice a slowdown in claims cycle time which is the length of time between the date of service and the date of claim payment on a dollar weighted basis. We dedicated resources to address this issue and improve the timeliness of effective claims processing. We also adjusted our completion factors to better take our business processes into consideration. While we did notice an impact on some aspects of claims payment as a result of these efforts our claims cycle times continued to increase in 2008. In retrospect we had not adequately adjust the completion factors at year end. We are now seeing an increase in high dollar claims which require more intensive medical management. We’ve also seen an increase in physician trends that was higher than expected. In light of these developments we’ve revised our medical costs trends assumption.

As you would expect our revised trend assumptions will be utilized as we price our business going forward. Approximately one third of our fully insured business renews in January, the majority of which is large group. The next largest renewal month is July during which about 20% of our renewals occur. The remaining renewals are fairly evenly scheduled throughout the year. We will take pricing actions in certain markets where it is appropriate to do so and other markets we are priced appropriately. We continue to price our business to be profitable so that expected premium yield exceeds anticipated total costs trends where total cost trends include medical costs and selling, general and administrative expense. We’re also continuing to implement provider contracting and medical management activities to optimism the cost of healthcare and keep our premiums affordable.

Turning now to membership; while our total medical enrollment levels to date are close to our expectations, the growth has been weighted more towards self funded customers than we had planned. We have 35.2 million members at February 29, 2008 with 18.2 million self funded members and 17 million fully insured members. As we discussed during our fourth quarter 07 earnings conference call in January, national account membership has exceeded our expectations and this is predominately self funded business. However, enrollment in fully insured products is below expectations primarily due to a shortfall in Medicare Advantage growth and declines in small group and individual membership. As a result, we are lowering our full year membership growth expectations to 500,000 new members which reflects a reduction in guidance of approximately 300,000 members. Approximately half of the reduction in membership guidance relates to the Connecticut Medicaid ASO contract. While we’re hopeful that we could keep this contract under reasonable terms, our guidance assumes the possible exit from the Connecticut Medicaid business later this year.

While we are seeing good growth in our Medicare Advantage business with membership up by 63,000 members from year end we are not doing as well as we had expected. We are undertaking programs to improve the effectiveness of our sales efforts and implementing retention strategies to improve our senior penetration. Small group business is experiencing weaker sales and higher lapses. We plan to introduce more affordable products with multiple price points to improve small group enrollment results. Individual membership has declined from year end and continues to run behind our plan. We are seeing sales growth where we have introduced new products such as our Lumenos product in the central states and California and the Health Smart product in Virginia. In fact, individual sales were approximately equal to the plan however our lapses are significantly unfavorable to plans. We believe this is due in part to economic weakness and increased competition. To improve our individual membership we are expanding availability of products that have been successful in certain geographies to other areas, enhancing our broker support program, increasing our marketing and sponsorship activities and increasing outbound calling to improve individual retention.

We are continuing to see reductions in our non-blue branded business. UniCare has lost more than 130,000 members so far this year, 35,000 more than we had expected. As we told you on our call in January we are undertaking a number of strategic initiatives such as the introduction of our [Celera] consumer directed plan to enhance the competitiveness of our non-blue commercial products which are expected to improve results over time.

Turning to our expenses. We do have flexibility to reduce administrative spending in the event of changes in our business results. While we do have flexibility we are managing this company for long term success. We have a number of projects that will enhance our product portfolio, improve our marketing efforts and target attrition rates this year to achieve long term benefits for our company.

I want to now turn to changing economic conditions. We believe that the nation’s weakening economic environment is impacting membership such as in our small group business where we are seeing negative in group change and higher than expected benefit buy down. We have adjusted our forecast to recognize this. Due to budgetary shortfalls the State of California has scheduled a Medi-Cal premium reduction of 10% to be effective July 1, 2008. While this reduction is supposed to be passed through to our providers we may not be able to completely pass it through to our providers by July 1.

I will now turn the call over to Wayne DeVeydt who will discuss our 2008 guidance in more detail.

Wayne S. DeVeydt

Good afternoon. As Angela noted there have been some changes in our underlying business and I too am disappointed that we’ve revised our guidance. We are now projecting GAAP net income of $5.76 to $6.01 per diluted share for 2008 an increase of 4% to 8% from 2007. This includes net realized investment gains of $0.06 per share. Consistent with past practice our earnings guidance does not include the projection of additional net realized investment gains or losses. We now expect year end medical membership to be approximately 35.3 million, an increase of 1.4% from year end 2007 with the growth coming in our self funded business. Self funded membership is expected to grow to 18.6 million in 2008 while insured membership will be approximately 16.7 million members. Operating revenue for 2008 is now expected to be approximately $62 billion representing growth of 3% over 2007.

The benefit expense ratio for the year is now expected to be in the range of 82.8% to 83.1%. A primary driver of this increase is related to increased medical trend, a portion is due to the underwriting results in our senior products, part is related to the California State sponsored revenue reduction while the remainder of the increase is related to business mix as individual business becomes a smaller portion of our revenue base. As Angela noted, we will remain disciplined in our pricing and continue to price our business to be profitable so that expected premium yield exceed anticipated total costs trend where total cost trend includes medical cost and selling, general and administrative expenses. The SG&A expense ratio is now projected to be 14.3% in 2008 an improvement of approximately 20 basis points compared to 2007. We have a number of initiatives that will enhance our product portfolio and prove our marketing efforts and target attrition rates that we will implement this year to achieve long term benefits to our company.

Finally, our cash flow from operations is now expected to be approximately $3.7 billion in 2008 and reflects our lower projected net income and the reduction in fully insured membership. Cash flow from operations will be approximately 1.2 times net income. We will continue to utilize our strong cash flow to enhance products and services offered to our customers including strategic merger and acquisition activities and effectively managing our capital. We now expect approximately 530 million weighted average shares outstanding for 2008.

I would now like to turn the conference call back over to Angela to lead a question and answer session.

Angela F. Braly

Operator, please open the call up for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen we will now begin the question and answer session. (Operator Instructions) Due to limited time and in fairness to other listeners we ask that you please limit yourself to one question and one related follow per turn. Our first question comes from the line of Justin Lake with UBS. Please go ahead.

Justin Lake – UBS

The first question I have is just on medical costs specifically. You mentioned a couple of things there but it also seems like you’re seeing these higher costs in specific geographies potentially. Is there anything you can tell us on where it’s coming geographically? And how much of this do you think is an issue with just how you priced the business for 2008 given how 2007 costs trends where obviously you didn’t have full visibility on them versus and actual increase in costs trend in 2008?

Wayne S. DeVeydt

In terms of your question, where we’re seeing the medical cost increase is across a number of our segments. In our senior business we are clearly seeing it in our senior Medicare Advantage specifically. In addition, I would tell you that our small group trends are up as well as individual. This is an example of where I would say it is generally in most markets we missed the trend for 2008. We’ve gotten more insight into the data after January and February and having the benefit of hindsight we know we missed it by 50 basis points in 07 and that essentially gets compounded with our pricing as we move forward.

Operator

Our next question will come from the line of William Georges with JP Morgan. Please go ahead.

William Georges – JP Morgan

I’d just like to follow up a little bit more on Justin’s question. If you can give us as much specificity as you have on the different moving parts of the four commonly discussed components of trend where are you seeing pressure?

Angela F. Braly

I’ll begin to address that Bill. We are seeing some high dollar claims especially in neonatal care and oncology and we are seeing physician trends increasing. So, we are taking a number of actions around that, around cost of care generally, around recontracting, working with vendors. We do have a medical management program specifically for neonatal care, we do have radiology management programs which are now in the second phase and we are addressing, we think, through recontracting with providers and others some of the physician trends that we are seeing.

Operator

We have a question from the line of Matthew Borsch with Goldman Sachs. Please go ahead.

Mathew Borsch – Goldman Sachs

I wonder if you could maybe address this from the standpoint of sort of the longer term view here from a couple of different angles. Number one, as you talk about revising upwards your view of 2007 medical costs trend and therefore 2008, can we look at this from a long term lens and say that medical costs trends in a hindsight bottomed out in late 2006 or early 2007 and has increased albeit relatively modest rate since then? And, I guess a question related to that is from the standpoint of the classic underwriting cycle in the industry, we did notice that your Blue brethren companies appear to have had the first negative quarter in underwriting earnings excluding investment gains since the late 90s. So, how do we get comfortable about this being sort of a short term thing versus maybe a longer term storm.

Angela F. Braly

Let me try to address the longer term questions, Matthew. It think it’s important. We are recognizing that the trend was understated, we had under estimated the trend. Whether that is necessarily a decelerating trend going to an accelerating trend isn’t necessarily the case. We just know that we had it understated and that was reflected in the pricing to date. We know now that we are assuming a higher trend and we’re going to stick with disciplined pricing in our products going forward. And, because we have the opportunity to price our products throughout the year we’re going to do that with the discipline and with the higher claims projected than we had had in 2007.

Wayne S. DeVeydt

I think there are a couple of things though that we do have to focus on that I think Angela and I would both agree that need to be fixed. I think it’s fair to say that in our senior business though the trend is much higher than we would have expected and we need more cost of care initiatives associated with that particular book of business. I think as Angela said, some of this is just us missing the prediction on trend for 08 in our pricing. But, there is a fair amount of this that we can fix including that piece. So, I don’t want this to be viewed as an industry wide trend problem. I think there are some things that we need to do better.

Operator

Our next question will come from Greg Nersessian with Credit Suisse. Please go ahead.

Greg Nersessian – Credit Suisse

If you could just elaborate a bit on the senior business on [inaudible] specifically in the PDP membership that you’ve picked up this year, is that where we’re seeing the higher trends or is this in the traditional MA product? Then, if you could talk us through a little bit of the seasonality of the EPS ramp from the first quarter to the fourth quarter? Is that assuming that the share count reduction accelerates in the back half of the year? Or is that PDP seasonality? If you could just give us a couple of little comments around that as well.

Angela F. Braly

I’ll give you a few, Greg, and then I’ll ask Wayne to follow up. In the senior business we are seeing higher trends in the Medicare Advantage individual business and the Private Fee for Service business. In terms of the quarter and throughout the year, the quarter that we provided guidance for does reflect significant prior period development and so we are not assuming an equal quarter throughout the rest of the year. Wayne, do you want to speak more specifically to –

Wayne S. DeVeydt

Greg, if you look at the first quarter and if you were trying to build more of a run rate the one thing I would tell you is that in the first two months of the year we’ve recorded approximately $175 million of additional reserves strengthening as it related to 2007. Please recognize though that approximately $50 million of that number does not impact the P&L that is our refunding business, i.e., FEP. So again if you want to know the portion that affects P&L you’d have to pull that component out. The second thing is it is not our Part D business that we are having our concerns with, it is the Med Advantage Private Fee for Service in particular. However, we are doing better than expected on Part D and [Walmet] and because of that and the way we do our accounting you will get a heavier weighted loss in the first quarter and that will turn to a heavier weighted profit in the later quarters. So the reserve strengthening and the Part D both have an impact in the first quarter that improve throughout the year.

Operator

Our next question will come from the line of Doug Simpson with Merrill Lynch. Please go ahead.

Doug Simpson – Merrill Lynch

Stepping back and this is a little more color on what was already answered but basically is this WellPoint sort of dropping the ball and this pricing out is a trend or did trends in the entire industry change and you’re just the first to see it and I guess if you could wrap the answer to you guys have obviously changed over management pretty substantially and just maybe tie in the potential dislocation from the different operating segments into the answer?

Angela F. Braly

Clearly, we mis-trend, we’ve identified it, we think it’s an issue we can fix, we have a number of actions to fix it and I think I have the right team to fix it and address these issues and execute going forward. We did, when we looked at where the trend was in December, we did make adjustments in our completion factors thinking that would be sufficient to address it. We have now seen January and February and realize our completion factors weren’t adjusted enough so we are dealing with it and we think we have the ability to continue to focus on how to executive on cost of care and have an impact and how to price appropriately. I think as Wayne said earlier it is not for us necessarily to indicate that this is a universal problem. We are seeing specific issues some of which are high dollar claims, a lot of oncology. But the physician trends we are seeing accelerate.

Operator

We have a question from Scott Fidel with Deutsche Bank. Please go ahead.

Scott Fidel – Deutsche Bank Securities

Can you give us your updated expectation for premium yields for 2008 and then benefit buy down as a percentage of premiums? And then also just a second question just around investment income and X the realized gains whether there was any change to your guidance around that due to the lower rate environment?

Wayne S. DeVeydt

Let me address the last question first and then I’ll come back. No, we have not changed any of our original guidance as it related to below the line, our investment income and the interest expense that we had assumed are still intact and doing consistent with what we would have expected in our original guidance. So we do not see any concerns from a portfolio perspective at this point and again we believe we are in a pretty good position relative to that. In terms of premium yield we’re trying to avoid, Scott, this being a quarterly earnings call and will provide more details on the quarter as it relates to 08 but again we price to cover total cost which is both medical cost and SG&A. That being said we’ll provide even further details in the year. I think you had a third question, Scott.

Angela F. Braly

He had a question about buy downs in particular and while we had estimated buy downs in the plan for 2008 what we are seeing now is greater buy downs than we expected. In the small group buy downs are about 1% higher than we expected and individual about 2% higher than we expected. We’re also seeing some in group decline in small group more so than we had expected.

Operator

Our next question will come from Tom Carroll with Stifel Nicolaus. Please go ahead.

Thomas Carroll – Stifel Nicolaus & Company, Inc.

Question relates to the amount of discretionary spending that you guys have talked about in the past and I think at Investor Day you said it was or alluded to it was something like $200 million. To what extent have you delayed any spending that you were planning on doing in 2008, that is perhaps buffering the downward revision some? Do you follow the question?

Angela F. Braly

I think I did, Tom, and let me see if I’m accurately responding. In terms of overall spending and investment we continue to expect to spend over $600 million, close to $650 million on projects that we think are important for our business, they relate to getting the right product out, doing so consistently and simply, addressing cost of care needs and so we need to continue to make those investments and we plan to. As you know and we’ve described before there is a discretionary spending and part of that discretionary spending that we see in our G&A relates to performance based compensation, some of our G&A that you see in the guidance is because we don’t have premium taxes at the same levels so they’re revenue driven more so than G&A.

Wayne S. DeVeydt

Tom, one other point I’d like to make is that RSU here is a trend this year and I think if you look at where our investments were at they were to give us better G&A leverage for the future and to drive membership growth for the future and for that reason Angela and the team and I have all discussed and we agree that this is not the place we want to be cutting. We need to fix our trend problem and price our product better.

Operator

We have a question from Peter Costa with FTN Midwest Securities. Please go ahead.

Peter Costa - FTN Midwest Securities Corp.

If you think the majority of the problem is tied to the individual and small group product trend in the past you’ve talked about having 29% of your business re-pricing at a flexible timeframe, how much of that 29%, and I know that’s all the individual and small group, how much of that have you recently re-priced? Like within the last quarter? And how much can you re-price over the next say six months?

Angela F. Braly

In that description, Peter, I think you would see also we are tying some of this trend to the senior products as well, but in terms of the way that our book lays out about a third of the book, the fully insured book renews in January. The majority of that January renewal is in the large group side and we do have about another 20% of our renewals occurring in July. The rest are fairly evenly spread throughout the other months. In California specifically we have a sizable block of individual business that renews in March and a sizable of small group business that renews in May.

Operator

Our next question will come from Carl McDonald with Oppenheimer. Please go ahead.

Carl McDonald – Oppenheimer & Co.

I was just wondering if you could give us some insight into of the roughly 150 basis point deterioration and the lost ratio can you give a sense of how much of that was Medicare Advantage, how much of that was commercial Medicaid?

Wayne S. DeVeydt

The Medicaid is not as big of an impact, Carl. The Medicaid when I’m looking at it more from an op gain adjusted basis, the California implications is close to $40 million of our deterioration related to California. When you look at the commercial book versus the Medicare, the Medicare Advantage is deteriorated quite significantly so it’s probably closer to 20% of it and then commercial trend is really the biggest part of the delta.

Operator

Our next question will come from Norman Fidel with Alliance Bernstein. Please go ahead.

Norman Fidel - Alliance Bernstein

I think the thing that a lot of us were afraid was the flu and I haven’t heard any mention of that and so could sort of separate that out, especially in the MA cost trends? You’re talking about larger buy downs and I see how that could lower premium revenue but why should that really impact the medical benefit ratio since it seems that that would be adjusted through other parts of the equation? And the new operating revenue forecast is $62 billion, is all the difference just in premium revenue? Should we assume that the other two lines remain the same?

Angela F. Braly

Let me address the flu and then I’ll ask Wayne to address the second parts of your question, Norm. The flu season has been more severe than in the past couple of years and we believe it did have an impact on our first quarter 08 results and we do think it has impacted the senior business more than our other lines of business but we don’t think it was overall a significant driver of these overall results. Wayne do you want to speak to Norm’s other questions?

Wayne S. DeVeydt

Norm, in terms of the benefit buy down, probably the biggest area that we’re seeing this occur though is in our small group business and I would agree that in theory the underlying benefit expense would theoretically move with it but I think it’s fair to say as we’ve discussed earlier in the call we missed trend on that as well. So essentially that is causing an impact so in small group we really have two dynamics occurring, one is we are seeing more fully insured come off the books than we had expected and two is on the existing fully insured even with the benefit buy downs it is not performing as favorably as we thought it would. Your last question related to is this impact mostly on the premium line and the answer this is mostly an adjustment as it relates to the membership piece on the premium line clearly but trend is the biggest component of this adjustment that you’re seeing come through the claims line.

Operator

Our next question will be from Matt Perry with Wachovia Capital Markets. Please go ahead.

Matthew Perry – Wachovia Capital Markets, LLC

One quick question on the Medicare Advantage, is there a way to think about how much of this might be related to the benefit changes? Are some of your products richer this year than they were last year? And then can you go over again the additional contribution to reserves that you’re making in the first quarter and how much of that – is that all related to 08 or part of into 07? Could you just help me understand that again?

Wayne S. DeVeydt

Let me start with your latter question which is the reserves. The $175 million additional reserves that we posted in the first two months of 2008 relate to 2007 and $125 million of that would ultimately hit the P&L. The other $50 million relates to our refunding business, i.e. FEP business. So again that additional strengthening is to further strengthen the 07’s base new development that we’ve seen. Now again we’re taking that charge in the current period. The second thing that we’ve done clearly is as Angela mentioned also looked at some of the early trends we were seeing in the flu and strengthening for that as well. So again I think in the first quarter there are a number of reserve items that we’ve taken that should not impact the full year but nonetheless those are the two primary items.

Angela F. Braly

Let me try to direct your question about Medicare Advantage. We are reviewing our benefit plan design. We don’t know that that contributed significantly to selection or to the claims line specifically. We are evaluating that further. We are making sure we have good cost of care geriatric management programs in the Medicare Advantage product so it can have an impact on cost and quality of health care for that line of business.

Operator

Our next question will come from Charles Boorady with Citi.

Charles Boorady – Citigroup

Can you tell us what the mid loss ratios were in 07 and your 08 expectations for commercial Medicare and Medicaid?

Wayne S. DeVeydt

I don’t have the 07 in front of me. One second, Charles. I apologize, I don’t have that data in front of me. Could you repeat the second part of your question, though, in terms of our revised guidance that we provided. We are amending the guidance to a range now.

Angela F. Braly

And our 08 guidance is a range of 82.8% to 83.1% compared to 82.4% reported for 2007 and that’s overall, Charles. We typically do not report benefit expense ratios by line of business for competitive reasons.

Operator

Our next question will come from the line of John Rex. Please go ahead your line is open.

John Rex – Bear Stearns

I want to come back to the question on buy downs. Have you looked at this because essentially miscalculating the impact of buy downs and the potential for it to have utilization impact, beneficial utilization impact can also be construed as a pricing error and can sometimes be a systematic pricing error. And, as you’ve looked at how you’ve approached the credit you were giving for buy downs as you went into 08, as you were making pricing decisions for 08, have you been able to look back and essentially see that in some cases, or systematically actually that there was too much credit given for the beneficial utilization impact that might indeed have?

Wayne S. DeVeydt

Let me address that from two perspectives. One is that we are first actually just seeing higher than expected buy downs so inherently that will impact, obviously as you know, the op margin. But, at the same time I do think it’s fair to say that in some of our markets we missed the trend and so it is having a more of a systemic problem on those markets where we did not predict the trend correctly.

Angela F. Braly

Also John, what we do is we revaluate the benefit relativity all the time and we’re adjusting based on experience. I don’t know that our mix and trend, to try to be direct is a reflection of higher than expected benefit as a result of more buy downs or design of the benefit product. As we see the trend come through I’m not sure that these were claims or the trends that we’re seeing are necessarily ones that would have been most directly impacted by the benefit design.

Operator

Our last question this afternoon comes from the line of Michael Baker. Please go ahead.

Michael Baker – Raymond James

I was wondering if you could comment on the UniCare business from the perspective of obviously you compete with some of your Blues counterparts, are you finding any challenges as you look to rectify that business in light of that, also given the fact that you relay on those Blue counterparts for national accounts business.

Angela F. Braly

Let me direct that question to a couple of responses. One is UniCare did meet our expectations in terms of membership but we continue to invest in UniCare. We’re rolling out our consumer directed suite of products through UniCare and we think that could have an impact on UniCare performance overall. We also have new leadership for UniCare, Dennis Casey one of our experienced leaders within WellPoint is now leading UniCare and we’re confident that he is going to have the ability to lead us forward for that line of business. In terms of our partnership with the Blues, obviously our brand we think is the strongest in the industry, in the world. We think we have positive relationships with our Blue brethren and it is not unusual for us or others of our Blue plans to compete with each other on a non-Blue branded basis.

Operator

Thank you. I’d now like to turn the conference back to Angela Braly with the company’s closing comments.

Angela F. Braly

Thank you and thank you all for your questions. I believe we continue to be a good company and a growing industry. We are taking action and making investments in our business to further improve our performance during the balance of this year and beyond. We continue to provide excellent products and services to our customers. One of our guiding behaviors is integrity and we are ethically, honestly and open in our business dealings. Consequently we scheduled this call to let you know what we know as we know it and we will continue to communicate issues in a timely fashion, openly and directly. I want to thank our more than 41,000 employees for their continued contribution to our success and our customers and shareholders who have put their trust in us. We remain committed to becoming the most valued company in our industry. Thank you for participating in our call this afternoon.

Operator

Thank you. Ladies and gentlemen this conference will be available for replay after eight o’clock pm today until March 24, 2008 at Midnight. You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 and entering the access code 915062. International participants may dial 1-320-365-3844. Again, those numbers are 1-800-475-6701 and 1-320-365-3844 entering the access code 915062. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

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