WellCare Health Plans, Inc. (WCG)

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WellCare Health Plans, Inc. (WCG)

Q4 2013 Earnings Conference Call

February 12, 2014 8:30 ET

Executives

Gregg Haddad - Vice President, Investor Relations

Dave Gallitano - Independent Chairman, Interim Chief Executive Officer

Tom Tran - Chief Financial Officer, Senior Vice President

Analysts

Tom Carroll - Stifel, Nicolaus

Kevin Fischbeck - Bank of America Merrill Lynch

Michael Baker - Raymond James

Josh Raskin - Barclays Capital

Chris Rigg - Susquehanna International Group

Peter Costa - Wells Fargo Securities

Carl McDonald - Citigroup

Chris Carter - Credit Suisse

Brian Wright - Monness, Crespi & Hardt

Scott Fidel - Deutsche Bank

Dave Styblo - Jefferies

Andy Schenker - Morgan Stanley

Ana Gupte - Leerink Partners

Presentation

Operator

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

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

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

Gregg Haddad

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

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

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

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

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

I will now turn the discussion over to Dave.

Dave Gallitano

Good morning, everyone.

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

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

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

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

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

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

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

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

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

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

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

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