WellPoint Inc. (WLP)

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WellPoint Inc. (WLP)

Q1 2010 Earnings Call

April 28, 2010 8:30 am ET

Executives

Angela Braly - Chairman, President & Chief Executive Officer

Wayne DeVeydt - Executive Vice President & Chief Financial Officer

Ken Goulet - Executive Vice President & President of Commercial Business Unit

Michael Kleinman - Vice President of Investor Relations

Analyst

John Rex - JPMorgan

Justin Lake - UBS

Doug Simpson - Morgan Stanley

Josh Raskin - Barclays

Matthew Borsch - Goldman Sachs

Christine Arnold - Cowen & Co.

Carl Mcdonald - Oppenheimer

Scott Fidel - Deutsche Bank

Presentation

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. (Operators Instructions)

I would know like to turn the conference over the company’s management.

Michael Kleinman

Good morning, and welcome to WellPoint’s first quarter earnings conference call. I’m Michael Kleinman, Vice President of Investor Relations. With me this morning are Angela Braly, our Chairman, President and Chief Executive Officer; and Wayne DeVeydt, Executive Vice President and Chief Financial Officer.

Angela will begin this morning’s call with an overview of our first quarter results, actions and accomplishments. Wayne will then offer a detailed review of our first quarter financial performance and current guidance, which will be followed by a question-and-answer session. Ken Goulet, Executive Vice President and President of our Commercial Business is available to participate in the Q-and-A session.

During this call we will reference certain non-GAAP measures. Our reconciliation of these non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP is available in our press release and on the investor information page of our company’s website at www.wellpoint.com.

We will also 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 this morning and in our quarterly and annual filings with the SEC.

I will now turn the call over to Angela.

Angela Braly

Thank you Michael, and good morning. WellPoint had a good first quarter of 2010.

Today we reported adjusted earnings per share of $1.95, which compares to adjusted EPS of $1.62 in the first quarter of 2009. Our adjusted net income increased by 7.8% from the prior year quarter, due primarily to improvements in the local group and state sponsored business. Our results were higher than we expected for the quarter, and benefited from the less severe flu season than predicted.

We are encouraged that our medical membership grew by 165,000 or 0.5% in the quarter, despite continued high unemployment levels, which reverses the trend of quarterly enrolment decline that has persisted since mid 2008.

We achieved very strong growth of 536,000 members or 4.6% in the national business. Our continued success in this area, reinforces WellPoint’s leading value proposition in the market place. Due to the BlueCard program, we offer access to the broadest provider network in the country, consisting more than 80% of the nations positions and nearly 95% of all hospitals.

We also have competitive unite cost, provide reliable customer service, deliver innovative consumer friendly products, and are continuing initiatives to enhance both the cost and quality of health care of our customers. We believe many of these attributes will continue to be valued in a changing market place and uniquely position WellPoint to respond to the changes forthcoming from the recently passed healthcare legislation.

Fully insured enrolment declined by 400,000 in the quarter, most of which related to our UniCare subsidiaries withdraw from the commercial markets in Texas and Illinois at the beginning of this year. While we experienced continued attrition due to the economy in our Blue-branded commercial and individual business concern in the quarter, membership grew in the federal employees program and in our senior and state sponsored businesses.

A delay in the conversion of a large municipal account self funded status caused our fully insured enrolment moment to end the quarter about 870,000 members above our plan. However this account converted on April 1, and our fully insured enrolment is now in line with our prior expectations.

Our commercial membership continues to be unfavorably impacted by high unemployment levels, although the impact is not as significant as it was at this time last year. We experienced net unfavorable in-group change of 70,000 members in our fully insured Blue-branded local group business this quarter, which compares to the 160,000 number reductions we experienced in the first quarter of 2009.

The weighted average unemployment rate in our Blue state is just over 10%, and we currently expect that it will increase slightly over the next several months before improving late in the year.

Operating revenue totaled $14.9 billion in the first quarter of 2010, a decrease of 2.8% from $15.3 billion in the first quarter of last year. This is primarily due to a year-over-year decline of 5.5% in fully-insured enrolment and the sale of the NextRx CDM.

We priced our business in an actually sound and physically responsible manner, and will continue to do so. Health insurance in a competitive, low margin business and ultimately all companies must price to cover their costs and risks.

Earlier this year, our income Blue Cross subsidiary delayed scheduled and approved premium rate increases for certain individual members in California, in order to provide the Insurance Commissioner with additional time to review the rates. Due to this delay, our individual business in California is performing below expectations this year, and it lost money in the month of March. The premiums we charge need to be sufficient to cover the underlined cost of care.

Also due to the increasing in popularity of high deductable products, which help keep premiums affordable for many individuals, rate increases in the individual market may often exceed underlying medical trends as a result of deductable leveraging. This occurs when deductibles are kept constant from year-to-year despite rising medical costs. Change in the age and mix of numbers we are serving further impacts premium rates. For these reasons we typically offer a wide verity of products and price points, to provide consumers with alternatives when the cost for their current plans rise.

In many such instances consumers elect a new plan or a different set of benefits in order to keep their premium increases lower, while preserving the security of insuring themselves against a serious medical events. This is why the effective per member premium increases for our individual business was just over 5% in the first quarter of 2010, far below the percentage increases recently sighted by certain media.

Our state sponsor business is exceeding our expectations so far this year. Reimbursement levels have increased for certain programs, and we are seen positive results from some our operational initiatives, including provider capitation arrangements in California. Our state sponsor business also benefited from the less severe flu season than we anticipated.

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